Strix Regulatory News (KETL)

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

21 September 2022

Strix Group Plc

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

Interim results for the six months ended 30 June 2022

Despite the challenging macroeconomic and geopolitical environment, the Company has

 delivered a robust performance across its three product categories and made progress towards medium-term targets

Financial Summary

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

Strategic Highlights

Operational Highlights

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."

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 Raudres Wong, CFO.

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 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 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.

Chief financial officer's review

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.

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. Refer to notes 2, 8 and 9 of the consolidated financial statements.

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 performance

Revenues decreased by 7.3% to £50.7m (H1 2021 £54.7m), mainly due to a drop in sales within our kettle controls category. As stated previously in our pre-close trading update released in July, revenues have been adversely impacted by the ongoing conflict in Ukraine, resulting in a decrease of c.£4.6m (11.7% decrease) for kettle controls. Despite the drop in overall sales, the water category showed an improvement from same period last year reflecting the success of our performance from online market place launches as Strix continues to expand its online presence. The appliances category also saw a slight increase in revenues compared to the prior comparative period as we started to show promising signs of consumer market penetration for our Aurora and Dual Flo product ranges. Revenue increased by 46.1% above H1 2020 levels.

Adjusted gross profit decreased by 4.9% to £19.5m (H1 2021: £20.5m), in most part due to the impact of revenues for kettle controls falling as described above, resulting in a 10.3% decrease from H1 2021. The decrease was slightly offset by increases for both the water and appliances categories of £0.1m (3.1% increase) and £0.7m (53.3% increase) respectively, reflective of the increases in sales in these categories as described above. Reported gross profits increased by 4.4% to £19.0m (H1 2021: £18.2m).

Adjusted gross profit margin in H1 2022 was 38.5% (H1 2021: 37.5%), showing a margin improvement of 1.0% compared to the same period last year. This improvement in margins 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, efficiencies realised from automation of production lines, the use of lean production processes and in-sourcing, and prices increases implemented in the later part of the first half of this year across our full kettle controls range and the water category which partially covered off any cost increases in direct labour wage costs, commodity and inward freight costs.

Adjusted EBITDA was £15.9m (H1 2021: £17.4m), showing a decrease of 8.6% compared to the same period last year. The decrease is directly attributable to the decrease in revenues as described above. Adjusted EBITDA is defined as profit before depreciation, amortisation, finance costs, finance income, taxation, and exceptional items including share based payments. Reported EBITDA decreased by 3.9% to £12.2m (H1 2021: £12.7m).

Adjusted EBITDA margin in H1 2022 was 31.4% (H1 2021: 31.8%), representing a small dilution of 0.4%.

Offsetting the improvement in adjusted gross profit margins described above were various factors which then contributed to the dilution of adjusted EBITDA margins. These include, amongst others, investment in resources bench strength in the commercial area to meet medium-term targets, higher advertising and promotional costs as the Group continued to further promote water and appliances products in the market, and the optimisation of our supply chains in order to improve on commercial performance and deliver on customer value.

Adjusted operating profits decreased by 7.2% to £12.9m (H1 2021: £13.9m), showing a decrease of £1.0m, attributable mainly to the drop in revenues. Reported operating profits remained static at £9.1m (H1 2021: £9.1m) after deducting exceptional costs of £3.8m (H1 2021: £4.8m) which decreased mainly due to reasons described in the "Costs" section further below. Excluding the impact of the change in accounting estimates described in the paragraph below, adjusted operating profits in H1 2022 were £12.0m (H1 2021: £13.9m).

Adjusted operating profit margins remained unchanged comparing to the same period last year, sitting at 25.4% (H1 2021: 25.4%). Partial reasoning for a static adjusted operating profit margin position is due to accounting estimates changes made during the period relating to the reassessment of the useful lives of certain production and other assets which resulted in lower depreciation charges of £0.9m being recognised in the current period compared to the same period last year. Refer to notes 2, 8 and 9 of the consolidated financial statements below for full disclosures of the change in accounting estimates.

Adjusted profit before tax was £11.6m (H1 2021: £13.2m), a decrease of £1.6m (12.1% decrease) from the same period last year. Incremental finance costs of £0.6m were recognised due to an increase in the net debt (H1 2022: £1.3m; H1 2021: £0.7m). Reported profit before tax was £7.9m (H1 2021: £8.5m).

Adjusted profit after tax was £11.6m (H1 2021: £12.3m), a decrease of £0.7m (5.7% decrease). The tax expense decreased in the current year mainly due to certain tax incentive credits granted in Italy during the current period, and continued adoption of certain tax measures in China with the move of operations to the new factory last year. Reported profit after tax was £7.8m (H1 2021: £7.6m). The effective tax rate on adjusted profit before tax in FY 2021 was 0.04% (H1 2021: 6.8%%). Excluding the impact of the change in accounting estimates described above, adjusted profit after tax in H1 2022 was £10.7m (H1 2021: £12.3m).

Costs

Costs in the current period decreased overall compared to the same period last year period in line with the decrease in revenues.

Cost of sales (excluding exceptional costs) decreased to £31.2m (H1 2021: £34.2m), directly attributable to the decrease in revenues, however with an incremental (positive) effect on gross margins mainly due to the impact of foreign currency exchange movements, price increases implemented on our products in the current period, market share gains in our appliances category, and efficiencies realised from use of automation, lean production processes and in-sourcing.

Distributions costs increased to £4.5m (H1 2020: £3.9m) mainly due to higher outward carriage and freight costs, higher payroll costs for sales and marketing staff, and increased advertising and promotional costs as we continue our drive to expand our reach in the market for our water and appliance products.

Administration costs (excluding exceptional costs) were £2.7m (H1 2021: £3.0m). Savings were realised as management implemented various cost saving and restructuring initiatives.

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 material factory-related exceptional costs incurred in the current 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.

Cash flow

Net cash generated from operating activities decreased to £9.9m (H1 2021: £13.5m) mainly due to movements in net working capital, which showed an outflow of £4.2m in H1 2022 compared to an outflow of £0.4m in H1 2021. The decrease in cash flows from net working capital were mainly due to increases in stocks held at period-end as a result of increased finished stocks holding to minimize potential supply chain disruption along with slower demand than anticipated in the first half, however diligent measures were put in place to optimise our supply chains, manufacturing and in-sourcing in the second half of the year to match our sales planning and forecasting. Concerted efforts were exercised to collect c.£4.0m VAT outstanding from the FY 2021 year-end to help to counter the adverse effects from stocks holdings.

Cash outflows for investing activities have decreased by £3.8m from the same period last year as capital expenditure incurred in H1 2021 associated with the construction and completion of the new factory did not recur. 

Cash flows for financing activities increased compared to the prior comparative period, mainly driven by higher finance costs of £1.7m (H1 2021: £0.3m) paid in line with an increase in the net debt.

Balance Sheet

Property, plant and equipment decreased slightly to £42.4m (FY 2021: £42.8m), a net decrease of £0.4m. This net decrease was as a result of additions of £2.1m mainly of plant and machinery and production tooling as the Group further enhances its production lines to gain efficiencies and in-sourcing capabilities, partially offset by depreciation charges of £2.0m and write-off of assets (mainly right of use assets) of circa £0.5m due to streamlining of offices overseas.

Intangible assets increased to £31.9m (FY 2021: £30.5m) reflecting a net increase of £1.4m. The net increase is due to additions of circa £1.9m, the majority of which are capitalised development costs from new product development projects of circa £1.6m. The total amortisation charge was £1.1m (H1 2021: £1.0m), and foreign currency movements of £0.6m were recognised on translation of intangible assets recognised on acquisition of LAICA which are dominated in Euro.

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 in inventory levels by £4.2m as a result of increased holding to minimize potential supply chain disruption in China and slower demand than planned. 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.

Non-current liabilities (including short-term portions) increased to £92.5m (FY 2021: £85.0m), an increase of £7.6m, which is mainly driven by the further drawdowns in the period from the revolving credit facility to fund net working capital, capital expenditure and the employment earn-out payments made at the beginning of the year to the vendor shareholders of LAICA.

Net debt

The Group's net debt position, excluding earn-out provisions, as at 30 June 2022 increased to £61.3m (FY 2021: £51.2m). 

Total committed debt facilities at 30 June 2022 amounted to £79.5m, giving a liquidity pool of £18.7m. Net debt equated to 1.6 times trailing twelve months' EBITDA, which compares favourably to our debt covenant of 2.50 times. This continues to underpin the Group's strong cash generation ability. 

Dividend

The Board declares an interim dividend to 2.75p per share (H1 2021: 2.75p) to reiterate our intention to continue with a progressive dividend policy linked to underlying earnings, highlighting our confidence in the continued strength of cash generation.

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.

Condensed INTERIM consolidated statement of comprehensive income

for the period ended 30 June 2022 (unaudited)

1. Adjusted EBITDA, which is defined as profit before finance costs, tax, royalty charges, depreciation, amortisation and exceptional items, is a non-GAAP metric used by management and is not an IFRS disclosure.

Condensed INTERIM consolidated balance sheet

as at 30 June 2022 (unaudited)

Condensed INTERIM consolidated statement of changes in equity

as at 30 June 2022 (unaudited)

Condensed INTERIM consolidated cash flow statement

for the PERIOD ended 30 June 2022 (unaudited)

Notes to the condensed INTERIM cONSOLIDATED financial statements

for the PERIOD ended 30 June 2022 (unaudited)

1. General information

Strix Group Plc ('the Company') is incorporated and registered in the Isle of Man as a company limited by shares under the Isle of Man Companies Act 2006 with the registered number 014963V. The address of the Company's registered office is Forrest House, Ronaldsway, Isle of Man, IM9 2RG.

The Company's shares trade on AIM, a market operated by the London Stock Exchange.

The principal activities of Strix Group Plc and its subsidiaries (together 'the Group') are 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.

These condensed interim consolidated financial statements ('interim financial statements') were approved for issue on 20 September 2022. The interim report will be available 21 September 2022 on the Group's website www.strixplc.com and from the registered office. These interim financial statements are unaudited.

2. Principle accounting policies

The Group's principle accounting policies, all of which have been applied consistently to all of the periods presented, are set out below.

Basis of preparation

The Group's annual financial statements are prepared in accordance with International Financial Reporting Standards ('IFRS') and International Financial Reporting Standards Interpretation Committee ('IFRS IC') as adopted by the European Union.

These interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting". They do not include all the information required for a complete set of financial statements prepared in accordance with International Financial Reporting Standards as adopted by the European Union. However, explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and its financial performance compared with the comparative periods ended 31 December 2021 and 30 June 2021 respectively. These interim financial statements should be read in conjunction with the last annual consolidated financial statements as at 31 December 2021 and the comparative interim results for the period ended 30 June 2021.

The preparation of Group financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the interim financial statements, are disclosed in note 3.

Accounting policies

The interim financial statements have been prepared in accordance with the accounting policies set out in the Group's Annual Report and Accounts for the year ended 31 December 2021, which is available at www.strixplc.com.

Basis of consolidation

The interim financial statements comprise the financial statements of the Company and all of its subsidiary undertakings. Subsidiaries are fully consolidated from the date on which control commences and are deconsolidated from the date that control ceases. The financial statements of all Group companies are adjusted, where necessary, to ensure the use of consistent accounting policies.

Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group is exposed to or has the rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

Transactions eliminated on consolidation

Intra-group balances and any gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the interim financial statements.

Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date with the assets and liabilities of a subsidiary being measured at their fair values. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. The Group measures goodwill at the acquisition date as:

Transaction costs that the Group incurs in connection with a business combination are expensed as incurred.

The Group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest's proportionate share of the acquired entity's net identifiable assets.

Standards, amendments and interpretations which are not effective or early adopted:

At the date of approval of the interim financial statements, there are no new standards and interpretations which are relevant to the Group which were in issue but not yet effective.

Going concern

These interim financial statements have been prepared on the going concern basis.

The Directors have made enquiries to assess the appropriateness of continuing to adopt the going concern basis.

In making this assessment they have considered:

Based on these considerations, the Directors have concluded that there is a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. The key entities in the Group have traded profitably for a long period of time. As a result, the Directors continue to adopt the going concern basis of accounting in preparing the interim financial statements and there are no material uncertainties about the Group's ability to continue as a going concern.

As a Company, the dividend-paying entity, Strix Group Plc, has sufficient reserves from which to make distributions to shareholders.

EBITDA and adjusted EBITDA - non-GAAP performance measures

Earnings before interest, taxation, depreciation and amortisation ('EBITDA') and adjusted EBITDA are non-GAAP measures used by management to assess the operating performance of the Group. EBITDA is defined as profit before finance costs, finance income, taxation, depreciation and amortisation. Exceptional items are excluded from EBITDA to calculate adjusted EBITDA.

The Directors primarily use the adjusted EBITDA measure when making decisions about the Group's activities. As these are non-GAAP measures, EBITDA and adjusted EBITDA measures used by other entities may not be calculated in the same way and hence are not directly comparable.

Seasonality of operations

The Group's revenue and profit after tax is subject to a degree of seasonality due primarily to the occurrence of the Chinese New Year public holiday during the first half of the year ('H1'), when the Group's major customers and suppliers based in China cease operations for a period. In the financial year ended 31 December 2021, 46% (FY 2020: 36%) of the Group's revenue and 37% (FY 2020: 30%) of the Group's profit after tax accumulated in H1.

Foreign currency translation

Functional and presentational currency

Items included in the financial information of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The interim financial statements are presented in Sterling, which is Strix Group Plc's functional and presentation currency.

Transactions and balances

Foreign currency balances are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the condensed interim consolidated statement of comprehensive income within cost of sales.

Group companies

The results and financial position of foreign operations that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

Leases

Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.

The leasing activities of the Group and how these are accounted for

The Group leases office space, workshops, warehouses and factory space. Rental contracts are typically made for periods of 3 - 10 years, but may have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.

Leases are recognised as a right-of-use assets and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability, finance costs and foreign exchange (where the lease is denominated in a foreign currency). The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

Measurement of future lease liabilities

Assets and liabilities arising from a lease are initially measured on a present value basis. Future lease liabilities include the net present value of the following lease payments:

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.

Measurement of right-of-use assets

Right-of-use assets are measured at cost comprising the following:

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise primarily IT equipment.

Extension and termination options

Extension and termination options are included in a number of property leases across the Group. These terms are used to maximise operational flexibility in terms of managing contracts.

Property, plant and equipment

Initial recognition and measurement

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. When parts of an item of property, plant and equipment have different useful lives, the components are accounted for as separate items.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying value of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred.

Subsequent measurement

Depreciation is calculated using the straight-line method to allocate the cost of the assets, net of any residual values, over their estimated useful lives.

At the beginning of the year, Management reassessed the accounting estimate in relation to the economic useful lives of certain property, plant and equipment. The reassessment was performed in light of the Group's historical usage of the assets, condition of the assets at the time of the assessment, technical and or commercial factors as well as legal and contractual terms where applicable. Based on the reassessment, the assets' useful lives were extended to appropriately reflect Management's expected use of the assets. The revision to the accounting estimate has been effected prospectively as from the beginning of the current year. Note 9 details the financial impact of the change in the useful lives of these assets.

The revised useful lives are shown below:

The Group manufactures some of its production tools and equipment. The costs of construction are included within a separate category within property, plant and equipment ("assets under construction") until the tools and equipment are ready for use at which point the costs are transferred to the relevant asset category and depreciated. Any items that are scrapped are written off to the consolidated statement of comprehensive income.

The assets' residual values and useful lives are reviewed at the end of each reporting period.

Fixtures, fittings and other equipment includes computer hardware.

Derecognition

Property, plant and equipment assets are derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of property, plant and equipment, measured as the difference between net disposal proceeds and the carrying amount of the asset, are recognised in the consolidated statement of comprehensive income on derecognition.

Impairment

Tangible assets that are subject to depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. 

Intangible assets

Initial recognition and measurement

The Group's intangible assets relate to goodwill, capitalised development costs, intellectual property, customer relationships, brands and computer software. Goodwill is the excess of the consideration paid over the fair value of the identifiable assets, liabilities and contingent liabilities in a business combination and relates to assets which are not capable of being individually identified and separately recognised. Goodwill acquired is allocated to those cash-generating units ("CGUs") expected to benefit from the business combination in which the goodwill arose. Goodwill is measured at cost less any accumulated impairment losses and is held in the functional currency of the acquired entity to which it relates and remeasured at the closing exchange rate at the end of each reporting period, with the movement taken through other comprehensive income. The CGUs represent the lowest level within the Group at which goodwill is monitored for internal management purposes.

Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use. Internal costs that are incurred during the development of significant and separately identifiable new products and manufacturing techniques for use in the business are capitalised when the following criteria are met:

• it is technically feasible to complete the project so that it will be available for use;

• management intends to complete the project and use or sell it;

• it can be demonstrated how the project will develop probable future economic benefits;

• adequate technical, financial, and other resources to complete the project and to use or sell the project output are available; and

• expenditure attributable to the project during its development can be reliably measured.

Capitalised development costs include employee, travel and other directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. Refer to note 6(a) for details.

Intellectual property is capitalised where it is probable that future economic benefits associated with the patent will flow to the Group, and the cost can be measured reliably. The costs of renewing and maintaining patents are expensed in the consolidated statement of comprehensive income as they are incurred.

Customer relationships, intellectual property and brands are recognised on acquisitions where it is probable that future economic benefits will flow to the Group.

Computer software is only capitalised when it is probable that future economic benefits associated with the software will flow to the Group, and the cost of the software can be measured reliably. Computer software that is integral to an item of property, plant and equipment is included as part of the cost of the asset recognised in property, plant and equipment.

Other development expenditures that do not meet these criteria are recognised as an expense as incurred.

Subsequent measurement

The Group amortises intangible assets with a limited useful life using the straight-line method.

At the beginning of the year, Management reassessed the accounting estimate in relation to the economic useful lives of certain intangible assets. The reassessment was performed in light of the Group's historical realisation of the economic benefits from the intangible assets, technical and or commercial factors as well as legal and contractual terms where applicable. Based on the reassessment, the assets' useful lives were extended to appropriately reflect Management's expected realisation of the economic benefits from the intangible assets. The revision to the accounting estimate has been effected prospectively as from the beginning of the current year. Note 8 details the financial impact of the change in the useful lives of these assets.

The revised useful lives are shown below:

Brands have an indefinite useful life because there is no foreseeable limit on the period during which the Group expects to consume the future economic benefits embodied in the asset. The LAICA brand has been trading since inception and has been a well recognisable brand amongst the Group's trading partners, and the Group does not foresee a time limit by when these partnerships will cease.

Amortisation is charged to the consolidated statement of comprehensive income on a straight-line basis over the estimated useful lives above.

Derecognition

Intangible assets are derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of intangible assets, measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognised in the consolidated statement of comprehensive income when the asset is derecognised. Where a subsidiary is sold, any goodwill arising on acquisition, net of any impairment, is included in determining the profit or loss arising on disposal. 

Impairment

Intangible assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use.

Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired.

An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.

Intangible assets with indefinite useful lives impairment assessments

Intangible assets with indefinite useful lives arising on business combinations are allocated to the relevant CGU and are treated as the foreign operation's assets.

Impairment reviews are performed at least annually, or more frequently if there are indicators that goodwill might be impaired. The Group has assessed the carrying values of goodwill and brands to determine whether any amounts have been impaired. The recoverable amount of the underlying CGU was based on a value in use model where future cashflows were discounted using a weighted average cost of capital as the discount rate with terminal values calculated applying a long-term growth rate. In determining the recoverable amount, the Group considered several sources of estimation uncertainty and made certain assumptions or judgements about the future. Future events could cause the assumptions used in the impairment review to change with an impact on the results and net position of the group.

3. Critical accounting judgements and estimates

The preparation of these interim financial statements under IFRS requires the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances.

In preparing these interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty are the same as those that applied to the Group's Annual Report and Accounts for the year ended 31 December 2021.

4. Segmental reporting

Management has determined the operating segments based on the operating reports reviewed by the Board of Directors that are used to assess both performance and strategic decisions. Management has identified that the Board of Directors is the chief operating decision maker in accordance with the requirements of IFRS 8 'Operating segments'. The Group's activities consist of the design, manufacture and sale of thermostatic controls, cordless interfaces, and other products such as water jugs and filters, primarily to Original Equipment Manufacturers ("OEMs") based in China.

The Board of Directors has identified 3 reportable segments from a product perspective, namely: kettle controls, water category and appliances.

The Board of Directors primarily uses a measure of gross profit to assess the performance of the operating segments, broken down into revenue and cost of sales for each respective segment which is reported to them on a monthly basis. Information about segment revenue, cost of sales and gross profit is disclosed below.

Assets and liabilities

No analysis of the assets and liabilities of each operating segment is provided to the Board of Directors as part of monthly management reporting. Therefore, no analysis of segmented assets or liabilities is disclosed in this note.

Non-current assets (i) attributed to country of domicile and (ii) attributable to all other foreign countries

A geographical analysis of revenue from external customers has not been presented, as the OEMs to whom the majority of sales are made are primarily based in China.

In accordance with IFRS 8, the following table discloses the non-current assets located in both the Company's country of domicile (the Isle of Man) and foreign countries, primarily China and Italy, where two of the Group's principle subsidiaries are domiciled.

Major customers

In the first half of 2022, there was one major customer which individually accounted for at least 10% of total revenues (2021: two customers). The revenues relating to this customer in 6 months ended 30 June 2022 was £7,204,000 (2021: £6,624,000 and £4,598,000).

5. finance costs

Further information about the Group's borrowings is provided in note 14.

6. Earnings per share

The calculation of basic and diluted earnings per share is based on the following data.

The calculation of basic and diluted adjusted earnings per share is based on the following data:

1. Adjusted results exclude exceptional items, including share-based payments. Adjusted results are non-GAAP metrics used by management and are not an IFRS disclosure.

2. COVID-19 net exceptional costs include consumables, certain employment costs and Government support grants.

The denominators used to calculate both basic and adjusted earnings per share are the same as those shown above for both basic and diluted earnings per share.

7. REVENUE

The following table shows a disaggregation of revenue into categories by product line:

 8. Intangible assetS

All amortisation charges have been treated as an expense, and allocated to cost of sales £884,000 (H1 2021: £826,000) and administrative expenses £178,000 (H1 2021: £126,000) in the condensed interim consolidated statement of comprehensive income. There were no reversals of prior year impairments during the period (H1 2021: none).

Effect of change in accounting estimate

As highlighted in Note 2, Management revised the useful lives of certain assets at the beginning of the year. As part of this assessment, the useful lives of capitalised development costs were reassessed and extended with the resulting impact being a decrease of £395,000 in the amortisation charged to the condensed interim consolidated statement of comprehensive income for the current H1 period and an expected decrease of £694,000 for the full year 2022. Going forward, the amortisation charges will be in line with the revised useful life.

All amortisation charges have been treated as an expense, and allocated to cost of sales £826,000 (H1 2020: £696,000) and administrative expenses £126,000 (H1 2020: £52,000) in the condensed interim consolidated statement of comprehensive income. There were no reversals of prior year impairments during the period (H1 2020: none).

As a result of the downstream merger detailed in note 11, goodwill has been revalued resulting in an increase of £997,000 reclassified from pre-merger retained profits impacted by foreign exchange differences from the depreciation of the EUR currency.

9. Property, plant and equipment