Strix Regulatory News (KETL)

The information contained within this announcement is deemed to constitute inside information for the purposes of article 7 of the Market Abuse Regulation (EU) no. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

5 October 2022

Strix Group plc

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

Conditional acquisition of Billi for c.£38 million

Strix Group Plc (AIM: KETL), the AIM quoted global leader in the design, manufacture and supply of kettle safety controls and other complementary water temperature management components, is pleased to announce that it has entered into conditional agreements to acquire the entire issued share capitals of each of (i) Billi Australia Pty Ltd ("Billi Australia") and Billi New Zealand Ltd ("Billi NZ") and (ii) Billi UK Ltd ("Billi UK", together with Billi Australia and Billi NZ, "Billi") (the "Acquisition"), for an aggregate cash consideration of approximately £38m, payable on completion, on a debt and cash free basis, subject to customary closing adjustments.

The consideration for the Acquisition will be funded through a new term loan and Strix is undertaking an equity placing to maintain an appropriate level of leverage post the Acquisition. The placing is being conducted through an accelerated bookbuilding process which will be launched immediately following release of this announcement.

Highlights

· c.£38 million acquisition of Billi, a leading Australian brand supplying premium filtered and non-filtered instant boiling, chilled and sparkling water systems

· Expecting net debt as at 31 December 2022 to be approximately 1.9x Strix's 2022 pro forma adjusted EBITDA, with strong deleveraging thereafter to c.1.4x by end of 2023

· In the 12 months ending 31 December 2022, Billi is expected to generate revenue of c.£43.7m and adjusted EBITDA of c.£10.2m

· Billi has a successful history of growth, with double digit revenue CAGR over the past 5 years and is highly cash generative, delivering cash conversion of c.88%

· The Acquisition materially accelerates the trajectory of and is accretive to Strix's medium term targets with these targets now expected to be reached ahead of the initial 2025 timeframe

Strategic rationale

· Materially changes the earnings profile of the Group, accelerating growth plans for the Water & Appliance categories and supporting the Group's medium term ambition

· The Board expects the Acquisition to be mid single digit earnings accretive in the first full year of ownership and c.10% accretive in the second, in advance of any synergies1

· Billi is benefitting from structural market and ESG tailwinds including increasing focus on water filtration, a reduction in single use plastics and a focus on energy consumption from heating water which is aligned with Strix's sustainability goals

· Adds well developed and premium products in the high growth and strategically important hot tap market and increases Strix's position and portfolio of water dispenser systems

· The Board expects Strix's existing technology and expertise can be used to enhance Billi's NPD roadmap

· Opportunity for further organic growth driven by increased residential sales, new product development particularly in sparkling, internationalising Billi's revenue stream through Strix's global footprint, cross selling Strix products into commercial applications and growing aftermarket sales

· Identified efficiencies across Billi's product lifecycle through utilising Strix's Chinese operation to improve procurement, using Strix filters in Billi products, consolidating the marketing group and rationalising the store estate

Details of the Acquisition and Financial Information on Billi

· Conditional acquisition of Billi Australia by Strix Australia Pty Ltd ("Strix Australia") and Billi NZ by Strix (U.K.) Limited ("Strix UK") on a debt free, cash free basis, subject to customary closing adjustments. Strix Australia and Strix UK are entities ultimately owned by Strix

· Conditional acquisition of Billi UK by Strix UK for a fixed cash consideration

· The aggregate consideration for Billi Austrialia, Billi NZ and Billi UK is approximately £38m (AUD $65m) and is due in full in cash on completion

· The Acquisition is conditional upon: (a) completion of the Waterlogic / Culligan merger; and (b) approvals of the Australian Competition and Consumer Commission, the UK Competition and Markets Authority and the New Zealand Commerce Commission

· The agreements entered into in respect of the Acquisition contain certain warranties and indemnities given by each of the parties, which are customary for a transaction of this nature

· The parties intend to put in place certain transitional services provisions for an agreed period post completion of the Acquisition

· Key management of Billi will remain in place and participate in the Strix Group Long Term Incentive Plan

· In the 12 months ended 31 December 2021, on a consolidated basis, Billi Australia and Billi NZ generated adjusted revenue of c.£33.1m and adjusted EBITDA of c.£6.9m. During this period Billi UK was part of Waterlogic Group ("Waterlogic") and did not report its financials separately

· In the 12 months ending 31 December 2022, Billi, including Billi UK, is expected to generate revenue of c.£43.7m and EBITDA of c.£10.2m

· Acquiring Billi from Culligan International after the completion of its combination with Waterlogic; the divestment of Billi is a condition to completion of the Waterlogic / Culligan merger announced in December 2021, with timetable dictated by that process

· Completion of the Acquisition is expected before year end, subject to regulatory approvals

Debt Refinance

In conjunction with the Acquisition, the Group announces a debt refinancing with new facilities consisting of:

· A refinance of the current £80 million revolving credit facility with a new tenor of 3 years plus two 1 year extension options; and

· A new £49 million amortising term loan with a tenor of 3 years.

The interest rate on both facilities is calculated as the sum of the margin (made by reference to a sliding scale dependent on net leverage) and SONIA. The margin rates that Strix will be paying will not be materially different to those on its existing revolving credit facility.

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

"We are delighted to enter this agreement to acquire Billi, a leading multifunctional taps manufacturer and distributor. Billi accelerates our strategy within our Water and Appliances categories which is core to Strix's five year plan. We look forward to welcoming the Billi team to the Strix Group and working together to grow our combined businesses."

1Accretion figures are calculated based on market consensus as at 4th October 2022, based on analyst notes released after the publication of the interim results on 21st September 2022

Note: all figures are calculated using an AUD:GBP exchange rate of 0.58

Market Abuse Regulation (EU) NO. 596/2014

This announcement contains inside information. The person responsible for arranging the release of this announcement on behalf of the Company is Mark Bartlett.

Information on Strix

Isle of Man based Strix, is a global leader in the design, manufacture and supply of kettle safety controls and other components and devices involving water heating and temperature control, steam management and water filtration.

Strix's core product range comprises a variety of safety controls for small domestic appliances, primarily kettles. Kettle safety controls require precision engineering and intricate knowledge of material properties in order to repeatedly function correctly. Strix has built up market leading capability and know-how in this field since being founded in 1982.

Strix is admitted to trading on the AIM Market of the London Stock Exchange (AIM: KETL). 

Information on Billi

Established in 1989 and headquartered in Melbourne, with distribution channels located across Australia, and internationally in New Zealand, UK, Hong Kong, Singapore and China, Billi is renowned for its premium filtered and temperature-controlled water systems and manufacturing innovation. Billi is led by a highly experienced management team with over 50 years of expertise in leadership positions.

Products are marketed under two distinct ranges - 'Billi for Work' (commercial) and 'Billi for Home' (residential), both sets of products are fitted with industry leading features such as water-cooled technology and space saving features. The core product range is supported by consumable offerings (filters, CO2 cannisters, spare parts) and service (plans and reactive). The Billi products are first choice for architects and designers for specifications of products with an ESG focus, due to Billi's strong ESG credentials. Billi was certified by Global Greentag, the WELL building institute and Green Gas and has positioned itself at the forefront of ESG in the premium filtered water systems category.

Billi operates in the high growth and strategically important hot tap and water filtration markets. Businesses and consumers are increasingly becoming health and environmentally conscious and so Billi has benefitted from the shift away from bottled beverage consumption and the perception of filtered water systems being seen as a must-have product in the home and office. As a result, Billi has seen a c.6% CAGR growth in its commercial channel and c.30% CAGR growth in its residential channel.

Billi has a total of 216 employees.

Cautionary statements

Certain statements in this Announcement are forward-looking statements, which include all statements other than statements of historical fact and which are based on the Company's expectations, intentions and projections regarding the Company's future financial condition, performance, anticipated events, strategic initiatives, or trends, the future performance of the Company resulting from the Acquisition and other matters that are not historical facts. These forward-looking statements, which may use words such as "aim", "anticipate", "believe", "could", "intend", "estimate", "expect" (or the negatives thereof) and words of similar meaning. These forward-looking statements are not guarantees of future performance and involve known and unknown risks, assumptions, uncertainties and other factors that could cause the actual results of operations, financial condition, performance, liquidity and dividend policy and the development of the industries in which the Company's and Billi's businesses operate to differ materially from those expressed or implied by the forward-looking statements. Undue reliance should not be placed on such forward-looking statements. In particular, but without prejudice to the generality of the above, no representation or warranty is given, and no responsibility or liability is accepted, either as to the achievement or reasonableness of any future projections, forecasts, estimates or statements as to any prospects or future returns contained or referred to in this Announcement or in relation to the basis or assumptions underlying such projections or forecasts. Forward-looking statements speak only as of the date of such statements. Except as required by applicable law, the Company, Stifel, Zeus and their respective affiliates undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Results can be positively or negatively affected by market conditions beyond the control of the Company or any other person. No statement in this announcement is intended to be a profit forecast.

Stifel Nicolaus Europe Limited ("Stifel") and Zeus Capital Limited ("Zeus"), each of which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, are acting exclusively for the Company and for no one else in connection with the Acquisition and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Acquisition or any other matter referred to in this announcement, and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients nor for providing advice in relation to the Acquisition, or any other matter referred to in this announcement. The responsibilities of Zeus as the Company's nominated adviser under the AIM Rules for Companies and the AIM Rules for Nominated Advisers are owed solely to the London Stock Exchange and are not owed to the Company or any director, shareholder or any other person.