Strix Group report revenue of £119.4m, an increase of 28.8%

Strix Group

Strix Group plc (LON:KETL) have today published preliminary results for the twelve months ended 31st December 2021.

Financial Summary

Adjusted results1
FY 2021FY 2020FY 2019Change (21 – 20)Change (21 – 19)
£m£m£m%5%5
Revenue119.495.396.9+25.3%+23.2%
Revenue – constant currency basis2122.795.396.9+28.8%+26.6%
Gross profit47.439.439.6+20.3%+19.7%
EBITDA340.538.136.9+6.3%+9.8%
Operating profit33.732.131.5+5.0%+7.0%
Profit before tax32.230.930.2+4.2%+6.6%
Profit after tax31.429.528.9+6.4%+8.7%
Net debt451.237.226.3+37.6%+94.7%
Net cash generated from operating activities22.331.234.4-28.5%-35.2%
Basic earnings per share (pence)15.214.915.2+2.0%+0.0%
Diluted earnings per share (pence)14.914.314.1+4.2%+5.7%
Total dividend per share (pence)8.357.857.70+6.4%+8.4%

1.        Adjusted results exclude exceptional items, which include share based payment transactions, COVID-19 related costs, and  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.        Revenue – constant currency basis, which is defined as 2021 revenue restated at the exchange rates prevailing in 2020, is a non-GAAP metric used by management and is not an IFRS disclosure.

3.        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.

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 and providing post-combination services. Net debt including earn-out provisions was £58.6m.

5.        Figures are calculated from the full numbers as presented in the consolidated financial statements.

Financial Highlights

•            The Group reported revenue of £119.4m, an increase of 28.8% on a constant currency basis versus the same period in prior year and an increase of 26.6% on a constant currency basis versus the same period in 2019. This was driven by both organic growth and the acquisition of LAICA which has delivered strong revenue growth over the period.
•            Adjusted EBITDA increased to £40.5m (2020: £38.1m), representing a 6.3% increase compared to the same period last year and an increase of 9.8% versus the comparable period in 2019. Adjusted EBITDA margin was 33.9% (2020: 40.0%) and adjusted gross profit margin was 39.7% (2020: 41.4%), as a result of of factors including the impact of a number of headwinds which continue to persist including increases in commodity prices, freight cost inflation, supply chain and adverse foreign exchange rates.
•            Net debt (excluding the impact of IFRS 16 lease liabilities) increased to £51.2m (2020: £37.2m) to fund the LAICA acquisition, continued investment in compelling growth opportunities as well as  new manufacturing operations in China. This represents a net debt/adjusted EBITDA ratio (calculated on a trailing twelve month basis) of 1.3x.
• Strong free cash flow generation with unique working capital cycle. Operating free cash flow (before financing and tax and exceptional factory capex) to EBITDA conversion of 70%.
• 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 15.2p (2020: 14.9p) and 14.9p (2020: 14.3p) respectively.
•            The Board is proposing an increased final dividend of 5.60p per share (2020: 5.25p) which would represent a total dividend of 8.35p per share (2020: 7.85p).

  Strategic Highlights

•    Remain on track to deliver medium-term targets to double the Group’s revenues primarily through growth in its water and appliances categories.
Expanded share of the global kettle controls market further 1% to 56% by value.
Acquisiton of LAICA continues to be successfully integrated in line with plan to achieve the identified benefits and the trading performance has been strong over the period.
New manufacturing operations within Zengcheng district in Guangzhou, China are now fully operatonal and were delivered on time, to budget and executed during a global pandemic.
Launches of Aurora and Dual Flo as key extensions of Strix domestic appliance category, both with strong energy saving and sustainability benefits.
Excellent recent progress made in Strix’s water category in Asia-Pacific, Europe and North America through new distribution and private label contracts with reputable distributors, retailers and brands in those regions.

 Operational Highlights

•        Production efficiency of core kettle products improved with 73% of all assembly lines now fully automated.
•        Launching of sustainability report and “Sustainable. Innovative. Dependable.” strategy.
•            Industry leading and ambitious decarbonisation target – scope 1 & 2 net zero by 2023 demonstrates commitment to sustainability agenda.
•            New Strix.com website launched demonstrating the Company’s vision of the future.
•            Successfully upgraded to SAP to improve real time data and streamline internal processes.

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

“Strix has a robust business model and disciplined execution of our strategies have underpinned the resilience of our performance throughout economic cycles, so we remain confident in our ability to navigate the growing uncertainties ahead and delivering on the medium-term strategic plan and delivering against its targets.”

CEO’s report: 

Introduction

In 2021 we have delivered a solid trading performance which has strengthened the Group’s position across its 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.

The Group has expanded its market leading value share of the global kettle controls market whilst significantly expanding the size of its water category through both organic growth and the strategically compelling acquisition of LAICA which has delivered strong revenue growth over the period.

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 revenue of £119.4m, an increase of 28.8% on a constant currency basis, versus the same period in prior year and an increase of 26.6% on a constant currency basis, versus the same period in 2019. This was driven by both organic growth and the acquisition of LAICA which has delivered strong revenue growth over the period.

Adjusted EBITDA increased to £40.5m (2020: £38.1m), representing a 6.3% increase compared to the same period in prior year and an increase of 9.8% versus the same period in 2019. Adjusted EBITDA margin was 33.9% (2020: 40.0%) and adjusted gross profit margin was 39.7% (2020: 41.4%), as a result of LAICA’s inclusion alongside a number of factors including the impact of a number of headwinds which continue to persist including increases in commodity prices, freight cost inflation, supply chain and adverse foreign exchange rates.

Strix has a highly cash generative model which incorporates a high ROCE and a high proportion of cash in advance payment terms limits risk of non-payment and working capital fluctuations.

Net debt (excluding the impact of IFRS 16 lease liabilities) increased to £51.2m (2020: £37.2m) to fund the LAICA acquisition, continued investment in compelling growth opportunities as well as the new manufacturing operations in China. This represents a net debt/adjusted EBITDA ratio (calculated on a trailing twelve month basis) of 1.3x compared to 1.1x at the interim stage.

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 new product development and compelling acquisition opportunities that supports the medium-term growth ambition of the Group.

Given the Group’s performance and confidence in the continued strength of its cash generation, the Board is pleased to propose an increased final dividend of 5.60p per share (2020: 5.25p) which would represent a total dividend of 8.35p per share (2020: 7.85p).

Kettle control category

Overall, the kettle control category reported significant growth in revenue of 6.6% to £85.1m in 2021.

The market has continued to experience strong demand in 2021. Throughout this period, Strix has  grown its market leading position further to 56% of the global kettle controls market by value and is continuing to expand both geographically and in the number of specifications using its latest platform ranges.

The first half of 2021 saw the Regulated segment grow with a strong contribution from the UK, Mainland Europe and North America. Less regulated segments also grew in a strong first half.  The Chinese market experienced some weakness during 2020, but this began to show a marked recovery in 2021 and Strix remains the leading supplier of controls in that market. However, the second half of 2021 had significant headwinds impacting demand for the full year with the total market showing a decline in value but still good growth in volume in line with the market forecast of 3%.

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

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Following the successful launch of the U9 Series during 2017, the Group has successfully produced over 70 million controls to date. The Group continues to develop this series with new variants launched to target the smaller size and split switch kettle appliances to further enhance the portfolio of best-in-class controls.

Continuous improvement initiatives in our manufacturing, measurement and testing processes are a key focus to enhance product performance to help our customers improve their sustainability ambitions, product quality and reduce costs. Production efficiency of core kettle products improved with 73% of all assembly lines now fully automated.

New product development

New product development remains a fundamental driver in the Group’s core business strategy, with specific focus on the identification of cross category opportunities. The Group has made significant headway having delivered on the targets outlined in the product development roadmap with the launch of multiple new products. The Group has also re-focused its commercialisation strategy, optimising cross category synergies within both our higher value appliance and water categories.

Throughout 2021, in line with its medium-term growth ambitions, Strix has multiple new product launches. The Group will continue to focus its highly skilled engineering resource towards enhancing our core technologies and innovating into new commercial markets in a sustainable manner.

Appliance category

Overall, the appliance category reported a significant growth in revenue of 244.2% to £12.9m in 2021.

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.

In October 2021 the Company announced the launches of Aurora and Dual Flo as key extensions of Strix domestic appliance category, both with strong energy saving and sustainability benefits. Strix’s mission within the Appliance category is to develop products that allow consumers to live a safer, more convenient, and sustainable life at home.

Aurora is powered by Strix’s Instant Flow Heater technology, delivering auto-dispensed hot, boiled, and chilled filtered water at the touch of a button. The Aurora Hot was launched in Q4 2021 and is now listed and selling well on Amazon, while the Aurora Chilled is on track to be in the market in the second quarter of 2022. Aurora products have numerous environmental and energy saving advantages. The Aurora has recently been awarded the Quiet Mark award which is an industry accreditation aimed at encouraging companies worldwide to prioritise noise reduction within product design. Strix recently organised a virtual press event for the Aurora product to demonstrate the product and the consumer insights behind it and raise retail awareness of Strix’s recent new product development activity. 

The Visione induction kettle launched in December with a focussed marketing campaign planned to increase awareness and sales this year. It has also recently been awarded both the German Design Award 2022 and the reddot design award, two prestigious awards in the industry.

Water category

Overall, the water category reported a significant growth in revenue of 82.3% to £21.4m in 2021 with the combined contribution of LAICA and HaloPure technology and has continued to develop its product base and progressed towards our category growth aspirations.

LAICA has a considerable global presence, an established product range and an advanced new product roadmap. The acquisition continues to be successfully integrated in line with plan to achieve the identified benefits and the trading performance has been strong over the period. It is already providing some strategic consolidation opportunities in the water treatment range, driving efficiencies and a comprehensive portfolio of products for the Group globally.

The HaloPure technology also continues to gain wider recognition by the market and has now secured 14 contracts, which demonstrates the continued focus on commercialising this important product.

Strix previously highlighted that it had secured contracts at a regional government owned livestock company in China and more recently the preliminary result from new product development shows a significant breakthrough to apply the HaloPure technology onto smaller size of livestock farms which will enlarge the target addressable market. The prototype is currently undergoing the field testing phase.

Excellent recent progress has been made in Strix’s water category in the Asia-Pacific (“APAC”), Europe and the North America through new distribution and private label contracts with reputable distributors, retailers and brands in those regions.  

In South-East Asia, Strix recently entered into a significant distribution agreement with a global consumer electronics manufacturer, under which its water filtration technology and products will be introduced to local Asian markets in Q2 2022.

In Europe, Strix has secured the supply of its water filtration technology and products to one of Europe’s largest consumer electronics retailers. Strix has also appointed a new distributor for Denmark who will take a range of Aqua Optima jugs and filters.  

Additionally, new retail listings for the Aqua Optima range have also been won across the UK and Ireland growing the brand’s presence across the region with more than 200 additional store listings across well-known high street and independent retailers. Strix now also has a presence in the hardware and garden centre market in the UK with listings of its Aqua Optima jugs and filters.

In the US, the Company has recently appointed an additional distributor for the North American region. The distributor has an excellent track record in supplying major consumer electronics brands.

Operations review

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

Additionally, in light of the recent lockdowns in China, Strix is holding finished stock in different districts in order to minimise any disruption and continues to take proactive measures above the governmental regulations being implemented globally.

Barriers to entry and defence 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 our 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 continue to prompt regulatory enforcement authorities to remove unsafe and poor quality products from our 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 our business and there have now been 66 in total since 2017.

Sustainability

In 2020, the Group reassessed its approach to sustainability with a view of integrating a sustainability strategy within core business activities aligning ourselves with the UN’s Sustainable Development Goals (SDGs). Today, Strix is launching its sustainability report and its “Sustainable. Innovative. Dependable.” strategy.

An internal management and reporting structure has been put in place to ensure inclusion, responsibility and accountability from the shop floor to the boardroom. Strix has developed metrics of sustainability measures which have been standardised and are being rolled out across the organisation.  The Group’s latest and highly ambitious step sees the externalisation of our sustainability KPIs as set out in the sustainability report available via this link: https://www.strixplc.com/sustainability.html. Measuring, committing and reporting on progress will ensure that these factors will be a key driving force in the direction of the business. 

Strix has focused on climate change and carbon emissions as a key KPI for 2022. Our Scope 1&2 emissions emanate primarily from our manufacturing plants, especially the new facility in China which has been commissioned. Strix has set an ambitious target for net zero Scope 1&2 emissions by 2023. The Group believes this to be ‘best-in-class’ and far in excess of the Paris 1.5°C scenario requirements.

In addition, our goal is to achieve over 95% of this through reduction of our own emissions with less than 5% from carbon offsets. To achieve this ambitious target, the Group has invested over £0.6m into a solar array at our new Chinese manufacturing site which will provide over 10% of the required electricity with the remainder due to be switched to renewable electricity in 2022.

Diversity is important to Strix as a business and 60% of the work force is female, 40% at the C-suite level and 27% at the senior management level. The target is to further embed diversity thinking throughout the organisation and work to promote gender diversity of the Group’s senior management.

LAICA is also targeting a combination of solar and renewable electricity although with the integration currently at the fore this is expected to be implemented through 2022. Strix are also developing a range of programmes to reduce our emissions, for instance China and now the Isle of Man has started to move to electric cars. The Isle of Man will take the lead on alternative offsetting of our ‘hard to remove’ emissions using the SBTi mitigation hierarchy.

Our other sustainability KPIs are taken from key operating practices already embedded into our culture. Promotion of the sustainability agenda and KPIs is generating renewed emphasis on these activities. This has included additional planning and pathways to improvement and, where applicable, setting of ambitious future targets. Strix expects to enunciate further on these plans in the coming year. These KPIs are important but the Group also remains committed to other areas of our sustainability agenda. This is highlighted in our community engagement where we have an aspiration to increase volunteer hours by 10% a year.

The next few years will see significant planning and project execution as Strix looks to advance the KPIs and set ever ambitious goals but this is a critical aspect of Strix’s vision to establishing a world leading innovative and sustainable technology business.

Dividend policy

Given the Group’s performance and confidence in the continued strength of its cash generation the Board proposes an increase in the final dividend to 5.60p per share (2020: 5.25p) which would represent a total dividend of 8.35p per share (2020: 7.85p). The Board reiterates its intention to implement a progressive dividend policy that is linked to underlying earnings.

The final dividend will be paid on 10 June 2022 to shareholders on the register at 13 May 2022 and the shares will trade ex-dividend from 12 May 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 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.

Outlook

The Group reported revenue increase of 28.8% on a constant currency basis, versus the same period in prior year and an increase of 26.6% on a constant currency basis, versus the same period in 2019. This was driven by both organic growth and the acquisition of LAICA which has delivered strong revenue growth over the period.

Strix has successfully implemented price increases on some of its legacy products in both kettle controls and water categories and will also be implementing further increases across the wider range with effect from 1 May 2022, which alongside a range of other efficiency measures and foreign exchange rate and commodity hedging arrangements will help to minimise the impact of any cost inflation.

Notwithstanding the positive demand backdrop, there are a number of headwinds which continue to persist including increases in commodity prices, freight cost inflation, supply chain and adverse foreign exchange rates which implies the Group will continue to face a challenging operating environment.

The Group also has 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.

Strix has a robust business model and disciplined execution of our strategies have underpinned the resilience of performance throughout economic cycles, so remains confident in its ability to navigate the growing uncertainties ahead and remain confident of delivering on the medium-term strategic plan and delivering against its targets.

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