Last checked at 22 Mar 2018 07:00
22 March 2018
Strix Group Plc
("Strix", the "Group" or the "Company")
Preliminary results for the year ended 31 December 2017
Strix Group Plc (AIM: KETL), the AIM listed global leader in the design, manufacture and supply of kettle safety controls and other components and devices, is pleased to announce its preliminary results for the year ended 31 December 2017.
These results cover the 12 month period, which includes the Company's admission to trading on the AIM market of the London Stock Exchange ("AIM") on 8 August 2017.
Financial Summary
Adjusted results1 | Reported results | |||||
2017 | 2016 | Change | 2017 | 2016 | Change | |
£m | £m | % | £m | £m | % | |
Revenue | 91.3 | 88.7 | +2.9% | 91.3 | 88.7 | +2.9% |
EBITDA2 | 35.1 | 33.5 | +4.8% | 32.2 | 30.9 | +4.2% |
Operating profit | 29.1 | 26.9 | +8.2% | 26.2 | 24.3 | +7.8% |
Profit before tax | 28.3 | 26.8 | +5.6% | 25.4 | 24.3 | +4.5% |
Profit after tax | 27.5 | 24.7 | +11.3% | 24.6 | 22.2 | +10.8% |
Net debt3 | 45.9 | n/a | 45.9 | n/a | ||
Basic earnings per share3 | 14.5 | n/a | 13.0 | n/a | ||
Final dividend per share | 1.9p | nil | 1.9p | nil | ||
1. Adjusted results exclude royalty charges and exceptional items, which include share based payment transactions. Adjusted results are non-GAAP metrics used by management and are not an IFRS disclosure
2. EBITDA, which is defined as profit before finance costs, tax, royalty charges, depreciation and amortisation, is a non-GAAP metric used by management and is not an IFRS disclosure
3. 2016 net debt and earnings per share are not comparable, being pre-IPO when a different capital structure was in place
Highlights
· | Strong performance delivered in first period as a quoted company, with results in line with market expectations |
· | Revenues of £91.3m (2016: £88.7m), an increase of 2.9% |
· | Adjusted EBITDA1 of £35.1m (2016: £33.5 m), an increase of 4.8% |
· | Adjusted profit before tax2 of £28.3m (2016: £26.8m), an increase of 5.6% |
· | Adjusted basic earnings per share3 of 14.5p |
· | Net cash generated from operating activities £33.8m (2016: £32.0m), an increase of £1.8m or 5.6% |
· | Net debt at year end of £45.9m, a significantly improved position resulting in a net debt/adjusted EBITDA ratio of 1.3x |
· | Launch of U9 series controls providing cost competitive, best in class safety controls |
· | Installation of automated production line for U9 series allowing a 15% increase in throughput |
· | Successful admission to trading on AIM on 8 August 2017 |
· | Proposed final dividend of 1.9p, with total dividends of 2.9p for the five month period from IPO to 31 December 2017 |
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
2 Adjusted profit before tax, which is defined as profit before tax, royalty charges, and exceptional items, is a non-GAAP metric used by management and is not an IFRS disclosure
3 Adjusted earnings per share, which is defined as earnings per share adjusted to exclude royalty charges and exceptional items, is a non-GAAP metric used by management and is not an IFRS disclosure
Mark Bartlett, CEO of Strix Group Plc, commented: "Trading during 2017 was strong and I am pleased to report that we have seen a healthy start to the current year. We remain focused on delivering another year of growth in line with market expectations.
Our IPO during the year was a great success and we look forward to our life as a public company. Strix has continued to enhance its market leading position by continuing to implement its strategy, with the successful launch of a new range of "best in class" controls designed to deliver competitive, high quality products across all market segments. The Company is strongly positioned to continue to capitalise on the growth of the global kettle market and we look forward to working to realise the full potential of the Company as a listed group."
For further enquiries, please contact:
Strix Group Plc Mark Bartlett (CEO) Raudres Wong (CFO)
| 01624 829 829 |
Zeus Capital Limited (Nominated Adviser) Nick Cowles / Jamie Peel / Jordan Warburton (Corporate Finance) Dominic King (Corporate Broking)
| 020 3829 5000 |
IFC Advisory Limited (Financial PR & IR) Graham Herring / Tim Metcalfe / Heather Armstrong / Miles Nolan | 020 3934 6630 |
About Strix Group Plc
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.
Chairman's statement
IntroductionIt is my pleasure to present the first annual results of Strix Group Plc as a listed company. I am delighted to have joined the Company as Chairman at such an exciting stage in its continued development, with the transition of the Company from private to public ownership.
The Group, subsequent to its admission to trading on AIM on 8 August 2017, will continue to pursue its passion for innovation, as well as continuing to develop and manufacture the high quality, safe and reliable products for which it is renowned across the world.
The Group has produced another strong year, with record revenues and a growth rate that is a result of the hard work and dedication of all of our people. These results are testament to our business model, which has been designed to maintain our position as a global leader in our core markets, whilst positioning Strix for continued growth into the future.
Results
The Group has delivered positive results, showing growth in our key metrics, which demonstrates the strength of our underlying business. This performance was achieved on top of an extremely busy year, in which the management team also successfully completed a £190m capital raising and admission to trading on AIM, which delivered an exit for our previous shareholders.
Revenue for the year reached £91.3m, 2.9% growth on 2016, whilst gross margin increased by 1.2% to 40.7%. Adjusted EBITDA was £35.1m, an increase of 4.8% on 2016. Cash generation remains strong, with £33.8m net cash generated from operating activities, compared with £32.0m in 2016.
Dividend
The board of directors of the Company ("Board") is proposing a final dividend of 1.9p per share following the 1p maiden interim dividend paid in November 2017. The final dividend will be paid on 1 June 2018 to shareholders on the register at 4 May 2018 and the shares will trade ex-dividend from 3 May 2018. This will bring the full year dividend to 2.9p, equating approximately to a 7.0p dividend for the year on a pro rata basis, based on the Company having been trading on AIM for approximately five months of our financial year. The Board intend to maintain a progressive dividend policy.
Our People
It was an honour to join the Board as Interim Chairman ahead of the IPO and to then be appointed on a permanent basis on 6 March 2018. I also perform the roles of Remuneration and Nominations Committee Chairman. Working alongside me is non-executive director Mark Kirkland, who also acts as Chairman of the Board's Audit Committee.
I am privileged to be working with our two executive directors, Mark Bartlett, Chief Executive Officer and Raudres Wong, Chief Financial Officer, who I would like to thank for their dedication and hard work in leading the Company through our recent IPO and positioning us for ongoing success.
The Company performance in 2017 is testament to the dedication and professionalism of our people. We have a healthy combination of long serving and new employees who have responded well to life as an AIM listed company and are looking forward to contributing to the ongoing success of the Company under public ownership.
I would like to take this opportunity to thank all of our people for their significant contribution to the Group's success.
Future Outlook
Strix has made an encouraging start to life as a public company. The Group's prospects are encouraging and we have experienced a positive start to 2018, which gives me confidence that the outlook for the Group remains positive. The Board will continue to work with the executive and management teams in 2018 to deliver on our strategy to create value for our shareholders.
The Group will host its first Annual General Meeting since its admission to trading on AIM on 24 May 2018 at our registered office at Forrest House on the Isle of Man, to which I welcome all of our shareholders.
Gary Lamb
Chairman
22 March 2018
Chief Executive Officer's review
IntroductionI am delighted to present Strix Group Plc's first annual results to shareholders following its admission to trading on AIM in August 2017. The Group has delivered a positive set of results, in line with market expectations and with a particularly strong cash flow performance which supports our progressive dividend policy. Strix has continued to enhance its market position by continuing to implement its strategy, with the successful launch of a new range of "best in class" controls designed to deliver competitive, high quality products across all market segments. In November 2017, Strix celebrated the sale of its 2 billionth product, a significant milestone which highlights our global market position.
Financial Performance
Our financial performance continues to demonstrate positive results with increases against prior year in revenues (up 2.9%) and adjusted EBITDA (up 4.8%), with gross margins also increasing by 1.2% to 40.7% due to positive changes in product mix. Adjusted profit before tax showed an increase of £1.5m, up 5.6% (2016: £26.8m).
Cash conversion remains particularly strong with net cash generated from operating activities increasing by 5.6% to £33.8m (2016: £32.0m). Our continued ability to generate significant cash inflows will support our progressive dividend policy and has allowed us to reduce our net debt since the drawdown of the new revolving credit facility in August 2017, which has decreased by £4.8m to £56.0m.
Market Review
The Group continues to hold a strong global market share of c.38% with all segments showing a stable position. It is estimated that the global market grew c.5% to c.182m appliances with global penetration of c.35% allowing for continued growth. The overall Regulated market volume growth was estimated at c.5% to c.50m appliances with Strix securing c.6% growth and maintaining a market share of c.61%. The c.5% regulated market volume growth is particularly strong given a historic 5 year compound annual growth rate ("CAGR") of c.1% and was driven by particularly strong performance in Western Europe which posted c.9% growth versus a c.4% CAGR. In North America, Strix has gained c.12% share during the last two years to hold c.75% market share with the overall household penetration increasing to just c.13%.
The China market for core kettle controls is estimated to have declined slightly over the prior year (by c.6%) to c.44m appliances. This decline in China is set against a backdrop of experiencing exceptional growth in 2016, with Strix maintaining a share of c.50%. The China domestic market has seen an increase in electronic multi-cooker appliances and Strix will launch a revised control in H2 to secure a share of this growth opportunity whilst continuing to defend its existing patented technology. The Less Regulated markets are estimated to have grown by c.12% during the year to c.88m appliances compared to the historic CAGR of c.8% with Strix securing c.16% growth following a strong performance in South America and the Commonwealth of Independent States ("CIS"), increasing its share in this segment to c.19%. The electronic control segment, an area where Strix holds patents on its EK3 control, continued to show significant importance with growth at c.54% over prior year and Strix holds c.67% share.
Aqua Optima has also seen some significant growth with the UK share growing by over 100% from c.6% to c.12% with significant incremental contracts secured with major retailers including Tesco and Boots.
Operations Review
Lean and continuous improvement initiatives have been a key focus both within operations and throughout the organisation. This focus led to a further 7% improvement in production efficiency and secured significant reductions to our customer defect PPM (parts per million) rate, achieving a record low level for the Group. We continued to execute on our strategy for production automation, with the first truly automated line for the new U9 series installed and commissioned during H2 2017. We will continue to execute on this strategy going forward to further increase our capacity, quality control and reliability whilst continuing to optimise costs. With the continued volume growth in both our core business and Aqua Optima, coupled with some exciting opportunities being explored with our mature technologies, we will consider accelerating investment to further expand our operations facility in China, in order to maximise these opportunities for the future.
Product Review
The key product focus during 2017 within our core segment has been the development and launch of the new range of U9 series controls, designed to provide "best in class" products to compete across all market segments. The full range of controls was launched during 2017 and provided a complete portfolio of products to address market needs across all segments. This received a very positive response from our customers globally with c.50 new appliances currently specified for launch during 2018 representing an estimated annualised volume of c.3m appliances.
In addition to our core kettle controls, we also launched a number of new products which included the turbo toaster which uses Strix patented technology, two new single dispense Hot Cup appliances and the Aqua Optima filter kettle. More recently, 2018 has also seen the launch of the new baby formula system from Tommee Tippee in the UK with further expansion planned within this segment from additional geographies.
Following our admission to trading on AIM there has been renewed focus and investment into our patented, mature technologies within the hot water on demand category and we continue to use our strong relationships with key OEMs, brands and retailers, coupled with consumer research, to increase the focus on innovative products for the future.
Safety
Safety awareness and associated actions within the market continue to be a key focus, protecting the market from unsafe or poor quality products. During 2017, we have maintained active relationships with market surveillance authorities which led to the formal recall of two competing products in Germany, fitted with copy controls and the removal from shelves of c.20 appliances globally. We have also secured amendments to enhance the international safety standards for cordless connectors, further raising the bar for copyist products within regulated markets. The electronic control segment received significant focus given its growth and the expansion of multi cookers within China. Legal actions have been initiated in relation to c.20 appliances within China that infringe our intellectual property rights. We will continue to defend our intellectual property rights, following on from the success of our previous legal actions.
Board Composition
I am delighted that, as of 6 March 2018, Gary Lamb was appointed as Chairman of Strix Group Plc following his position as interim Chairman at the time of our admission to trading on AIM. Gary has brought a wealth of experience to the Board based on his current position as CEO of Manx Telecom Plc, in addition to his knowledge of AIM and his relationships on the Isle of Man. His history with Strix has allowed him to be an excellent sounding board on current and future initiatives, and I look forward to working closely with him and the Board to realise the full potential of Strix going forward.
Strategy
Our strategy is centred on a culture of achievement, developing and empowering our employees to deliver our corporate objectives. The overall strategy is based on "four Ps":
· | People |
· | Process re-engineering |
· | Products |
· | Performance |
We have developed a fully integrated HR strategy that will drive employee engagement and development. We have a very experienced and dedicated workforce within Strix and I am confident we can successfully grow the value of the Company with their continued support and commitment.
Trading and Outlook
Trading during the second half of 2017, following our admission to trading on AIM, was strong and I am pleased to report that we have seen a healthy start to the current year. We remain focused on delivering another year of growth in line with market expectations.
I would like to take this opportunity to thank all our employees across the globe for their commitment and hard work during what was an exceptionally busy year with the transition to AIM and for the support from the new Board as we work to realise the full potential of the Company as a listed group.
Mark Bartlett
Chief Executive Officer
22 March 2018
Chief Financial Officer's review
Financial PerformanceRevenue for 2017 has risen by 2.9% to £91.3m, reflecting Strix's global market share. Due to improvements in automation and other measures undertaken to reduce manufacturing costs, gross profit increased by £2.1m (6.1%). The increase in gross profit margin from 39.5% in 2016 to 40.7% in 2017 was due to a shift in sales towards some of our higher margin products.
Adjusted EBITDA increased to £35.1m from £33.5m, representing a 4.8% increase, which was in line with market expectations. Adjusted EBITDA is defined as profit before depreciation, amortisation, net finance expense, taxation, royalty charges, and exceptional items that included the share based payment transactions.
Administration costs (excluding exceptional costs) were £2.7m in 2017 against £2.5m in 2016. The increase resulted from additional costs incurred in expanding certain group support functions following Strix's admission to trading on AIM.
Adjusted operating profit showed an increase of £2.2m to £29.1m (2016: £26.9m), representing an 8.2% increase due to lower depreciation and amortisation of capitalised development costs being reported (2017: £6.1m; 2016: £6.6m). The Group's reported operating profit was £26.2m (2016: £24.3m) which represents an increase of 7.8%.
Adjusted profit before tax increased to £28.3m (2016: £26.8m). Interest was not reported in the comparison to 2016 as a result of the re-organisation of the Group that took place in August 2017 prior to the Company's admission to trading on AIM. Interest of £0.6m was reported in 2017 for the 5 months period post IPO. The Group's profit before tax was £25.4m (2016: £24.3m).
Adjusted profit after tax increased to £27.5m (2016: £24.7m), an increase of 11.3%. The Group's profit after tax was £24.6m (2016: £22.2m).
Adjusted diluted earnings were 14.2p. Reported diluted earnings per share were 12.7p. Basic earnings per share were reported at 13.0p, and adjusted for exceptional costs were 14.5p.
Capital expenditure and capitalised development costs
Tangible assets have additions to net book value of £3.9m (excluding assets under construction) in 2017, compared to £2.7m in 2016. This includes £1.9m (2016: £1.4m) of plant and machinery, £0.9m (2016: £0.3m) of fixtures and fittings, and £1.0m (2016: £1.0m) of production tools. This investment demonstrates Strix's continued investment in its manufacturing and development assets.
The net book value of intangible assets decreased by £1.2m to £5.2m (2016: £6.4m). This primarily related to amortisation of existing assets, although £0.1m of impairment charges were also recorded in the year (2016: nil). New development costs of £1.7m were capitalised in 2017 (2016: £1.4m) primarily due to more new products qualifying for capitalisation, and a further £0.3m (2016: £0.1m) was spent on software.
Share based payments
The Group awarded a number of one off share options as part of the admission to trading on AIM to incentivise and reward a number of our employees. For more senior employees, these awards are subject to certain performance conditions. The total charge incurred in the consolidated income statement in 2017 for share based payments was £2.0m (2016: nil). This charge was applied on a pro-rata basis from the grant date in 2017, therefore will be higher in 2018 and 2019. The charge will be normalised from 2020 once the IPO share options have fully vested.
Foreign Exchange
The Group is broadly naturally hedged against movements in the USD and RMB as it both generates revenues and incurs costs in these currencies. The impact of foreign exchange in 2017 is a loss of £0.2m (2016: gain of £0.1m) despite significant currency fluctuations in 2017, which is equivalent to only 0.2% of revenue.
Taxation
During 2016, the Group's Chinese subsidiary paid additional tax of £1.1m following a benchmarking assessment by the Chinese tax authorities relating to contract processing businesses in the years 2009 to 2014. To be prudent, potential additional liabilities for 2015 to 2017 of £0.8m (calculated on the same basis as the tax enquiry) were accrued in 2016 and 2017. The effective tax rate is equivalent to 3.1% of the Group's profit before tax.
Balance SheetProperty, plant and equipment increased to £9.4m (2016: £7.9m). Capital additions (excluding assets under construction) were £3.9m (2016: £2.7m) with increased emphasis on automation and initial investment in the new product lines in 2017. Depreciation of £3.0m was in line with expectations (2016: £3.6m). Net intangible assets (comprising capitalised development costs and software) decreased in line with expectations to £5.2m (2016: £6.4m) as a result of some major capitalised costs reaching the end of their amortisation periods.
Current assets increased to £26.5m as compared to 2016 of £25.2m after excluding former group company related party balances. Inventories held at the end of the period increased to £9.2m (2016: £8.6m) as a result of increased holding of some longer lead time raw materials. Trade and other receivables increased to £7.2m (2016: £5.7m) due to a mix of customers' payment terms and higher trading results.
Current liabilities increased to £17.3m from 2016 of £15.2m after excluding former group company related party balances as a result of higher trading activities.
Whilst the consolidated accounts show a retained deficit, significant reserves exist on the balance sheet of the dividend paying entity, Strix Group Plc.
Cash flow and net debt
The decrease in cash and cash equivalents over the year was £0.8m. This was primarily a result of additional cash outflows incurred as part of the admission to trading on AIM and the payments made to the former group company related parties as part of the exit by the Group's previous ownership. Net cash generated from operating activities were up £1.8m in 2017 to £33.8m (2016: £32.0m) with net cash used in investing activities up £1.3m to £6.0m due to increased investment in both tangible and intangible assets.
We expect net debt and leverage to progressively reduce during 2018 driven by the Group's strong underlying cash generation, including utilising surplus funds to make debt repayments.
The Group has in place a revolving credit facility of £70.0m of which £56.0m (2016: nil) remains drawn on the facility as at 31 December 2017. The Net debt to adjusted EBITDA ratio at 31 December 2017 was 1.3x.
Dividend
The Directors propose a final dividend of 1.9p per ordinary share to give a total for the year of 2.9p. No dividend was paid in 2016.
The final dividend will be paid on 1 June 2018 to shareholders on the register on 4 May 2018. The total dividend payment for 2017 equates to £5.5m, including the £1.9m interim payment made in November 2017.
Raudres Wong
Chief Financial Officer
22 March 2018
Consolidated statement of comprehensive income
for the year ended 31 December 2017
| Note | 2017 £000s | 2016 £000s |
Revenue |
| 91,263 | 88,653 |
Cost of sales - before exceptional items | (54,071) | (53,581) | |
Cost of sales - exceptional items | 2 | (23) | (35) |
Cost of sales |
| (54,094) | (53,616) |
Gross profit | 37,169 | 35,037 | |
Distribution costs |
| (5,790) | (5,994) |
Administrative expenses - before exceptional items | (2,682) | (2,522) | |
Administrative expenses - exceptional items | 2 | (2,862) | (2,508) |
Administrative expenses |
| (5,544) | (5,030) |
Other operating income | 342 | 313 | |
Operating profit |
| 26,177 | 24,326 |
Analysed as: | |||
Adjusted EBITDA(1) |
| 35,117 | 33,473 |
Amortisation | 2 | (3,032) | (2,966) |
Depreciation | 2 | (3,023) | (3,638) |
Royalties to former group company related parties | 2 | - | (1,838) |
Other exceptional items | 2 | (2,885) | (705) |
Operating profit | 26,177 | 24,326 | |
Net finance costs | 3, 4 | (758) | (48) |
Profit before taxation |
| 25,419 | 24,278 |
Income tax expense | 5 | (787) | (2,103) |
Profit for the year | 24,632 | 22,175 | |
Items that will never be reclassified to profit or loss: | |||
Re-measurement of pension scheme obligations |
| (8) | (100) |
Total comprehensive income for the year | 24,624 | 22,075 | |
| |||
Earnings per share (pence) | |||
Basic | 6 | 13.0 | n/a |
Diluted | 6 | 12.7 | n/a |
Adjusted earnings per share (pence)(2) | |||
Basic | 6 | 14.5 | n/a |
Diluted | 6 | 14.2 | n/a |
Note 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
Note 2: Adjusted earnings, which is defined as earnings per share adjusted to exclude royalty charges and exceptional items, is a non-GAAP metric used by management and is not an IFRS disclosure
Consolidated balance sheet
as at 31 December 2017
| Note | 2017 £000s | 2016 £000s |
Non-current assets | |||
Intangible assets | 5,179 | 6,380 | |
Property, plant and equipment | 9,378 | 7,919 | |
Total non-current assets | 14,557 | 14,299 | |
Current assets | |||
Inventories | 9,165 | 8,560 | |
Trade and other receivables | 7,195 | 5,650 | |
Receivables due from former group company related parties | - | 370,835 | |
Cash and cash equivalents | 10,111 | 10,959 | |
Total current assets | 26,471 | 396,004 | |
Total assets | 41,028 | 410,303 | |
Current liabilities | |||
Trade and other payables | (16,164) | (14,289) | |
Current income tax liabilities | (1,103) | (843) | |
Payables due to former group company related parties | - | (144,586) | |
Derivative financial instruments | - | (42) | |
Total current liabilities | (17,267) | (159,760) | |
Non-current liabilities | |||
Borrowings | 7 | (56,000) | - |
Post-employment benefits | (225) | (249) | |
Total non-current liabilities | (56,225) | (249) | |
Total liabilities | (73,492) | (160,009) | |
Net (liabilities)/assets | (32,464) | 250,294 | |
Equity | |||
Share capital | 1,900 | 2 | |
Share based payment reserve | 2,042 | - | |
Other reserves | - | 1,793 | |
Retained (deficit)/earnings | (36,406) | 248,499 | |
Total (deficit)/equity | (32,464) | 250,294 |
Consolidated statement of changes in equity
for the year ended 31 December 2017
Share capital
| Share based payment reserve | Other reserves
| Retained (deficit)/ earnings
| Total (deficit)/ equity
| ||
£000s | £000s | £000s | £000s | £000s | ||
Balance at 1 January 2016 | 2 | - | 1,793 | 226,424 | 228,219 | |
Profit for the year | - | - | - | 22,175 | 22,175 | |
Items that will never be reclassified to profit or loss: | ||||||
Re-measurement of pension scheme obligations | - | - | - | (100) | (100) | |
Total comprehensive income for the year | - | - | - | 22,075 | 22,075 | |
Balance at 31 December 2016 | 2 | - | 1,793 | 248,499 | 250,294 | |
Balance at 1 January 2017 | 2 | - | 1,793 | 248,499 | 250,294 | |
Profit for the year | - | - | - | 24,632 | 24,632 | |
Items that will never be reclassified to profit or loss: | ||||||
Re-measurement of pension scheme obligations | - | - | - | (8) | (8) | |
Total comprehensive income for the year | - | - | - | 24,624 | 24,624 | |
Transactions with owners: | ||||||
Dividends paid (note 8) | - | - | - | (1,900) | (1,900) | |
Share based payment transactions | - | 2,042 | - | - | 2,042 | |
Group reorganisation (note 1) | - | - | 190,000 | (673,707) | (483,707) | |
Issue of shares (note 1) | 1,900 | - | 188,100 | (13,817) | 176,183 | |
Capital reduction | (2) | - | (379,893) | 379,895 | - | |
Total transactions with owners | 1,898 | 2,042 | (1,793) | (309,529) | (307,382) | |
Balance at 31 December 2017 | 1,900 | 2,042 | - | (36,406) | (32,464) | |
Consolidated cash flow statement
for the year ended 31 December 2017
| Note | 2017 £000s | 2016 £000s |
Cash flows from operating activities | |||
Operating profit | 26,177 | 24,326 | |
Adjustments for: | |||
Depreciation of property, plant and equipment | 3,023 | 3,638 | |
Amortisation of intangible assets | 3,032 | 2,966 | |
Impairment of intangible assets | 148 | 25 | |
Profit on disposal of property, plant and equipment | (4) | (3) | |
Pension contributions made | (38) | (38) | |
Movement in derivative financial instruments | (42) | 36 | |
Share based payment transactions | 2,042 | - | |
Net exchange differences | 201 | (55) | |
34,539 | 30,895 | ||
Changes in working capital: | |||
(Increase)/decrease in inventories | (595) | 1,731 | |
(Increase)/decrease in trade and other receivables | (532) | 1,718 | |
Increase/(decrease) in trade and other payables | 936 | (897) | |
Cash generated from operations | 34,348 | 33,447 | |
Tax paid | (527) | (1,466) | |
Net cash generated from operating activities | 33,821 | 31,981 | |
Cash flows from investing activities | |||
Purchase of property, plant and equipment | (4,013) | (3,148) | |
Capitalised development costs | (1,688) | (1,445) | |
Purchase of software | (291) | (146) | |
Proceeds on sale of property, plant and equipment | 10 | 3 | |
Net cash used in investing activities | (5,982) | (4,736) | |
Cash flows from financing activities | |||
Transactions with former group company related parties | (257,457) | - | |
Proceeds of borrowings | 7 | 60,774 | - |
Repayments of borrowings | 7 | (4,774) | (27,194) |
Net proceeds from issuance of shares | 176,183 | - | |
Transaction costs related to borrowings | 7 | (822) | - |
Dividends paid | 8 | (1,900) | - |
Finance costs paid | (464) | (56) | |
Finance income | 6 | 8 | |
Net cash used in financing activities | (28,454) | (27,242) | |
Net (decrease)/increase in cash and cash equivalents | (615) | 3 | |
Cash and cash equivalents at the beginning of the year | 10,959 | 10,175 | |
Effects of foreign exchange on cash and cash equivalents | (233) | 781 | |
Cash and cash equivalents at the end of the year | 10,111 | 10,959 |
Notes to the preliminary announcement
for the year ended 31 December 2017
1. GENERAL INFORMATION
Strix Group Plc ("the Company") was incorporated and registered in the Isle of Man on 12 July 2017 as a company limited by shares under the Isle of Man Companies Act 2006 with the name Steam Plc and with the registered number 014693V. The Company changed its name to Strix Group Plc on 24 July 2017. The address of its registered office is Forrest House, Ronaldsway, Isle of Man, IM9 2RG.
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.
Initial public offering ("IPO")
The Company's shares were admitted to trading on AIM, a market operated by the London Stock Exchange on 8 August 2017. These Group financial statements are the Company's first subsequent to its admission to AIM and followed a Group reorganisation to facilitate the IPO.
Group reorganisation
The Group financial statements have been prepared under the merger method of accounting principles because the transaction under which the Company became the holding company of Sula Limited ("Sula" and the "Sula Group") was a Group reconstruction with no change in the ultimate ownership of the Sula Group. All the shareholdings in Sula were exchanged via a share-for-share transfer on 8 August 2017. The Company did not actively trade at that time.
The result of the application of the capital reorganisation is to present the financial statements as if the Company had always owned the Sula Group.
2. EXPENSES BY NATURE
2017
| 2016
| |
£000s | £000s | |
Employee benefit expense | 15,397 | 15,050 |
Depreciation charges | 3,023 | 3,638 |
Amortisation and impairment charges | 3,180 | 2,991 |
Operating lease payments | 1,152 | 1,079 |
Exceptional items - reorganisation costs | 23 | 35 |
- exit costs | 820 | 670 |
- royalties to former group company related parties | - | 1,838 |
- share based payment transactions | 2,042 | - |
Foreign exchange losses/(gains) | 201 | (55) |
Research and development expenditure totalled £3,549,000 (2016: £3,318,000), with £1,688,000 (2016: £1,445,000) of these costs being capitalised during the year.
Exceptional items
The reorganisation costs are in relation to the transfer of operations to China and Hong Kong, and the expansion of the senior management unit within China and Hong Kong.
The exit costs were incurred by the Group relating to a potential sale of the Group under the previous ownership structure.
Royalties to former group company related parties represent amounts payable to sister group companies under the old group structure, which did not continue as part of the group restructuring and IPO transactions. These costs were included within administrative expenses in the comparative period.
As part of the admission to trading on AIM in August 2017, the Group granted a total of 9,131,505 share options to employees of the Group, including 5,700,000 options granted to the executive directors (the CEO and CFO), with a further 510,000 options granted to the COO. All of the options granted are subject to service conditions, being continued employment with the Group until the end of the vesting period. The share options granted to the executive directors and senior staff also include certain performance conditions which must be met, based on predetermined earnings per share, dividend pay-out, and share price targets for the three financial years 2017 to 2019. Once vested, the options remain exercisable until the 10 year anniversary of the award date. All of the options are granted under the plan for no consideration and carry no voting rights.
A further £13,817,000 of costs incurred in relation to the IPO have been debited to equity in accordance with IAS 32.
3. FINANCE COSTS
2017
| 2016
| |
£000s | £000s | |
Letter of credit charges | 66 | 49 |
Pension scheme interest | 6 | 7 |
Borrowing costs | 692 | - |
764 | 56 |
4. FINANCE INCOME
2017
| 2016
| |
£000s | £000s | |
Interest income | 6 | 8 |
5. TAXATION
Analysis of charge in year | 2017
| 2016
|
£000s | £000s | |
Current tax (overseas) | ||
Current tax on overseas profits for the year | 793 | 803 |
Adjustments in respect of prior years - overseas | (6) | 1,300 |
Total tax charge | 787 | 2,103 |
Overseas tax relates primarily to tax payable by the Group's subsidiary in China. During 2016, the Group's Chinese subsidiary paid additional tax of £1.1m following a benchmarking assessment by the Chinese tax authorities relating to contract processing businesses in the years 2009 to 2014. The potential additional liabilities for 2015 to 2017 calculated on the same basis of £0.8m were accrued in 2016 and 2017 to be prudent, but in line with the basis of the tax enquiry.
As the most significant subsidiary in the Group is based on the Isle of Man, this is considered to represent the most relevant standard rate for the Group. The tax assessed for the year is higher than the standard rate of income tax in the Isle of Man of 0% (2016: 0%). The differences are explained below.
2017
| 2016
| |
£000s | £000s | |
Profit on ordinary activities before tax | 25,419 | 24,278 |
Profit on ordinary activities multiplied by the rate of corporation tax in the Isle of Man of 0% (2016: 0%) | - | - |
Impact of higher overseas tax rate | 793 | 803 |
Adjustments in respect of prior years - overseas | (6) | 1,300 |
Total taxation charge | 787 | 2,103 |
The Company is subject to Isle of Man income tax on profits at the rate of 0% (2016: 0%). Based on the Company's current activities, the Company is not expected to have any future Isle of Man tax liability.
6. EARNINGS PER SHARE
The calculation of basic and diluted earnings per share is based on the following data. No earnings per share figure can be calculated for 2016, when a different capital structure was in place.
2017 | |
Earnings (£000s) | |
Earnings for the purposes of basic and diluted earnings per share | 24,632 |
Number of shares (000s) | |
Weighted average number of shares for the purposes of basic earnings per share | 190,000 |
Weighted average dilutive effect of share consideration | - |
Weighted average dilutive effect of conditional share awards | 3,587 |
Weighted average number of shares for the purposes of diluted earnings per share | 193,587 |
Earnings per ordinary share (pence) | |
Basic earnings per ordinary share | 13.0 |
Diluted earnings per ordinary share | 12.7 |
Adjusted earnings per ordinary share (pence) | |
Basic adjusted earnings per ordinary share | 14.5 |
Diluted adjusted earnings per ordinary share | 14.2 |
The calculation of basic and diluted adjusted earnings per share is based on the following data:
2017 £000s | |
Profit for the year | 24,632 |
Add back: | |
Reorganisation costs | 23 |
Exit costs | 820 |
Royalties to former group company related parties | - |
Share based payment transactions | 2,042 |
Adjusted earnings | 27,517 |
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. BORROWINGS
2017
| 2016
| |
£000s | £000s | |
Non-current bank loans | (56,000) | - |
Term and debt repayment schedule
Currency
| Interest rate
| Maturity date
| 2017 carrying value (£000s)
| |
Revolving credit facility | GBP | LIBOR + 1.50% - 2.50% | 27 July 2022 | (56,000) |
On 27 July 2017, the Company entered into an agreement with The Royal Bank of Scotland Plc (as agent), and the Royal Bank of Scotland International Limited and HSBC Bank Plc (as original lenders) in respect of a revolving credit facility of £70,000,000.
The proceeds of the first drawdown of £60,774,000 were used to (among other things) repay previously existing banking facilities prior to the group reorganisation and admission to trading on AIM, to pay fees, costs and expenses in relation to the process and to fund the distribution paid to former group company related parties. Additional amounts may be drawn under the agreement for financing working capital and for general corporate purposes of the Group.
All amounts become immediately repayable and undrawn amounts cease to be available for drawdown in the event of a third party gaining control of the Company. The Company and its subsidiaries, Strix Limited and Sula Limited, have entered into the agreement as guarantors, guaranteeing the obligations of the borrowers under the agreement.
Transaction costs incurred as part of the debt financing amounting to £822,000 have been capitalised in 2017 and are being amortised over the period of the facility.
The agreement contains representations and warranties which are usual for an agreement of this nature. The agreement also provides for the payment of a commitment fee, agency fee and arrangement fee, contains certain undertakings, guarantees and covenants (including financial covenants) and provides for certain events of default. During 2017, the Group has not breached any of the financial covenants contained within the agreement.
The Group's only other interest-bearing borrowing is a finance lease liability which is not considered material for separate disclosure.
8. DIVIDENDS
The following amounts were recognised as distributions in the year:
| 2017
| 2016
|
£000s | £000s | |
Interim 2017 dividend of 1.0p per share (2016: nil) | 1,900 | - |
Total dividends recognised in the year | 1,900 | - |
In addition to the above dividends, since year end the directors have proposed the payment of a final dividend of 2.9 p per share (2016: nil). The aggregate amount of the proposed final dividend expected to be paid on 1 June 2018 out of retained earnings at 31 December 2017, but not recognised as a liability at year end, is shown in the table below. The payment of this dividend will not have any tax consequences for the Group.
2017 | 2016 | |
£000s | £000s | |
Final 2017 dividend of 1.9p per share (2016: nil) | 3,610 | - |
Total dividends proposed but not recognised in the year | 3,610 | - |
9. ANNUAL REPORT AND ACCOUNTS
The financial information set out in the preliminary announcement does not constitute the Group's statutory accounts for the year ended 31 December 2017 or 31 December 2016. The Group's Annual Report and Accounts for the financial year ended 31 December 2017 will be available on the Company's website (www.strixplc.com) in due course, at which time a notification will be sent to shareholders.