TIDMKETL
RNS Number : 5314U
Strix Group PLC
29 March 2023
29 March 2023
Strix Group Plc
("Strix", the "Group" or the "Company")
Preliminary results for the twelve months ended 31 December
2022
Financial Summary (1)
Change
(22 -
2022 2021 21)
------ ------ -------
GBPm GBPm %(4)
Revenue 106.9 119.4 -10.5%
Gross profit 41.5 47.4 -12.4%
EBITDA(2) 32.1 40.5 -20.7%
Operating profit 25.9 33.7 -23.1%
Profit before tax 22.2 32.2 -31.1%
Profit after tax 23.0 31.4 -26.8%
Net debt(3) 87.4 51.2 +70.7%
Net cash generated from operating
activities 23.4 22.3 +4.9%
Basic earnings per share (pence) 10.9 15.2 -28.3%
Diluted earnings per share
(pence) 10.8 14.9 -27.5%
Total dividend per share (pence) 6.00 8.35 -28.1%
1. Adjusted results exclude exceptional items, which include share
based payment transactions, COVID-19 related costs, 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. Net debt excludes the impact of IFRS 16 lease liabilities,
pension liabilities, deferred tax liabilities and earn-out provisions
on satisfaction of performance conditions.
4. Figures are calculated from the full numbers as presented in
the consolidated financial statements.
Financial Highlights
-- The Group reported revenue of GBP106.9m, a decrease of
10.5% versus the same period in prior year driven predominantly
by a reduction in Kettle Controls due to market environment.
-- Adjusted EBITDA was GBP32.1m, a decrease of 20.7% versus
the same period in prior year driven by a reduction in
revenue.
-- Adjusted PAT was GBP23.0m which was in line with previous
guidance given at the trading update on 30 November 2022
(2021: GBP31.4m), representing a 26.8% decrease compared
to the same period last year driven by a reduced EBITDA
and an increase in SONIA through the year coupled with
higher net debt post the acquisition of Billi.
-- Net debt increased to GBP87.4m (FY 2021: GBP51.2m). This
represents a n et debt/adjusted EBITDA ratio ( calculated
on a trailing twelve-month basis) of 2.2 x.
-- Adjusted basic earnings per share and adjusted diluted
earnings per share were 10.9p (2021: 15.2p) and 10.8p
(2021: 14.9p) respectively.
-- As capital allocation decisions prioritise debt reduction,
the Board is proposing a final dividend of 3.25p per share
(2021: 5.60p) which would represent a total dividend of
6.00p per share (2021: 8.35p).
Operational Highlights
-- Acquisition of Billi continues to be successfully integrated
in line with plan to achieve the identified operational
benefits, and the business has opened up new sales channels
for Strix. Trading performance so far has been in line
with budget.
-- Retained global kettle control market share by value at
c. 56% (excluding Russia and other impacted territories).
-- Manufacturing operations in China are fully operational
with efficiency improved by 6.1% in 2022 versus 2021.
-- Pipeline of new product launches through 2023 include
an integrated tap in Billi, the Ontario desktop appliance
and Aurora coffee appliance.
-- Updated ESG and Sustainability report published on 28
March 2023.
Strategic Highlights
-- Completion of the transformational acquisition of Billi
in November at a reported multiple of 3.8x EBITDA at transaction
date.
-- The Appliance and Water categories now account for almost
50% of pro forma Group revenue.
-- Significant progress through the year in improving the
geographic diversity of the business reducing reliance
on any one territory.
-- The Company has access to a range of new sales channels
including to professional customers such as restaurants,
hotels, and commercial premises through Billi and a much
improved B2C footprint.
-- Strong progress through the year for Aqua Optima driven
by the increasing popularity of the Aurora range.
-- New EMEA Sales Director has been appointed and Global
Distributions & Logistics Director role created to provide
the leadership team with additional expertise in commercialization
and cost optimisation.
Mark Bartlett, Chief Executive Officer of Strix Group plc,
said:
"Following a period of uncertainty across a number of Strix's
key export markets in Q4, recent sales data in 2023 indicates some
green shoots are appearing and the path to a return of growth is
opening across all segments.
The successful integration of Billi will propel Strix into a new
growth phase, further diversifying away from the core Kettle
Controls business with strong potential for greater top line growth
and improved margins going forward.
Strix continues to implement a range of strategic initiatives to
minimise the impact of the continued headwinds it is facing, which
includes a functional streamlining programme and a focus on the
reduction of inventory in order to maximise cash generation for the
Group. Strix will prioritise debt reduction and free cash flow
generation with a clear plan to get net debt / EBITDA to below 2.0x
during 2023 and to below 1.5x during 2024."
For further enquiries, please contact:
Strix Group Plc
Mark Bartlett, CEO
Raudres Wong, CFO +44 (0) 1624 829829
Zeus (Nominated Advisor and Joint Broker)
Nick Cowles / Jamie Peel / Jordan Warburton
(Investment Banking) +44 (0) 20 3829 5000
Stifel Nicolaus Europe Limited (Joint
Broker)
Matthew Blawat / Francis North +44 (0) 20 7710 7600
IFC Advisory Limited (Financial PR and
IR)
Graham Herring / Tim Metcalfe / Florence
Chandler +44 (0) 20 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.
Strix trades on the AIM Market of the London Stock Exchange
(AIM: KETL).
CEO's report:
Financial performance
The Group reported revenue of GBP106.9m, a decrease of 10.5%
versus the same period in prior year driven predominantly by a
reduction in Kettle Controls due to market environment.
Adjusted profit after tax was GBP23.0m (2021: GBP31.4m),
representing a 26.8% decrease compared to the same period last year
driven by a reduced EBITDA and an increase in SONIA through the
year coupled with higher net debt post the successful acquisition
of Billi.
Adjusted operating profit margins were diluted by 4.0% to 24.2%
(FY 2021: 28.2%) compared to last year. The main reasons for the
dilution in margin are attributable to lower kettle controls sales
in the regulated markets that command higher margins, partially
offset by a price increase implemented in the second quarter of
2022 across all kettle controls. In addition, the water and the
appliances categories showed margin improvements as appliances that
were launched in 2021 had a better sales mix, supported further by
Billi's contributions post completion.
The Group's net debt increased to GBP87.4m (FY 2021: GBP51.2m).
This represents a n et debt/adjusted EBITDA ratio ( calculated on a
trailing twelve-month basis) of 2.2 x.
Strix is focused on its highly cash generative operating model
and the management team will prioritise on the integration and the
unlocking of anticipated revenue and cost synergies following the
acquisition of Billi. There will be no further M&A activity or
investment into new factory builds, with significantly reduced
capex and working capital over the medium term. Capital allocation
decisions will prioritise debt reduction and free cash flow
generation with a clear plan to get net debt / EBITDA to below 2.0x
during 2023 and to below 1.5x during 2024.
As capital allocation decisions prioritised debt reduction, the
Board decided after reviewing the level of net debt to propose a
final dividend of 3.25p per share (2021: 5.60p) which would
represent a total dividend of 6.00p per share (2021: 8.35p).
Kettle control category
Overall, the kettle control category reported a decrease in
revenue of 19.9% to GBP68.2m in 2022.
The key characteristic in 2022 was a continual and unprecedented
worsening of the macro backdrop in Q4, but in Q1 signs of green
shoots are returning.
Overall market softened by c.18% in 2022, with volume and value
reductions experienced in all sectors. Key negative drivers
included the cost of living crisis in Regulated markets, COVID
shutdowns in China and the Ukraine/Russia crisis impacting Less
Regulated markets.
In line with western government sanctions, Strix's key global
brands withdrew from Russia (a significant market for them) and
Strix also stopped trading directly with Russian brands. It is
worth noting that excluding the effected regions, Strix's market
share in Kettle Controls remained at c. 56%.
The Kettle Safety Controls category remains a resilient business
and there is evidence of green shoots returning in Q1 2023.
These include:-
* Estimated Kettle Sales through major online retailer
channel shows January and February 2023 grew by 17%
versus the same period last year;
* After reduced usage at Strix's top five OEMs in H2
2022, the Group is now seeing a recovery in Q1 2023
which is particularly reassuring as this has
historically been a quieter trading period; and
* Signs of a pipeline refill are returning. Historical
data shows a small increase in consumer demand can
have an outsized effect on the demand for Strix's
components.
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.
Examples include the Series Z controls development which is
maturing, with the objective to drive cost and customer benefits
and the roll out of new electronic kettle features & designs
with a focus on design trends, consumer energy saving and OEM cost
benefits.
Appliance category
Overall, the appliance category reported growth in revenue of
12.8% to GBP14.5m in 2022.
Strix's Aqua Optima brand recorded 87% growth in appliances,
driven through geographical expansion, successful Aqua Optima
expansion across Europe and North America, Strix/LAICA cross
selling, and new innovative product launches.
The Billi acquisition helps diversify positioning with a premium
category offering through new channels as well as giving
cross-selling opportunities to drive additional growth.
Other notable achievements included:-
-- Aurora (Strix's Instant Flow Heater technology, delivering
auto-dispensed hot, boiled, and chilled filtered water
at the touch of a button) won housewares award: Sustainable
Product of the Year 2022;
-- Successful launch of the world's fastest sterilizer-dryer
with a leading USA Baby Care brand; and
-- Successful launch of Strix innovations under the LAICA
brand with the launch of the Dual Flo range. This newly
launched product utilises superior, energy efficient technology
and is believed to be the only combined kettle and one
cup hot water dispenser.
Key growth initiatives for the category will be Ontario (market
leading beverage station range covering hot, chilled, sparkling and
coffee products), geographic expansion, optimising product mix and
vertical integration.
Water category
Overall, the water category reported a growth in revenue of
12.8% to GBP24.1m in 2022 .
Both Aqua Optima & LAICA water brands have seen growth year
on year due to initial geographical expansion via Amazon sales
outperforming the private label business.
Strix now manufactures the majority of its filters in-house in
two locations freeing us from 3(rd) party risk, whilst allowing a
new level of flexibility to offer our customers.
Integration of Billi into the portfolio will enhance the total
water solution offering for Strix and unlocks new opportunities in
the 'professional' market.
Key growth initiatives for the category will be geographic
expansion (cross selling existing LAICA & Aqua Optima products
into new territories), coffee filtration expertise and using
private label water products as a way to open doors into large
retailers for other categories.
Transformational acquisition of Billi
Billi is a leading brand in Australia for the supply of premium
instant boiling, chilled and sparking filtered water systems. A
clear #2 player in the space within Australia, New Zealand and UK.
With 30+ year history, Billi is renowned for its premium and
innovative products. Billi has a successful history of growth, with
double digit revenue CAGR over the past 5 years, attractive margins
and is highly cash generative, delivering cash conversion of
>70%.
Acquisition of Billi was for GBP38.9m cash and completed on 30
November following regulatory approval in Australia, New Zealand
and the UK. Billi was acquired from Culligan following its merger
with Waterlogic; the divestment was a condition of that merger. The
acquisition multiple was 3.8x EBITDA reflecting the unique
circumstances that Culligan found itself in and the progress Strix
had made with the competition regulator in Australia, New Zealand
and the UK . As reported in the press, there were other bidders at
significantly higher valuations than Strix even at the very end of
the process. The transaction was funded through a GBP13.0m equity
raise and debt refinance consisting of an extension of the current
RCF and a new acquisition facility .
Overview of strategic rationale
The acquisition materially changes the earnings profile of the
Group, accelerating growth plans for the Water & Appliance
categories and supporting the medium-term ambition.
It adds well developed and premium products in the high growth
and strategically important hot tap market and increases Strix's
position and portfolio of water dispenser systems. The Board
expects Strix's existing technology, resource and expertise can be
used to further enhance Billi's new product development
roadmap.
Efficiencies were identified across Billi's product lifecycle
and will be enhanced utilising Strix's Chinese operation to improve
procurement, insourcing of certain key parts, and consolidation of
the marketing group.
There are also opportunities for further organic growth. These
include residential sales, new product development particularly in
sparkling, internationalising Billi's revenue stream through
Strix's global footprint, cross selling Strix products into
commercial applications and growing aftermarket sales.
Progress since completion
The acquisition of Billi continues to be successfully integrated
in line with plan to achieve the identified operational benefits,
as the business opened up new sales channels for Strix.
The trading performance so far has been in line with budget.
Very positive progress has been made at Billi UK with elements
of the TSA already removed:-
-- Head office established in Wolverhampton with all staff
now transferred;
-- Showroom in London (Farringdon) due to be signed imminently;
-- Stock to be moved into Strix storage locations during
March / April;
-- All HR functions now managed by Strix HR team; and
-- Agreed to move forward with Microsoft Dynamics for their
ERP system with target completion in July.
Solid order book for Q1:-
-- New Zealand secured their largest ever contract to a hospital
in the North of the island;
-- UK and Australia secured February revenue budget with
encouraging 3 month & 12 month pipeline; and
-- ROW also secured February revenues.
NPD on track for launch in Q2. This will be a major opportunity
for all markets, particularly within the residential sector.
Good progress has also been made with new sites identified as
Strix procures smaller storage locations in New South Wales,
Western Australia and South Australia.
Barriers to entry and d efence 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 and technologies.
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 4 further regulatory and 3 intellectual property actions
conducted in 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 and head office along with investment in solar capacity.
Indeed, Strix now expects its own renewable sources to generate
around 10% of the Group's total energy requirements. As a
consequence, the group started 2023 in-line with its net zero
agenda. 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 2023 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. The Group's sustainability agenda is
sympathetic to changing consumer trends and hence is key for
driving the roadmap and pace of new product development.
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 2023 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.
Dividend policy
As capital allocation decisions prioritised debt reduction, the
Board decided after reviewing the level of the net debt to propose
a final dividend of 3.25p per share (2021: 5.60p) which would
represent a total dividend of 6.00p per share (2021: 8.35p).
The final dividend will be paid on 11 August 2023 to
shareholders on the register at 30 June 2023 and the shares will
trade ex-dividend from 29 June 2023.
Operations review
The factory within Zengcheng district in Guangzhou, China,
continues to be fully operational with efficiency improved by 6.1%
in 2022 versus 2021.
A new EMEA Sales Director was appointed and a new Global
Distributions & Logistics Director role created to provide the
leadership team with additional expertise in commercialisation and
cost optimisation.
An updated ESG and Sustainability report will be published on 29
March 2023.
Strix continues to implement a range of strategic initiatives to
minimise the impact of the headwinds it is facing, which includes a
functional streamlining programme and a focus on the reduction of
inventory in order to maximise cash generation for the Group.
Financial Position
Strix is focused on its highly cash generative operating model
and the management team will prioritise the integration and
unlocking the anticipated revenue and cost synergies following the
acquisition of Billi.
There will be no further M&A activity or investment into new
factory builds, with significantly reduced capex and working
capital over the medium term. Capital allocation decisions will
prioritise debt reduction and free cash flow generation with a
clear plan to get net debt / EBITDA to below 2.0x during 2023 and
to below 1.5x during 2024.
Over the past few years, Strix has made significant investments
in acquisitions, a new factory and working capital. A primary
driver of the increased exceptional costs is due to the number of
acquisitions and one-off costs relating to capital
expenditures.
HaloSource was acquired in 2019 and contributed to the
exceptional costs through the associated transaction fees. LAICA
was acquired in 2020 and included an earn out clause which caused
exceptional costs in outer years, along with the transaction fees
in 2020. The new factory in China was completed in 2021, adding to
exceptional costs from large scale capital expenditure. Most
recently, Billi was acquired and its transaction fees contributed
to the 2022 total. As these one-off costs are not recurring, we
expect cash conversion to materially improve in coming years.
Net working capital which includes inventories, trade and other
receivables, and trade and other payables (including tax
liabilities, but excluding short-term portions of long-term
liabilities) increased to GBP27.6m (FY 2021: GBP18.0m), an increase
on GBP9.6m. The main driver behind this is an increase in net
working capital of c.GBP5.9m (including tax liabilities) recognised
as part of the acquisition of Billi. The rest of the increase
relates to slightly higher inventory levels from prior year as the
Group looks to fuel anticipated increase in demand in the new year,
evident from green shoots returning in Q1 2023 . Decreases in trade
and other payables were due to lower procurement activities,
partially offset by decreases in trade and other receivables which
were largely due to collection of VAT receivables from the Chinese
government relating to the construction and completion of the new
factory in China.
Outlook
Following a period of uncertainty across a number of Strix's key
export markets in Q4, recent sales data in 2023 indicates that some
green shoots are appearing and the path to a return of growth is
opening across all segments:-
-- It is anticipated that the Chinese economy will rebound
in 2023, given the change in COVID policy;
-- Estimated Kettle Sales through a major online retailer
channel shows January 2023 grew by 17% versus the same
period last year;
-- After usage at Strix's top five OEMs in H2 2022, the Group
is now seeing a recovery in Q1 2023 which is reassuring
as this has historically been a quieter trading period;
-- Signs of a pipeline refill are returning, as a small increase
in consumer demand can have an outsized effect on the demand
for Strix's components; and
-- The Group has delivered consumer goods business growth,
despite the underlying market softening and positive contracts
secured in Q1 2023.
Strix continues to implement a range of strategic initiatives to
minimise the impact of the headwinds it is facing, which includes a
functional streamlining programme and a focus on the reduction of
inventory in order to maximise cash generation for the Group.
The successful integration of Billi will propel Strix into a new
growth phase, further diversifying away from the core Kettle
Controls business with strong potential for greater top line growth
and improved margins going forward.
Chief financial officer's review
Adjusted results (1) Reported results
------------------------------ ---------------------------
FY 2022 FY 2021 Change FY FY 2021 Change
% 2022 %
(22 - (22
21) - 21)
--------- --------- -------- ------ --------- --------
GBPm GBPm %(4) GBPm GBPm %(4)
Revenue 106.9 119.4 -10.5% 106.9 119.4 -10.5%
Gross profit 41.5 47.4 -12.4% 40.7 43.8 -7.1%
EBITDA (2) 32.1 40.5 -20.7% 26.2 30.6 -14.4%
Operating profit 25.9 33.7 -23.1% 19.9 23.7 -16.0%
Profit before tax 22.2 32.2 -31.1% 16.1 21.5 -25.1%
Profit after tax 23.0 31.4 -26.8% 16.9 20.6 -18.0%
Net debt (3) 87.4 51.2 +70.7% 87.4 51.2 +70.7%
Net cash generated from
operating activities 23.4 22.3 +4.9% 23.4 22.3 +4.9%
Basic earnings per share
(pence) 10.9 15.2 -28.3% 8.0 10.0 -20.0%
Diluted earnings per share
(pence) 10.8 14.9 -27.5% 7.9 9.8 -19.4%
Total dividend per share
(pence) 6.00 8.35 -28.1% 6.00 8.35 -28.1%
1. Adjusted results exclude exceptional items, which include
share-based payment transactions, COVID-19 related costs,
and other reorganisation and strategic project costs. Adjusted
results are non-GAAP metrics used by management and are
not an IFRS disclosure. A table which shows both Adjusted
and Reported results is included in the Chief Financial
Officer's review.
2. 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. Net debt excludes the impact of IFRS 16 lease liabilities,
pension liabilities, deferred tax liabilities and earn-out
provisions on satisfaction of performance conditions and
providing post-combination services. Net debt including
earn-out provisions was GBP94.9m.
4. Figures are calculated from the full numbers as presented
in the consolidated financial statements.
Financial performance
Revenues decreased by 10.5% year on year to GBP106.9m (FY 2021
GBP119.4m). This was predominantly due to a drop in sales within
our kettle controls category. As stated previously in our trading
updates released both in July 2022 and November 2022, revenues have
been adversely impacted by the ongoing conflict in Ukraine, and the
disruptive effect of ongoing lockdowns which were enforced in China
throughout most of 2022, impacting two of our top five major OEM
customers. This resulted in a decrease of c.GBP16.9m (19.8%
decrease) for kettle controls. Despite the drop in overall sales,
the water category showed an improvement in sales from last year
reflecting the success of our performance from online market place
launches as Strix continues to expand its online presence, together
with contributions from post-acquisition sales in Billi. The
appliances category also showed an uplift predominantly due to
Billi's acquisition, where organic Strix appliance revenues were
flat against a market that declined.
Adjusted gross profit decreased by 12.4% to GBP41.5m (FY 2021:
GBP47.4m), in most part due to the impact of revenues for kettle
controls falling as described above. The decrease was slightly
offset by increases for both the water and appliances categories of
GBP1.0m (13.8% increase) and GBP0.9m (18.0% increase) respectively,
reflective of the increases in sales in these categories as
described above. Reported gross profits decreased by 7.1% to
GBP40.7m (FY 2021: GBP43.8m).
Adjusted gross profit margin in FY 2022 was 38.8% (FY 2021:
39.7%), showing a small margin dilution of 0.9% compared to last
year. This dilution is mainly attributable to lower kettle controls
sales in the regulated markets that command higher margins but
helped partially by the price increase implemented in the second
quarter of FY 2022 across all kettle controls. The dilution in
kettle controls was partially compensated by the water and the
appliances categories that showed margin improvements of 0.3% and
1.7% respectively. The appliances that were launched in FY 2021 had
better sales mixes in FY 2022, and together Billi's contributions
post acquisition of one month, both helped to drive better
margins.
Adjusted EBITDA was GBP32.1m (FY 2021: GBP40.5m), showing a
decrease of 20.7% compared to 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 14.4% to GBP26.2m (FY 2021: GBP30.6m).
Adjusted EBITDA margin in FY 2022 was 30.0% (FY 2021: 33.9%),
representing a margin dilution of 3.9%. In addition to the margin
dilution in adjusted gross profit margins described above, other
various factors which then contributed to the dilution of adjusted
EBITDA margins included, amongst others:
-- Billi costs incurred post acquisition,
-- investment in human resources in our commercial areas
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
-- higher stock handling and outward carriage and freight
costs due to global inflationary pressures experienced
in the current year.
Adjusted operating profits decreased by 23.1% to GBP25.9m (FY
2021: GBP33.7m), a decrease of GBP7.8m, attributable mainly to the
drop in revenues. Reported operating profits decreased by 16.0% to
GBP19.9m (FY 2021: GBP23.7m) after deducting exceptional costs of
GBP5.9m (FY 2021: GBP9.9m) which decreased mainly due to reasons
described in the "Costs" section further below.
Adjusted operating profit margins were diluted by 4.0% to 24.2%
(FY 2021: 28.2%) compared to last year. Main reasons for the
dilution in margin are the same as those attributable to the
dilution in adjusted EBITDA margins described earlier above.
Despite the margin dilution, as disclosed in the interim results
released in September 2022, accounting estimates changes were made
during the year relating to the reassessment of the useful lives of
certain production and other assets which resulted in lower
depreciation and amortisation charges of c.GBP1.8m being recognised
in the current year compared to last year (excluding the change of
accounting estimates, adjusted operating profit margins dilution
year over year is 4.8%). Refer to notes 2, 11 and 12 of the
consolidated financial statements below for full disclosures of the
change in accounting estimates.
Adjusted profit before tax was GBP22.2m (FY 2021: GBP32.2m), a
decrease of GBP10.0m (31.1% decrease) from last year. This is
attributable to the reasons stated above for decreases in operating
profit, and also increases in net finance costs. Net finance costs
(excluding the impact of exceptional finance costs of GBP0.2m (FY
2021: GBP0.8m) relating to the discount unwinding of the present
value of contingent consideration recognised on acquisition of
LAICA in 2020) increased by GBP2.3m from last year due to an
increase in the net debt to fund the Billi acquisition and a higher
interest rates environment. Reported profit before tax was GBP16.1m
(FY 2021: GBP21.5m).
Adjusted profit after tax was GBP23.0m (FY 2021: GBP31.4m), a
decrease of GBP8.4m (26.8% decrease). The tax expense significantly
decreased in the current year mainly due to tax incentive credits
granted in Italy during the year, and continued adoption of certain
tax measures in China with the move of operations to the new
factory location in 2021 which prompted the release of previous
years' tax provisions. Reported profit after tax was GBP16.9m (FY
2021: GBP20.6m).
Costs
Costs in FY 2022 generally decreased across the board compared
to the prior year, mainly reflective of the decrease in the top
line revenues.
Cost of sales (excluding exceptional costs) decreased by 9.2% to
GBP65.4m (FY 2021: GBP72.0m), in line with the decrease in
revenues. Positive measures taken to counter the costs pressure
included price increases implemented on our kettle controls and
water filtration products in the first half of the year, improved
margins in our appliances category, and efficiencies realized from
use of automation and lean production processes.
Distributions costs increased by 18.1% to GBP10.8m (FY 2021:
GBP9.2m) mainly due to inflationary pressures causing higher stock
handling costs, higher outward carriage and freight costs, higher
payroll costs for the Group's sales and marketing function, and
increased advertising and promotional costs as we continue our
drive to expand our reach in the market for our water and appliance
products. Billi's consolidation of one month also contributed to
the increase. Strix's organic distribution costs increased by
16%.
Administration costs (excluding exceptional costs) increased by
9.0% to GBP5.6m (FY 2021: GBP5.1m), increasing mainly due to costs
incurred in Billi post acquisition. Strix's organic administration
costs has reduced modestly by c.1%.
Exceptional costs (including exceptional finance costs for the
discount unwinding of the present value of contingent consideration
recognised on acquisition of LAICA in 2020, which are included in
net finance costs) decreased by 43% to GBP6.1m (FY 2021: GBP10.7m).
As previously stated in the interim results released in September
2022, due the completion of the new manufacturing plant in China
last year, there were no material factory-related exceptional costs
incurred in the current year, which is the main reason for the
decrease. Exceptional costs incurred in the current year 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, and costs relating to
the Billi acquisition. Other exceptional items include disaster
recovery costs from the cyber incident reported in Feb 2022,
COVID-related costs due to lockdowns in China in the earlier part
of the current year, and reorganisation costs relating to internal
streamlining.
Cash flow
Cashflows from operating activities showed a modest improvement
of GBP1.1m despite the softening of trading performance. This is
largely due to the improvement in the changes of net working
capital (GBP8.8m), that largely offset the downside of cashflows
from operating profit (GBP8.4m).
Movements in net working capital showed a decrease in cash
outflows compared to the prior year. Net working capital cash
outflows decreased from GBP11.4m in FY 2021 to GBP2.6m in FY 2022.
The decrease in net cash outflows from net working capital were
mainly due to:
-- Stocks: diligent measures were put in place to optimise
Strix's Core supply chains and procurement levels, including
manufacturing and in-sourcing, and this resulted in a reduction
of stock-related cash outflows to GBP0.7m vs prior year
cash outflows of GBP5.3m. The increase of stocks in Billi
was c.GBP0.5m post acquisition. This resulted in a total
cash outflow of stock in the current year of GBP1.2m to
fuel anticipated increase in demand in the new year, evident
from green shoots returning in Q1 2023.
-- Debtors: a significant improvement in debtor cash flows
due to concerted efforts to tighten up accounts receivables
collections and to also collect on c.GBP4.0m of new factory-related
VAT from the Chinese government in the year, slightly offset
by increases in debtor balances in Billi post acquisition
(c.GBP0.8m);
-- Creditors: the significant improvements in cash flows from
inventories and debtors were however partially offset (marginally)
by lower creditors due to lower procurement activities.
Tax-related cash outflows decreased from GBP1.9m in FY 2021 to
GBP1.2m in FY 2022 mainly due to tax incentive credits granted in
Italy.
Cash outflows for investing activities significantly increased
in the current year from GBP17.0m in FY 2021 to GBP47.8m in FY 2022
mainly due to the acquisition of Billi, which was paid for in cash
and funded through refinancing of our revolving credit facility
(see next paragraph below). This was partially offset by a decrease
in capital expenditures because of the new Chinese manufacturing
plant which was completed in the second half of the prior year.
Cash inflows for financing activities significantly increased by
GBP37.1m compared to the prior year, driven by an increase in the
net debt from refinancing of our revolving credit facility to fund
the acquisition of Billi.
Balance Sheet
Property, plant and equipment increased to GBP47.4m (FY 2021:
GBP42.8m), presenting a net increase of GBP4.6m (11% increase).
Part of the increase, amounting to GBP3.4m, is attributable to
assets recognised as part of the acquisition of Billi. The
remainder of the increase in property, plant and equipment is
attributable to (1) additions to plant and machinery and production
tools of GBP3.8m for improvement of automation and production
efficiencies in the new factory, and an increase of fixtures,
fittings, equipment (including computer hardware), motor vehicles
and right-of-use assets totaling GBP2.1m, (2) partially offset
de-recognition of assets worth GBP0.7m, a significantly amount of
this being right-of-use assets from streamlining of offices
overseas, and then also depreciation charges of GBP4.2m (FY 2021:
GBP4.6m).
Intangible assets increased to GBP73.4m (FY 2021: GBP30.5m)
reflecting a net increase of GBP42.9m. The net increase is mainly
due to intangible assets (including goodwill) of c.GBP40.1m
recognized in the current year as part of the purchase price
allocation (PPA) exercise from the acquisition of Billi. Other
notable additions to intangible assets were relating to capitalised
development costs from new product development projects of circa
GBP3.3m, and computer software and other intangible asset additions
of circa GBP0.5m. The total amortisation charges were GBP2.1m (FY
2021: GBP2.3m), and foreign currency movements of GBP1.1m were
recognised on translation of intangible assets denominated in
foreign currencies.
Net working capital balance which includes inventories, trade
and other receivables, and trade and other payables (including tax
liabilities, but excluding short-term portions of long-term
liabilities) increased to GBP27.6m (FY 2021: GBP18.0m), an increase
on GBP9.6m. The main driver behind this is an increase in net
working capital c.GBP5.9m (including tax liabilities) recognised as
part of the acquisition of Billi. The rest of the increase relates
to taxes, foreign exchange revaluation, inventory and creditors
movements as largely explained above in the cash flow section.
Non-current liabilities (including short-term portions)
increased to GBP141.6m (FY 2021: GBP85.0m), an increase of
GBP56.6m, which is mainly driven by the further drawdowns in the
year from the revolving credit facility to fund the acquisition of
Billi and for payment of outstanding amounts accrued as contingent
consideration (earn-out provisions set up in FY 2020) payable in FY
2023 to the previous owners of LAICA upon meeting certain
performance and employment conditions.
Net debt
The Group's net debt position, excluding earn-out provisions, as
at 31 December 2022 increased to GBP87.4m (FY 2021: GBP51.2m).
Total committed debt facilities, net of arrangement fees, at
31(st) December 2022 amounted to GBP117.8m, giving a liquidity pool
of GBP30.4m. Net debt equated to 2.18 times trailing twelve months'
EBITDA, which compares favourably to our debt covenant threshold of
3.50 times.
Dividend
Given the increase in net debt due to the strategic acquisition
of Billi, and with the high interest rates environment, the Board
continues to take precautions to balance the capital allocation
priorities. To be prudent, the Board has decided to declare a final
dividend of 3.25p per share (FY 2021: 5.60p). With an interim
dividend paid on October 2022, the total dividend declared for FY
2022 is 6.00p per share (FY 2021: 8.35p per share).
The final dividend will be paid on 11 August 2023 to
shareholders on the register at 30 June 2023 and the shares will
trade ex-dividend from 29 June 2023.
Consolidated statement of comprehensive income
for the year ended 31 December 2022
Note 2022 2021
------------------------------------------------ -----
GBP000s GBP000s
------------------------------------------------ ----- --------- ---------
Revenue 7 106,920 119,410
------------------------------------------------ ----- --------- ---------
Cost of sales - before exceptional items (65,395) (71,986)
Cost of sales - exceptional items 6 (847) (3,578)
------------------------------------------------ ----- --------- ---------
Cost of sales (66,242) (75,564)
Gross profit 40,678 43,846
Distribution costs (10,824) (9,168)
------------------------------------------------ ----- --------- ---------
Administrative expenses - before exceptional
items (5,570) (5,107)
Administrative expenses - exceptional items 6 (5,101) (6,363)
------------------------------------------------ ----- --------- ---------
Administrative expenses (10,671) (11,470)
Share of losses from joint ventures (18) (50)
Other operating income 751 562
------------------------------------------------ ----- --------- ---------
Operating profit 19,916 23,720
Analysed as:
------------------------------------------------ ----- --------- ---------
Adjusted EBITDA (1) 32,128 40,540
Amortisation 11 (2,063) (2,310)
Depreciation 12 (4,201) (4,569)
Exceptional items 6 (5,948) (9,941)
------------------------------------------------ ----- --------- ---------
Operating profit 19,916 23,720
Finance costs 8 (3,925) (2,226)
Finance income 59 13
------------------------------------------------ ----- --------- ---------
Profit before taxation 16,050 21,507
Income tax credit / (expense) 9 805 (860)
Profit for the year 16,855 20,647
Other comprehensive income/(expense)
Items that may be reclassified to profit
or loss:
Exchange differences on translation of foreign
operations 1,495 (1,693)
Total comprehensive income for the year 18,350 18,954
Profit for the year attributable to:
Equity holders of the Company 16,790 20,599
Non-controlling interests 65 48
------------------------------------------------ ----- --------- ---------
16,855 20,647
------------------------------------------------ ----- --------- ---------
Total comprehensive income for the year
attributable to:
Equity holders of the Company 18,324 18,736
Non-controlling interests 26 218
------------------------------------------------ ----- --------- ---------
18,350 18,954
------------------------------------------------ ----- --------- ---------
Earnings per share (pence)
Basic 10 8.0 10.0
Diluted 10 7.9 9.8
------------------------------------------------ ----- --------- ---------
(1) Adjusted EBITDA, which is defined as earnings before finance
costs, tax, depreciation, amortisation, and exceptional items, is a
non-GAAP metric used by management and is not an IFRS
disclosure
Consolidated statement of financial position
as at 31 December 2022
Note 2022 2021
ASSETS GBP000s GBP000s
----------------------------------- ----- --------- --------
Non-current assets
Intangible assets 11 73,374 30,468
Property, plant and equipment 12 47,364 42,763
Investments in joint ventures 19 28
Net investments in finance leases 16 15
Total non-current assets 120,773 73,274
----------------------------------- ----- --------- --------
Current assets
Inventories 15 27,702 20,022
Trade and other receivables 16 29,791 25,511
Current income tax receivable 16 497 -
Cash and cash equivalents 17 30,443 19,670
----------------------------------- ----- --------- --------
Total current assets 88,433 65,203
----------------------------------- ----- --------- --------
Total assets 209,206 138,477
EQUITY AND LIABILITIES
----------------------------------- ----- --------- --------
Equity
Share capital and share premium 24 23,861 13,139
Share based payment reserve 23 202 2,039
Retained earnings 12,479 10,146
Non-controlling interests 707 681
Total equity 37,249 26,005
Current liabilities
Trade and other payables 18 29,963 25,886
Borrowings 19 14,734 1,064
Lease liabilities 26 1,069 773
Contingent consideration 14 7,532 6,082
Current income tax liabilities 18 444 1,631
Total current liabilities 53,742 35,436
----------------------------------- ----- --------- --------
Non-current liabilities
Lease liabilities 26 2,819 2,598
Deferred tax liability 9 11,387 2,303
Borrowings 19 103,092 69,782
Contingent consideration 14 - 1,382
Post-employment benefits 5(c) 917 971
----------------------------------- ----- --------- --------
Total non-current liabilities 118,215 77,036
----------------------------------- ----- --------- --------
Total liabilities 171,957 112,472
----------------------------------- ----- --------- --------
Total equity and liabilities 209,206 138,477
Consolidated statement of changes in equity
for the year ended 31 December 2022
Share Share Retained Total Non-controlling Total
capital based payment (deficit) Equity interests Equity
and share reserve / earnings attributable
premium to owners
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
--------------------------- ----------- --------------- ------------ -------------- ---------------- -----------
Balance at 1 January 2021 13,130 1,913 6,290 21,333 716 22,049
--------------------------- ----------- --------------- ------------ -------------- ---------------- -----------
Profit for the year - - 20,599 20,599 48 20,647
Other comprehensive income
/ (expenses) - - (1,863) (1,863) 170 (1,693)
---------------
Total comprehensive income
for the year - - 18,736 18,736 218 18,954
--------------------------- ----------- --------------- ------------ -------------- ---------------- -----------
Dividends paid (note 25) - - (16,510) (16,510) - (16,510)
Dividends paid to
non-controlling
interests - - 253 253 (253) -
Transfers between
reserves (note 23) 9 (1,249) 1,240 - - -
Share based payment
transactions (note 23) - 1,549 - 1,549 - 1,549
---------------
Total transactions with
owners recognised
directly in equity 9 300 (15,017) (14,708) (253) (14,961)
--------------------------- ----------- --------------- ------------ -------------- ---------------- -----------
Other transactions
recognised directly in
equity (note 23) - (174) 137 (37) - (37)
--------------------------- ----------- --------------- ------------ -------------- ---------------- -----------
Balance at 1 January 2022 13,139 2,039 10,146 25,324 681 26,005
--------------------------- ----------- --------------- ------------ -------------- ---------------- -----------
Profit for the year - - 16,790 16,790 65 16,855
Other comprehensive income
/ (expenses) - - 1,534 1,534 (39) 1,495
---------------
Total comprehensive income
for the year - - 18,324 18,324 26 18,350
--------------------------- ----------- --------------- ------------ -------------- ---------------- -----------
Dividends paid (note 25) - - (17,300) (17,300) - (17,300)
Share-based payment
transactions (note 23) - (491) - (491) - (491)
Transfers between
reserves (note 23) 7 (1,210) 1,203 - - -
Issue of shares (note
24) 13,000 - - 13,000 - 13,000
Transaction costs (note
24) (2,285) - - (2,285) - (2,285)
---------------
Total transactions with
equity holders recognised
directly in equity 10,722 (1,701) (16,097) (7,076) - (7,076)
--------------------------- ----------- --------------- ------------ -------------- ---------------- -----------
Other transactions
recognised directly in
equity (note 23) - (136) 106 (30) - (30)
--------------------------- ----------- --------------- ------------ -------------- ---------------- -----------
Balance at 31 December
2022 23,861 202 12,479 36,542 707 37,249
--------------------------- ----------- --------------- ------------ -------------- ---------------- -----------
Consolidated statement of cash flows
for the year ended 31 December 2022
2022 2021
Note GBP000s GBP000s
-------------------------------------------------- ----- --------- ---------
Cash flows from operating activities
Cash generated from operations 27 24,567 24,206
Tax paid (1,204) (1,916)
-------------------------------------------------- ----- --------- ---------
Net cash generated from operating activities 23,363 22,290
-------------------------------------------------- ----- --------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (4,749) (12,049)
Capitalised development costs 11 (3,326) (3,609)
Purchase of LAICA S.p.A (deferred consideration) (1,671) (1,605)
Purchase of Billi, net of cash acquired 14 (37,658) -
Purchase of other intangibles 11 (484) (1,487)
Proceeds on sale of property, plant and
equipment - 1,750
Finance income 59 13
Net cash used in investing activities (47,829) (16,987)
-------------------------------------------------- ----- --------- ---------
Cash flows from financing activities
Drawdowns under credit facility 19 46,487 24,000
Repayment of borrowings 19 - (5,820)
Finance costs paid 19 (3,263) (1,170)
Principal elements of lease payments 26 (833) (1,562)
Proceeds from issue of new shares, net
of issuance transaction costs 24 10,715 -
Dividends paid 25 (17,300) (16,510)
Dividends paid to non-controlling interests - (254)
Net cash used in financing activities 35,806 (1,316)
-------------------------------------------------- ----- --------- ---------
Net increase in cash and cash equivalents 11,340 3,987
Cash and cash equivalents at the beginning
of the year 19,670 15,446
Effects of foreign exchange on cash and
cash equivalents (567) 237
-------------------------------------------------- ----- ---------
Cash and cash equivalents at the end
of the year 30,443 19,670
Notes to the consolidated financial statements
for the year ended 31 December 2022
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 registered number
014963V. The address of its registered office is Forrest House,
Ronaldsway, Isle of Man, IM9 2RG.
The Company's shares were admitted to trading on AIM, a market
operated by the London Stock Exchange, on 8 August 2017. 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, water
filtration and small household appliances for personal health and
wellness.
2. PRINCIPAL ACCOUNTING POLICIES
The Group's principal accounting policies, all of which have
been applied consistently to all of the years presented, are set
out below.
Basis of preparation
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRS") and International Financial Reporting Standards
Interpretation Committee ("IFRS IC") interpretations as adopted by
the European Union. The financial statements have been prepared on
the going concern basis.
The preparation of consolidated 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 consolidated financial statements, are disclosed
in note 3.
Historical cost convention
The financial statements have been prepared on a historical cost
basis, except for the following:
-- contingent consideration - measured at fair value
Going concern
These consolidated 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 the Directors have considered the following:
-- the strong historic trading performance of the Group;
-- budgets and cash flow forecasts for the period to December
2024;
-- the current financial position of the Group, including
its cash and cash equivalents balances of GBP30.4m;
-- the availability of further funding by way of access to
the AIM market afforded by the Company's admission to
AIM);
-- the low liquidity risk the Group is exposed to;
-- the fact that the Group operates within a sector that
is experiencing relatively stable demand for its products,
despite a dip in sales due to the global COVID-19 pandemic
and the conflict in Ukraine.; and
-- that there has minimal disruption to the Group's manufacturing
or supply chain.
Based on these considerations, the Directors have concluded that
there are no material uncertainties that may cast significant doubt
on its ability to continue as a going concern and the Group has
adequate resources to continue in operational existence for the
foreseeable future. As a result, the Directors continue to adopt
the going concern basis of accounting in preparing the consolidated
financial statements.
There are no standards, amendments to standards or
interpretations that the Group has applied for the first time in
the reporting period commencing 1 January 2022 that have had a
material impact on the financial statements.
Standards, amendments and interpretations which are not
effective or early adopted
Certain new accounting standards and interpretations have been
published that are not mandatory for 31 December 2022 reporting
periods and have not been early adopted by the Group. These
standards are not expected to have a material impact on the entity
in the current or future reporting periods and on foreseeable
future transactions.
Basis of consolidation
The consolidated 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.
Subsidiaries are fully consolidated from the date on which
control is transferred to the Group. Consolidation of subsidiaries
ceases from the date that control also ceases.
Non-controlling interests in the results and equity of
subsidiaries are shown separately in the consolidated statement of
comprehensive income, consolidated statement of changes in equity
and the consolidated statement of financial position,
respectively.
Joint ventures
Joint ventures are joint arrangements of which the Group has
joint control, with rights to the net assets of those arrangements.
Joint control is the contractually agreed sharing of control of an
arrangement, which exists only when decisions about the relevant
activities require the unanimous consent of the parties sharing
control. Interests in joint ventures are accounted for using the
equity method of accounting (detailed below) after being recognised
at cost in the consolidated statement of financial position.
Equity method of accounting
Under the equity method of accounting, investments in joint
ventures are initially recognised at cost and adjusted thereafter
to recognise the Group's share of the post-acquisition profits or
losses from the joint arrangement in profit or loss, and the
Group's share of movements in other comprehensive income of the
joint arrangement in other comprehensive income. Dividends received
from joint ventures are recognised as a reduction in the carrying
amount of the investment.
Unrealised gains on transactions between the Group and its joint
ventures are eliminated to the extent of the Group's interest in
these entities.
The carrying amount of equity-accounted investments is tested
for impairment in accordance with the impairment of assets policy
as described below in this note.
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 consolidated financial statements.
Business combinations
Business combinations are accounted for using the acquisition
method as at the acquisition date with the assets and liabilities
of subsidiaries 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:
-- the fair value of the consideration transferred; plus
-- the recognised amount of any non-controlling interests
in the acquiree; plus
-- if the business combination is achieved in stages, the
fair value of the pre-existing interest in the acquiree;
less
-- the fair value of the identifiable assets acquired and
liabilities assumed.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are, with limited
exceptions, measured initially at their fair values at the
acquisition date. The Group recognises any non-controlling interest
in the acquired entity on an acquisition-by-acquisition basis at
the non-controlling interest's proportionate share of the fair
value of the acquired entity's net identifiable assets. Transaction
costs that the Group incurs in connection with a business
combination are expensed as incurred.
If the initial accounting for a business combination is
preliminary by the end of the reporting period in which the
business combination occurs, provisional amounts are reported.
Those provisional amounts are adjusted during the measurement
period, or additional assets or liabilities recognised
retrospectively to reflect the new information obtained about facts
and circumstances that existed as at the acquisition date, and if
known, would have affected the measurement of assets and
liabilities recognised at that date. Contingent consideration is
classified either as equity or a financial liability. Amounts
classified as a financial liability are subsequently remeasured to
fair value, with changes in fair value recognised in profit or
loss.
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 consolidated financial statements are presented in
Pound Sterling, which is Strix Group Plc's functional and
presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of
such transactions, and from the translation of monetary assets and
liabilities denominated in foreign currencies at year end exchange
rates, are recognised in the 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:
-- assets, including intangible assets and goodwill arising
on acquisition of those foreign operations, and liabilities
for each statement of financial position presented are
translated at the closing rate at the date of that statement
of financial position, or at historic rates for certain
line items;
-- income and expenses for each statement of comprehensive
income presented are translated at average exchange rates
(unless this is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction
dates, in which case income and expenses are translated
at the dates of the transactions); and
-- all resulting exchange differences are recognised in
other comprehensive income. Such translation differences
are reclassified to profit or loss only on disposal or
partial disposal of the foreign operation.
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. 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 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 12 details the financial impact
of the change in the useful lives of these assets.
The revised useful lives are shown below:
Asset class Previous estimate Revised estimate
* Plant and machinery 3-10 years 3-25 years
* Fixtures, fittings and equipment 2-5 years 2-10 years
* Motor vehicles 3-5 years unchanged
* Production tools 1-5 years 1-10 years
2-8 years (based on the
* Right-of-use assets lease term) unchanged
* Land and buildings 50 years unchanged
The asset class 'Point-of-use dispensers' were acquired on
acquisition of the Billi entities (notes 12 and 14) and are
depreciated over 4 - 10 years.
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 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 11
details the financial impact of the change in the useful lives of
these assets.
The revised useful lives are shown below:
Asset class Previous estimate Revised estimate
* Capitalised development costs 2-5 years 2-10 years
Lower of useful or legal
* Intellectual property life unchanged
* Technology and software 2-10 years unchanged
* Customer relationships 10-13 years unchanged
* Brands Indefinite useful life unchanged
* Goodwill Indefinite useful life unchanged
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.
The Billi brand is a well-established and competitive brand,
being one of the top 2 brands in the Australian and New Zealand
industries, and well recognised in the United Kingdom among
residential and commercial clientele. The Group does not foresee a
time limit by when this market presence 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.
Leases
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 ("ROU") 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:
-- fixed payments (including in-substance fixed payments),
less any lease incentives receivable
-- variable lease payments that are based on an index or
a rate
-- amounts expected to be payable by the lessee under residual
value guarantees
-- the exercise price of a purchase option if the lessee
is reasonably certain to exercise that options, and
-- the payment of penalties for terminating the lease, if
the lease term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be readily determined,
which is generally the case for leases in the Group, the lessee's
incremental borrowing rate is used, being the rate that the
individual lessee would have to pay to borrow the funds necessary
to obtain an asset of similar value to the right-of-use asset in a
similar economic environment with similar terms, security and
conditions.
Lease payments are allocated between principal and finance cost.
The finance cost is charged to the consolidated statement of
comprehensive income over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the
liability for each period.
Measurement of right-of-use assets
Right-of-use assets are measured at cost comprising the
following:
-- the amount of the initial measurement of lease liability
-- any lease payments made at or before the commencement
date less any lease incentives received
-- any initial direct costs, and
-- restoration costs
Right-of-use assets are generally depreciated over the shorter
of the asset's useful life and the lease term on a straight-line
basis.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in the consolidated statement of comprehensive income.
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.
Lease income
Lease income from operating leases where the Group is a lessor,
and where substantially all the risks and rewards associated with
the leased asset remain with the Group, is recognised in other
income on a straight-line basis over the lease term.
Financial assets
Classification
The Group classifies its financial assets as financial assets
held at amortised cost. Management determines the classification of
its financial assets at initial recognition.
The Group classifies its financial assets as at amortised cost
only if both of the following criteria are met:
-- the asset is held within a business model whose objective
is to collect the contractual cash flows; and
-- the contractual terms give rise to cash flows that are
solely payments of principal and interest.
Financial assets held at amortised cost are initially recognised
at fair value, and are subsequently stated at amortised cost using
the effective interest method. Financial assets at amortised cost
comprise cash and cash equivalents and trade and other receivables
(excluding prepayments and the advance purchase of commodities).
Trade receivables are amounts due from customers for products sold
performed in the ordinary course of business. They are due for
settlement either on a cash in advance basis, or generally within
45 days, and are therefore all classified as current. Other
receivables generally arise from transactions outside the usual
operating activities of the Group.
Impairment of financial assets
The Group assesses, on a forward-looking basis, the expected
credit losses associated with its debt instruments carried at
amortised cost. The impairment methodology applied depends on
whether there has been a significant increase in credit risk.
The Group applies the expected credit loss model to financial
assets at amortised cost. For trade receivables, the Group applies
the simplified approach permitted by IFRS 9, which requires
expected lifetime losses to be recognised from initial recognition
of the receivables. Given the nature of the Group's receivables,
expected lifetime losses are not material.
Financial liabilities
With the exception of contingent consideration, the Group
initially recognises its financial liabilities at fair value net of
transaction costs where applicable and subsequently they are
measured at amortised cost using the effective interest method.
Financial liabilities comprise trade payables, payments in advance
from customers and other liabilities. They are initially recognised
at transaction price, unless the arrangement constitutes a
financing transaction, where the debt instrument is measured at the
present value of the future payments discounted at a market rate of
interest. Contingent consideration is measured at fair value with
changes in fair value recognised in profit or loss.
Trade payables are obligations to pay for goods or services that
have been acquired in the ordinary course of business from
suppliers. Trade payables are classified as current liabilities if
payment is due within one year or less. If not, they are presented
as non-current liabilities. Other liabilities include rebates.
Borrowing costs
Borrowing costs or arrangement fees, including option-type
arrangements, are recognised initially at fair value. Borrowing
costs including option-type borrowing arrangements are subsequently
measured at amortised cost. The establishment of such option-type
arrangements are recognised as a 'right to borrow' asset, and
together with other borrowing costs or arrangement fees are
amortised over the period of the facilities to which the fees
relate, and are deducted from the carrying value of the financial
liability.
General and specific borrowing costs that are directly
attributable to the acquisition, construction or production of a
qualifying asset are capitalised during the period of time that is
required to complete and prepare the asset for its intended use or
sale. Qualifying assets are assets that necessarily take a
substantial period of time to get ready for their intended use or
sale. Investment income earned on the temporary investment of
specific borrowings, pending their expenditure on qualifying
assets, is deducted from the borrowing costs eligible for
capitalisation. Other borrowing costs are expensed in the period in
which they are incurred.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits with a maturity of three months or less. While cash and
cash equivalents are also subject to the impairment requirements of
IFRS 9, impairment losses are not material.
Employee benefits
The Group provides a range of benefits to employees, including
annual bonus arrangements, paid holiday entitlements and defined
benefit and contribution pension plans.
Short-term benefits
Short-term benefits, including holiday pay and similar
non-monetary benefits, are recognised as an expense in the period
in which the service is rendered. The Group recognises a liability
and an expense for bonuses where contractually obliged or where
there is a past practice that has created a constructive
obligation.
Pensions
Subsidiary companies operate both defined contribution and
defined benefit plans for the benefit of their employees.
A defined contribution plan is a pension plan under which the
Group pays fixed contributions into a separate entity. The Group
has no legal or constructive obligations to pay further
contributions if the fund does not hold sufficient assets to pay
all employees the benefits relating to employee service in the
current and prior periods. The Group has no further payment
obligations once the contributions have been paid. The
contributions are recognised as employee benefit expense when they
are due. A defined benefit plan is a pension plan that is not a
defined contribution plan.
Typically, defined benefit plans define an amount of pension
benefit that an employee will receive on retirement, usually
dependent on one or more factors, such as age, years of service or
compensation.
The liability recognised in the consolidated statement of
financial position in respect of the defined benefit scheme is the
present value of the defined benefit obligation at the statement of
financial position date less the fair value of the scheme assets,
together with adjustments for unrecognised actuarial gains or
losses and past service costs. The defined benefit obligation is
calculated by qualified independent actuaries using the projected
unit method. The present value of the defined benefit obligation is
determined by discounting the estimated future cash outflows using
interest rates of high-quality corporate bonds that are denominated
in the currency in which the benefits will be paid, and that have
terms to maturity approximating to the terms of the related pension
liability.
The net pension finance cost is determined by applying the
discount rate, used to measure the defined benefit pension
obligation at the beginning of the accounting period, to the net
pension obligation at the beginning of the accounting period taking
into account any changes in the net pension obligation during the
period as a result of cash contributions and benefit payments.
Pension scheme expenses are charged to the consolidated
statement of comprehensive income within administrative expenses.
Actuarial gains and losses are recognised immediately in the
consolidated statement of comprehensive income. Net defined benefit
pension scheme deficits before tax relief are presented separately
in the consolidated statement of financial position within
non-current liabilities.
Share-based payments
The Group has issued conditional equity settled share-based
options and conditional share awards under a Long-Term Incentive
Plan ("LTIP") in the parent company to certain employees. Under the
LTIP, the Group receives services from employees as consideration
for equity instruments of the Group. The fair value of the employee
services received in exchange for the grant of the options is
recognised as an expense.
The total amount to be expensed is determined by reference to
the fair value of the options granted:
-- including any market performance conditions such as the
requirement for the Group's shares to be above a certain
price for a pre-determined period;
-- excluding the impact of any service and non-market performance
vesting conditions, including earnings per share targets,
dividend targets, and remaining an employee of the Group
over a specified period of time; and
-- including the impact of any non-vesting conditions, where
relevant.
These awards are measured at fair value on the date of the grant
using an option pricing model and expensed in the consolidated
statement of comprehensive income on a straight-line basis over the
vesting period, after making an allowance for the estimated number
of shares that will not vest. The level of vesting is reviewed and
adjusted bi-annually in the consolidated statement of comprehensive
income, with a corresponding adjustment to equity.
If the terms of an equity settled award are modified, at a
minimum, an expense is recognised as if the terms had not been
modified. An additional expense is recognised for any modification
that increases the total fair value of the share-based payment, or
is otherwise beneficial to the employee, as measured at the date of
modification.
If an equity award is cancelled by forfeiture, where the vesting
conditions (other than market conditions) have not been met, any
expense not yet recognised for that award as at the date of
forfeiture is treated as if it had never been recognised. At the
same time, any expense previously recognised on such cancelled
equity awards is reversed, effective as at the date of
forfeiture.
The dilutive effect, if any, of outstanding options is included
in the calculation of diluted earnings per share.
Further details on the awards is included in note 23.
Inventories
Inventories consist of raw materials and finished goods which
are valued at the lower of cost and net realisable value. Cost is
determined using the weighted average cost formula. Cost comprises
expenditure which has been incurred in the normal course of
business in bringing the products to their present location and
condition including applicable supplier rebates, and include all
related production and engineering overheads at cost. Net
realisable value is the estimated selling price in the ordinary
course of business, less applicable selling expenses. At the end of
each reporting period, inventories are assessed for impairment. If
inventory is impaired, the identified inventory is reduced to its
selling price less costs to complete and an impairment charge is
recognised in the consolidated statement of comprehensive
income.
Supplier rebates
The Group enters into agreements with suppliers whereby
volume-related allowances and various other fees and discounts are
received in connection with the purchase of goods from those
suppliers. Most of the income received from suppliers relates to
commercially agreed rebates based on historic sales volumes.
Rebates are recognised when earned by the Group, which occurs
when all obligations conditional for earning income have been
discharged, and the income can be measured reliably based on the
terms of the contract. The income is recognised as a credit within
cost of sales.
Where the income earned relates to inventories which are held by
the Group at the year end, the income is included within the cost
of those inventories, and recognised in cost of sales upon sale of
those inventories. Amounts due relating to supplier rebates are
recognised within trade and other receivables.
Revenue
The Group primarily recognises revenue from the sale of goods
and services to its customers as well as from licensing
arrangements. The transaction price is based on the sales agreement
with the customer. Revenue is reported net of sales taxes,
discounts, rebates and after eliminating intra-group sales. Rebates
are based on a certain volume of purchases by a customer within a
given period and are recognised on an expected value approach.
Revenue is measured based on the consideration to which the
Group expects to be entitled in a contract with a customer and is
recognised when the performance obligations have been fulfilled.
The Group recognises revenue from the sale of goods and services
either at a point in time or over time, based on the nature of the
contract terms. The Group recognises revenue from three main
categories namely kettle safety controls, water and appliances.
Kettle safety controls
The performance obligation is the delivery of the goods to
customers, and revenue is recognised on dispatch, otherwise it is
recognised when the products have been shipped to a specific
location, or when the risks of obsolescence and loss have been
transferred to the Original Equipment Manufacturer ('OEM') or
wholesaler. All of the amounts recognised as revenue are based on
contracts with customers. No element of financing is deemed present
because the sales are made under normal credit terms, which is
consistent with market price.
Payment terms for the majority of customers in this category are
to pay cash in advance of the goods being delivered. The Group
recognises the advance payments within trade and other payables on
the consolidated statement of financial position as "Payments in
advance from customers". At the point the revenue is recognised,
these balances are transferred from "Payments in advance from
customers" to revenue. For the majority of other customers payment
is normally due within 30 to 45 days from the date of sale.
Water and appliances
The Group recognises revenue from the following major sources
under water and appliances categories:
-- Sale of components and devices involving water heating
and temperature control, steam management and water filtration;
-- Sale of Point-of-use (POU) water and coffee machines;
-- Rental of Point-of-use (POU) dispensers and coffee machines;
-- Servicing of Point-of-use (POU) units; and
-- Sale of consumables
Sale of components, devices and consumables
Sales are either 'direct' to the end user customers or
'indirect' to wholesale and retail distributors. Revenue from the
supply of goods is recognised once control of the goods has been
transferred to the customer, being when goods have been delivered
to a customer site or in the case of indirect sales, when the goods
have been delivered to the wholesale distributor.
Rental of dispensers
Rental income is made up of revenue from the supply of goods
where the Group is lessor in an operating lease and is recognised
over time, with the transaction price allocated to this service
released on a straight-line basis over the period of the lease.
Included in the transaction price for the rental of dispensers, in
some contracts, is the installation of those dispensers. The rental
and installation elements of the contract are considered to be one
deliverable, as they are highly interrelated, and therefore there
is no allocation of a portion of the transaction price to the
installation.
Rental income from operating leases is recognised on a
straight-line basis over the term of the relevant lease. Initial
direct costs incurred in negotiating and arranging an operating
lease (except where immaterial) are added to the carrying amount of
the leased asset and recognised on a straight-line basis over the
lease term. Commissions on new contracts are capitalised and
depreciated over one and a half times the initial lease term.
Rental agreements run for a minimum period of twelve months and
typically for three to five years. Some rental agreements have no
fixed end date and may be cancelled by either party subject to a
minimum notice period or early termination penalty. The average
useful economic life for a POU water device is approximately four
to ten years whilst refurbishment can extend the life of some
devices to eleven years or more. For this reason, existing rental
agreements are not judged to transfer substantially all of the
risks and rewards of ownership to the lessee.
Combined rental and service contracts
The Group has in place some contracts that cover both the rental
and servicing and maintenance of dispensers. The transaction price
is allocated to each performance obligation to reflect the amount
of consideration to which the Group is entitled to, in exchange for
transferring the promised goods or services to the customer. The
Group allocates combined rental and service income to the separate
rental and service categories based on a percentage allocation
method, which is calculated for each business unit. The percentage
allocation, which is recalculated periodically, is based on the
transaction price being allocated to each performance obligation in
proportion to its stand-alone selling price.
Servicing of POU units
Sale of services are recognised proportionally over the duration
of the service period, provided a right to consideration has been
established.
Deferred revenue
Revenue recognised in the consolidated statement of
comprehensive income but not yet invoiced is held in the statement
of financial position within 'Trade receivables. Revenue invoiced
but not yet recognised in the consolidated statement of
comprehensive income is held on the consolidated statement of
financial position within 'Payments in advance from customers'.
Licensing income
The Group holds a substantial portfolio of issued and registered
intellectual property rights relating to certain aspects of its
hardware devices, accessories, goods, software and services. This
includes patents, designs, copyrights, trademarks and other forms
of intellectual property rights registered in the U.K. and various
foreign countries.
From time to time, the Group enters into term-based and
exclusive licensing arrangements with some of its customers in
respect of its intellectual property. Revenue from the licensing
contracts is variable and is recognised at the amount to which the
Group expects to be entitled when control of the intellectual
property is transferred to its customers. Control is generally
transferred when the Company has a present right to payment and
title and the significant risks and rewards of ownership of the
intellectual property, products or services are transferred to its
customers.
The licensing income is recognised at a point in time or over
time based on the following assessment. Where the licensing
arrangement is a distinct performance obligation, Management assess
whether the licensing contract gives the customer either:
-- the right to access the Group's intellectual property
as it exists throughout the licence period; or
-- right to use the Group's intellectual property as it exists
at the point in time at which the licence is granted.
Revenue from a licencing contract which is considered to provide
a right to the customer to access the Group's intellectual property
as it exists throughout the licence period is recognised over time,
as and when the related performance obligation is satisfied.
A licensing contract gives the customer the right to access the
Group's intellectual property as it exists throughout the license
period when all the following are met:
-- the contract requires, or the customer reasonably expects,
that we will undertake activities that significantly
affect the intellectual property to which the customer
has rights; and
-- the rights granted by the licence directly expose the
customer to any positive or negative effects of the entity's
activities identified above; and
-- those activities do not result in the transfer of a good
or a service to the customer as those activities occur.
Revenue relating to a licensing contract which does not meet the
above criteria is recognised at a point in time, which is usually
the point at which the licence is granted to the customer but not
before the beginning of the period during which the customer is
able to use and benefit from the licence.
Cost of sales
Cost of sales comprise costs arising in connection with the
manufacture of thermostatic controls, cordless interfaces, and
other products such as water dispensers, taps, jugs and filters.
Cost is based on the cost of purchases on a first in, first out
basis and includes all direct costs and an appropriate portion of
fixed and variable overheads where they are directly attributable
to bringing the inventories into their present location and
condition. This also includes an allocation of non-production
overheads, costs of designing products for specific customers and
amortisation of capitalised development costs.
Research and development
Research expenditure is written off to the consolidated
statement of comprehensive income within cost of sales in the year
in which it is incurred. Development expenditure is written off in
the same way unless the Directors are satisfied as to the
technical, commercial and financial viability of the individual
projects. In this situation, the expenditure is classified on the
consolidated statement of financial position as a capitalised
development cost.
Finance income
Finance income comprises bank interest receivable on funds
invested. Finance income is recognised using the effective interest
rate method.
Finance costs
Finance costs directly attributable to the acquisition or
construction of a qualifying asset are capitalised. Qualifying
assets are those that necessarily take a substantial period of time
to prepare for their intended use. All other borrowing cost are
recognised in the consolidated statement of income in finance
costs. Finance costs comprise interest charges on lease
liabilities, interest on borrowings, the unwind of discounts on the
present value of liabilities, and finance charges relating to
letters of credit. Finance costs are determined using the effective
interest rate method.
Income tax
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted at
the statement of financial position date in the countries where the
Company and its subsidiaries operate and generate taxable income,
and any adjustment to tax payable in respect of previous years.
Current and deferred tax is recognised in profit or loss, except
to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax
is also recognised in other comprehensive income or directly in
equity, respectively.
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the
consolidated financial statements. However, deferred tax
liabilities are not recognised if they arise from the initial
recognition of goodwill.
Deferred income tax is also not accounted for if it arises from
initial recognition of an asset or liability in a transaction other
than a business combination that, at the time of the transaction,
affects neither accounting nor taxable profit or loss. Deferred
income tax is determined using tax rates (and laws) that have been
enacted or substantively enacted by the end of the reporting period
and are expected to apply when the related deferred income tax
asset is realised or the deferred income tax liability is
settled.
Deferred tax assets are recognised only if it is probable that
future taxable amounts will be available to utilise those temporary
differences and losses.
Deferred tax liabilities and assets are not recognised for
temporary differences between the carrying amount and tax bases of
investments in foreign operations where the company is able to
control the timing of the reversal of the temporary differences and
it is probable that the differences will not reverse in the
foreseeable future.
Deferred tax assets and liabilities are offset where there is a
legally enforceable right to offset current tax assets and
liabilities and where the deferred tax balances relate to the same
taxation authority. Current tax assets and tax liabilities are
offset where the entity has a legally enforceable right to offset
and intends either to settle on a net basis, or to realise the
asset and settle the liability simultaneously.
Share capital and share premium
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new ordinary shares are shown
in equity as a deduction from the proceeds. Share premium arising
on the issue of shares is distributable. Share capital and share
premium have been grouped for the purposes of financial statement
presentation.
Dividends
Dividends are recognised when they become legally payable. In
the case of interim dividends to equity shareholders, this is when
declared by the Directors. In the case of final dividends, this is
when approved by the shareholders at the AGM.
Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker.
The chief operating decision maker, who is responsible for
allocating resources and assessing the performance of the operating
segments, has been identified as the Board of Directors. The Board
of Directors consists of the Executive Directors and the
Non-Executive Directors.
Government grants
Subsidiary companies receive grants from the Isle of Man and
Chinese governments towards revenue and capital expenditure.
Government grants are recognised at their fair value where there is
a reasonable assurance that the grant will be received and all
attached conditions complied with.
Revenue grants are recognised as income over the period
necessary to match the grant on a systematic basis to the costs
that it is intended to compensate. The grant income is presented
within other operating income in the consolidated statement of
comprehensive income.
Capital grants are initially recognised as deferred income
liabilities when received, and subsequently recognised as other
income in profit or loss on a straight-line basis over the useful
life of the related asset. The grants are dependent on the
subsidiary company having fulfilled certain operating, investment
and profitability criteria in the financial year, primarily
relating to employment.
EBITDA and adjusted EBITDA - non-GAAP alternative performance
measures
In the reporting of financial information, the Directors have
adopted Earnings before Interest, Taxation, Depreciation and
Amortisation ("EBITDA") and adjusted EBITDA when assessing the
operating performance of the Group. 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
EBITDA and adjusted EBITDA are non-GAAP measures and may not be
calculated in the same way and hence may not be directly comparable
to those reported by other entities. In determining the adjusting
items, the following criteria is also considered:
-- if a certain event (defined as exceptional) had not occurred,
the costs would not have been incurred or the income would
not have been earned; or
-- the costs attributable to the event have been identified
using a reliable methodology of splitting amounts on an
ongoing basis; and economic resources have been expended
or diverted in order to directly contribute towards the
related activities; and
-- costs have been incurred that cannot be recovered due
to the event and the related activities.
An item is treated as exceptional if it relates to certain costs
or income that derive from events or transactions that fall within
the normal activities of the Group but which, individually or, if
of a similar type, in aggregate, are excluded from the Group's
Alternative Performance Measures (APMs) by virtue of their nature
or size, in order to better reflect management's view of the
underlying trends and operating performance of the Group that is
more comparable over time.
3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
In the application of the Group's accounting policies, which are
described in Note 2, the directors are required to make judgements
(other than those involving estimations) that have a significant
impact on the amounts recognised and to make estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may
differ from these estimates. There is no change in applying
accounting policies for critical accounting estimates and
judgements from the prior year.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
Critical judgements in applying the entity's accounting
policies
Functional currency
The Directors consider the factors set out in paragraphs 9, 10
and 11 of IAS 21, "The effects of changes in foreign currency" to
determine the appropriate functional currency of its overseas
operations. These factors include the currency that mainly
influences sales prices, labour, material and other costs, the
competitive market serviced, financing cash flows and the degree of
autonomy granted to the subsidiaries.
The Directors have applied judgement in determining the most
appropriate functional currency for all entities to be Pound
Sterling, with the exception of Strix (Hong Kong) Ltd which has a
Hong Kong Dollar functional currency, Strix (USA), Inc. which has a
United States Dollar functional currency, HaloSource Water
Purification Technology (Shanghai) Co. Ltd which have a Chinese
Yuan functional currency, LAICA S.p.A and LAICA Iberia Distribution
S.L. which both have a Euro functional currency, and LAICA
International Corp.; Taiwan LAICA Corp. which both have a Taiwan
Dollar functional currency, Billi Australia (Pty) Ltd which has an
Australian Dollar functional currency and Billi New Zealand Ltd
which has a New Zealand dollar functional currency. This may change
as the Group's operations and markets change in the future.
Capitalisation of development costs
The Directors consider the factors set out in the paragraphs
entitled 'Intangible assets - initial recognition and measurement'
in note 2 with regard to the timing of the capitalisation of the
development costs incurred. This requires judgement in determining
when the different stages of development have been met.
Alternative performance measures (APMs) - Exceptional items
Management and the Board consider the quantitative and
qualitative factors in classifying items as exceptional and
exercise judgement in determining the adjustments to apply to IFRS
measures. This assessment covers the nature of the item, cause of
occurrence, frequency, predictability of occurrence of the item or
related event, and the scale of the impact of that item on reported
performance. Reversals of previous exceptional items are assessed
based on the same criteria.
An analysis of the exceptional items included in the
consolidated statement of comprehensive income are disclosed in
note 6(b).
Acquisition of Billi entities - fair value measurements
A determination of the provisional fair value of the assets
acquired and liabilities assumed in the acquisition, and the useful
lives of intangible assets and property, plant and equipment
acquired is required. This exercise is a substantial undertaking
which requires the use of various valuation techniques. Future
events could cause underlying assumptions to change which could
have a significant impact on the Group's financial results. Refer
to Note 14 for further details regarding the acquisition, including
estimations used in determining the provisional fair values for the
acquired assets and liabilities assumed.
Impairment of indefinite lived intangible assets and
goodwill
Determining whether goodwill and intangible assets with
indefinite lives are impaired requires an estimation of the value
in use or the fair value less costs to sell of the cash generating
unit (CGU) to which the goodwill or intangible asset has been
allocated. The value in use calculation requires management's
estimation of the future cash flows expected to arise from the CGU.
Refer to Note 11 for the sensitivity analysis of the assumptions
used in the impairment analysis of goodwill and intangible assets
with indefinite lives.
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, dispensers, jugs and filters, primarily to
Original Equipment Manufacturers ("OEMs"), commercial and
residential customers based in China, Italy, Australia, New Zealand
and the United Kingdom.
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 is disclosed below, as well as in note 7.
Reported gross profit
2022
(GBP000s)
Kettle controls Water category Appliances Total
--------------- ---------------- --------------- ----------- ---------
Revenue 68,243 24,135 14,542 106,920
Cost of sales (41,108) (16,303) (8,831) (66,242)
--------------- ---------------- --------------- ----------- ---------
Gross profit 27,135 7,832 5,711 40,678
--------------- ---------------- --------------- ----------- ---------
Reported gross profit
2021
(GBP000s)
Kettle controls Water category Appliances Total
--------------- ---------------- --------------- ----------- ---------
Revenue 85,117 21,404 12,889 119,410
Cost of sales (52,880) (14,617) (8,067) (75,564)
--------------- ---------------- --------------- ----------- ---------
Gross profit 32,237 6,787 4,822 43,846
--------------- ---------------- --------------- ----------- ---------
Adjusted gross profit*
2022
(GBP000s)
Kettle controls Water category Appliances Total
--------------- ---------------- --------------- ----------- ---------
Revenue 68,243 24,135 14,542 106,920
Cost of sales (40,306) (16,277) (8,812) (65,395)
--------------- ---------------- --------------- ----------- ---------
Gross profit 27,937 7,858 5,730 41,525
--------------- ---------------- --------------- ----------- ---------
Adjusted gross profit*
2021
(GBP000s)
Kettle controls Water category Appliances Total
--------------- ---------------- --------------- ----------- ---------
Revenue 85,117 21,404 12,889 119,410
Cost of sales (49,455) (14,500) (8,031) (71,986)
--------------- ---------------- --------------- ----------- ---------
Gross profit 35,662 6,904 4,858 47,424
--------------- ---------------- --------------- ----------- ---------
* Adjusted gross profit excludes exceptional items as detailed
in note 6(b). Adjusted results are non-GAAP metrics used by
management and are not an IFRS disclosure.
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 and Italy.
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,
Italy, Australia, New Zealand and the United Kingdom where the
Group's principle subsidiaries are domiciled.
2022 2021
GBP000s GBP000s
---------------------------------------------- -------- --------
Country of domicile
Intangible assets 11,354 9,756
Property, plant and equipment 3,151 2,742
---------------------------------------------- -------- --------
Total country of domicile non-current assets 14,505 12,498
---------------------------------------------- -------- --------
Foreign countries
Intangible assets 62,020 20,712
Property, plant and equipment 44,213 40,021
---------------------------------------------- -------- --------
Total foreign non-current assets 106,233 60,733
---------------------------------------------- -------- --------
Total non-current assets 120,738 73,231
---------------------------------------------- -------- --------
Major customers
In 2022, there were two major customers that individually
accounted for at least 10% of total revenues (2021: two customers).
The revenues relating to these customers in 2022 were GBP13,587,000
and GBP9,538,000 (2021: GBP15,390,000 and GBP12,133,000).
5. EMPLOYEES AND DIRECTORS
(a) Employee benefit expenses
2022 2021
GBP000s GBP000s
-------------------------------------------------- -------- --------
Wages and salaries 27,500 28,167
Defined contribution pension cost (note 5(c)(i)) 782 684
-------------------------------------------------- -------- --------
Employee benefit expenses 28,282 28,851
-------------------------------------------------- -------- --------
Share based payment transactions (note 23) (491) 1,549
-------------------------------------------------- -------- --------
Total employee benefit expenses 27,791 30,400
-------------------------------------------------- -------- --------
(b) Key management compensation
The following table details the aggregate compensation paid in
respect of the key management, which includes the Directors and the
members of the Operational Board, representing members of the
senior management team from all key departments of the Group.
2022 2021
GBP000s GBP000s
------------------------------------------------- -------- --------
Salaries and other short-term employee benefits 2,069 2,025
Post-employment benefits 181 149
Termination benefits 74 -
Share based payment transactions (348) 311
------------------------------------------------- -------- --------
1,976 2,485
------------------------------------------------- -------- --------
- There are no defined benefit schemes for key management.
Pension costs under defined contribution schemes are included in
the post-employment benefits disclosed above.
(c) Retirement benefits
(i) The Strix Limited Retirement Fund
The Strix Limited Retirement Fund is a defined contribution
scheme under which the assets of the scheme are held separately
from those of the Group in an independently administered fund. The
pension cost charge represents costs payable by the Group to the
fund and amounted to GBP782,000 (2021: GBP684,000).
(ii) LAICA S.p.A. Termination Indemnity
LAICA S.p.A. operates a defined benefit plan for its employees
in accordance with the Italian Termination Indemnity (named
"Trattamento di Fine Rapporto" or "TFR") provisions defined by the
National Civil Code (Article 2120). In accordance with IAS 19, the
TFR provision is a defined benefit plan, which is based on the
principle to allocate the final cost of benefits over the periods
of service which give rise to an accrual of deferred rights under
each particular benefit plan.
The calculation of the liability is based on both the length of
service and on the remuneration received by the employee during
that period of service. Article 2120 states that severance pay is
due to the employee by the companies in any case of termination of
the employment contract. For each year of service, severance pay
accruals are based on total annual compensation divided by 13.05.
Although the benefit is paid in full by the employer, part (0.5% of
pay) of the annual accrual is paid to INPS by the employer, and is
subtracted from the severance pay accruals for the contribution
reference period. As of 31(st) December of every year, the
severance pay accrued as of 31(st) December of the preceding year
is revalued by an index stipulated by law as follows: 1.5% plus 75%
of the increase over the last 12 months in the consumer price
index, as determined by the Italian Statistical Institute.
In accordance with IAS 19, the determination of the present
value of the liability is carried out by an independent actuary
under the projected unit method. This method considers each period
of service provided by workers at the company as a unit of
additional right. The actuarial liability must therefore be
quantified based on seniority reached at the valuation date and
re-proportioned based on the ratio between the years of service
accrued at the reference date of the assessment and the overall
seniority reached at the time scheduled for the payment of the
benefit. Furthermore, this method provides to consider future
salary increases, due to any cause (inflation, career, contract
renewals, etc.), up to the time of termination of the employment
relationship.
The below chart summarises the defined benefit pension liability
of LAICA S.p.A. at 31st December 2022:
2022 2021
GBP000s GBP000s
------------------------------------------------ -------- --------
Liability as at 1 January 897 898
Current service cost for the period (113) 58
Exchange differences on translation of foreign
operations 48 (59)
------------------------------------------------ -------- --------
Liability as at 31 December 832 897
------------------------------------------------ -------- --------
The key actuarial assumptions used in arriving at these figures
include:
-- annual discount rate of 3.77% (2021: 0.87%)
-- annual price inflation of 2.3% (2021: 1.6%)
-- annual TFR increase of 3.2% (2021: 2.7%)
-- demographic assumptions based on INPS published data
The remainder of the post-employment benefit liability of
GBP85,000 (2021: GBP74,000) as at 31 December 2022 is made up of
contractual post-employment liabilities within LAICA S.p.A. that do
not meet the definition of a defined benefit plan in accordance
with IAS 19.
6. EXPENSES
(a) Expenses by nature
2022 2021
GBP000s GBP000s
-------------------------------------- -------- --------
Employee benefit expense (note 5(a)) 28,282 28,851
Depreciation charges 4,201 4,569
Amortisation and impairment charges 2,063 2,310
Exceptional items (see below) 5,948 9,941
Foreign exchange losses 188 186
-------------------------------------- -------- --------
Research and development expenditure totalled GBP4,888,000
(2021: GBP5,324,000), and GBP3,326,000 (2021: GBP3,609,000) of
development costs have been capitalised during the year.
(b) Exceptional items
The main categories of exceptional items relate to major
exceptional events or projects impacting the Group's underlying
operations, namely strategic projects relating to mergers and
acquisitions with particular reference to the acquisition of the
Billi entities in the current year and LAICA in 2020 and their
continued integration into the Group, disaster recovery costs due
to a cyber incident, COVID-19 related costs and related impacts on
Group operations, reorganisation and restructuring projects, and
the Group's share incentive initiatives for conditional share
options and awards issued to certain employees of the Group (refer
to note 23 for further details).
Exceptional items have been broken down as follows:
2022 2021
GBP000s GBP000s
--------------------------------------------------- -------- --------
Exceptional items in cost of sales:
Assets written off due to relocation to new
factory - 1,679
Other costs relating to relocation to new factory - 1,596
COVID-19 related costs 485 226
Reorganisation costs 362 77
--------------------------------------------------- -------- --------
847 3,578
--------------------------------------------------- -------- --------
Exceptional items in administrative expenses:
Share-based payments (491) 1,549
Other costs relating to relocation to new factory - 1,140
Mergers and acquisitions related costs 3,992 2,749
COVID-19 related costs 673 819
Disaster recovery 377 -
Reorganisation and restructuring costs 550 106
--------------------------------------------------- -------- --------
5,101 6,363
--------------------------------------------------- -------- --------
Total exceptional items 5,948 9,941
--------------------------------------------------- -------- --------
Also included as an exceptional item are finance costs of
GBP180,000 (2021: GBP780,000) relating to the discount unwinding of
the present values of contingent liabilities recognised per note
14. These costs have been included within finance costs in note
8.
Mergers and acquisitions exceptional costs relate mainly to the
accrual of consultancy and other acquisition related exceptional
costs amounting to GBP2,703,000 from the acquisition of the Billi
entities in November 2022 as well as an accrual of GBP2,481,000 for
2022 as part of a supplemental consulting arrangement with the
vendor shareholders of LAICA relating to compensation for
post-combination services as these services are rendered to LAICA
in 2022 (refer to note 14). Within the exceptional costs for
mergers and acquisitions is a reversal of GBP1,267,000 relating to
the estimated contingent consideration which was recognised at
acquisition date when the Group acquired LAICA. The adjustment is
due to a revision of the estimate in relation to the performance
earn-out. LAICA's performance in the current year was lower than
originally expected at the date of acquisition. Other mergers and
acquisitions costs totalling GBP75,000 relate to legal and
consultancy fees incurred on integration of LAICA into the
Group.
COVID-19 related exceptional costs are those items that are
incremental and directly attributable to COVID-19. These are costs
that would not have been incurred if the COVID-19 pandemic had not
occurred and are not expected to recur once the effects have
largely receded. In the current year, these mainly consisted of
incremental labour costs as a result of the COVID lockdowns mainly
in China where the Group has significant operations. Other COVID-19
exceptional costs included mothballing of certain activities as
resources were reorganised in response to the impact of COVID-19 on
the Group's operations, additional cleaning and sanitation costs
incurred as part of combined infection control or prevention
efforts, and exceptional freight and carriage costs paid to fill
shortages of supplies, materials and products directly caused by
impacts of COVID-19 on shipping and freight supply chains.
Disaster recovery costs relate to staff and non-staff costs
incurred in response to a cyber incident which occurred in February
2022. The Group engaged external specialists, took precautionary
measures with its IT infrastructure and implemented its business
continuity plan. The systems were successfully restored and are
fully operational. The Group continues to monitor its exposure.
Reorganisation and restructuring costs include costs to
re-qualify an alternative supplier due to a natural disaster in the
form of flooding at one of the Group's suppliers as well as
redundancy and relocation costs which arose during the year.
In the prior year, costs relating to the new Chinese factory
project were made up of assets written off with a net book value of
GBP1.7m which could not be relocated as they would not be fit for
the manufacturing operations at the new factory, and other
relocation costs totalling GBP2.7m relating to disassembly of
machinery at the old factory, moving costs, reassembly of machinery
at the new factory, labour costs incurred for the relocation,
set-up and cleaning costs, logistics services, approvals and
inspections, consultancy and security services, and other costs
directly related to the relocation.
(c) Auditor's remuneration
During the year the Group (including its subsidiaries) obtained
the following services from the Company's auditor as detailed
below:
2022 2021
GBP000s GBP000s
----------------------------------------------- -------- --------
Fees payable to Company's auditor and its
associates for the audit of the consolidated
financial statements 245 201
Fees payable to Company's auditor and its
associates for other services:
- the audit of Company's subsidiaries 8 8
- other assurance services 3 56
- tax compliance and other 5 4
----------------------------------------------- -------- --------
261 269
----------------------------------------------- -------- --------
7. REVENUE
The following table shows a disaggregation of revenue into
categories by product line:
2022 2021
GBP000s GBP000s
----------------- -------- --------
Kettle controls 68,243 85,117
Water category 24,135 21,404
Appliances 14,542 12,889
----------------- -------- --------
Total revenue 106,920 119,410
----------------- -------- --------
Included within the revenue from the appliances category is
licensing fee income relating to intellectual property amounting to
GBP1,442,000 (2021: nil).
8. FINANCE COSTS
2022 2021
GBP000s GBP000s
--------------------------------------------------- -------- --------
Letter of credit charges 94 95
Right-of-use lease interest 92 105
Discount unwinding of present value of contingent
consideration 180 780
Borrowing costs 3,559 1,246
--------------------------------------------------- -------- --------
Total finance costs 3,925 2,226
--------------------------------------------------- -------- --------
The discount unwinding of present values relating to the
contingent consideration recognised on acquisition of LAICA S.p.A.
(see note 14). The amount has been included in finance costs as an
exceptional item (refer to note 6).
9. TAXATION
2022 2021
Analysis of (credit) / charge in year GBP000s GBP000s
------------------------------------------------- -------- --------
Current tax (overseas) and deferred tax
Current tax on overseas profits for the
year 491 1,115
Adjustments to prior years' overseas tax
provisions (1,323) -
Movement in deferred tax assets and liabilities 27 (255)
------------------------------------------------- -------- --------
Total tax (credit) / charge (805) 860
------------------------------------------------- -------- --------
Overseas tax relates primarily to tax payable by the Group's
subsidiaries in China, Australia, New Zealand, Italy and the
UK.
In relation to the prior year's tax provision adjustments,
during 2015, the Group's Chinese subsidiary took a prudent measure
to make tax provisions following a benchmarking assessment by the
Chinese tax authorities relating to the contract processing model
adopted by the businesses in the years 2009 to 2014. The potential
additional liabilities for 2015 to 2018 of GBP876,000 had been
included within the current tax liability balance up to the end of
the prior year. Based on the independent recommendations, and as a
more acceptable tax model by the Chinese tax authorities, the
Chinese subsidiary converted to an import processing model in 2019,
which is also largely in use by the majority of the OEMs in China.
As result of this, the subsidiary obtained a tax certificate from
the in-charge tax bureau in the current year which confirmed that
all tax matters in the subsidiary have been settled. As such the
prior year tax provisions were therefore released in the current
year as they were no longer required.
In addition, withholdings taxes of GBP447,000 relating to
anticipated dividends payable by the Chinese subsidiary to its
immediate holding company in the Isle of Man had been accrued in
previous years. In light of the recent developments in the Group's
operations in China, Management decided in the current year to
invest more into the new China factory in terms of capital
expenditure, thereby keeping profits within the Chinese
subsidiaries. As a result of this decision, the anticipated
dividends were no longer payable and the relating tax provisions
were consequently released.
Reconciliation of the movement in deferred tax liabilities has
been presented below:
Deferred tax liabilities:
2022 2021
GBP000 GBP000
------------------------------------------ ------- -------
Deferred tax liability on 1 January 2,303 2,558
Deferred tax liabilities recognised on 9,011 -
acquisition of Billi (note 14)
Reversal of deferred tax on utilisation
of temporary differences 73 (255)
------------------------------------------- ------- -------
Deferred tax liability as at 31 December 11,387 2,303
------------------------------------------- ------- -------
The balance comprises temporary differences attributable to
intangible assets recognised on acquisition of LAICA in FY 2020 and
Billi in the current year.
The Group has an immaterial deferred tax asset. Refer to note 16
for details.
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
different to the standard rate of income tax in the Isle of Man of
0% (2021: 0%). The differences are explained below:
2022 2021
GBP000s GBP000s
-------------------------------------------------- -------- --------
Profit on ordinary activities before tax 16,050 21,507
-------------------------------------------------- -------- --------
Profit on ordinary activities multiplied by - -
the rate of income tax in the Isle of Man of
0% (2021: 0%)
Impact of higher overseas tax rate 518 860
Adjustments in relation to prior years' overseas (1,323) -
tax provisions
-------------------------------------------------- -------- --------
Total taxation (credit)/charge (805) 860
-------------------------------------------------- -------- --------
The Group is subject to Isle of Man income tax on profits at the
rate of 0% (2021: 0%), UK income tax on profits at a rate of 19%
(2021:19%), Chinese income tax on profits at the rate of 25% (2021:
25%), and Italian income tax on profits at a rate of 27.9% (2021:
27.9%). Following the acquisition of the Billi entities, the group
is subject to Australian income tax on profits at the rate of 30%
and New Zealand income tax on profits at the rate of 28%.
10. EARNINGS PER SHARE
The calculation of basic and diluted earnings per share is based
on the following data.
2022 2021
------------------------------------------------ -------- --------
Earnings (GBP000s)
Earnings for the purposes of basic and diluted
earnings per share 16,790 20,599
------------------------------------------------ -------- --------
Number of shares (000s)
Weighted average number of shares for the
purposes of basic earnings per share 209,911 206,271
Weighted average dilutive effect of share
awards 2,585 3,381
Weighted average number of shares for the
purposes of diluted earnings per share 212,496 209,652
------------------------------------------------ -------- --------
Earnings per ordinary share (pence)
Basic earnings per ordinary share 8.0 10.0
Diluted earnings per ordinary share 7.9 9.8
------------------------------------------------ -------- --------
Adjusted earnings per ordinary share (pence)
(1)
Basic adjusted earnings per ordinary share
(1) 10.9 15.2
Diluted adjusted earnings per ordinary share
(1) 10.8 14.9
------------------------------------------------ -------- --------
The calculation of basic and diluted adjusted earnings per share
is based on the following data:
2022 2021
GBP000s GBP000s
---------------------------------------------- -------- --------
Profit for the year 16,790 20,599
---------------------------------------------- -------- --------
Add back exceptional items included in (note
6(b)):
Cost of sales 847 3,578
Administrative expenses 5,101 6,363
Finance costs 180 780
Adjusted earnings (1) 22,918 31,320
---------------------------------------------- -------- --------
(1. Adjusted earnings and adjusted earnings per share exclude
exceptional items, which include share-based payment transactions,
COVID-19-related costs reorganisation costs and other strategic
project costs. Adjusted results are non-GAAP metrics used by
management and are not an IFRS disclosure)
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.
11. INTANGIBLE ASSETS
2022
-----------------------------------------------------------------------------------------------------
Intangible
assets
Development Intellectual Customer under
costs Software Property relationships Brands Goodwill construction Total
------------ --------- ------------- -------------- -------- --------- ------------- ---------
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
At 1 January
Cost 15,971 4,186 1,128 2,232 6,174 8,736 66 38,493
Accumulated amortisation
and impairment (6,565) (1,153) (111) (196) - - - (8,025)
---------------------------- ------------ --------- ------------- -------------- -------- --------- ------------- ---------
Net book value 9,406 3,033 1,017 2,036 6,174 8,736 66 30,468
---------------------------- ------------ --------- ------------- -------------- -------- --------- ------------- ---------
Period ended 31 December
Additions 3,326 178 272 - - - 34 3,810
Acquisition of Billi (note
14) 3 4 - 15,912 13,283 10,885 - 40,087
Transfers - - - - - - - -
Disposals (cost) (20) - - - - - - (20)
Disposals (accumulated
amortisation) 1 - - - - - - 1
Amortisation charge (1,103) (605) (145) (210) - - - (2,063)
Exchange differences 99 25 82 108 328 446 3 1,091
---------------------------- ------------ --------- ------------- -------------- -------- --------- ------------- ---------
Closing net book value 11,712 2,635 1,226 17,846 19,785 20,067 103 73,374
---------------------------- ------------ --------- ------------- -------------- -------- --------- ------------- ---------
At 31 December
Cost 19,428 4,452 1,482 18,549 19,785 20,067 103 83,866
Accumulated amortisation
and impairment (7,716) (1,817) (256) (703) - - - (10,492)
---------------------------- ------------ --------- ------------- -------------- -------- --------- ------------- ---------
Net book value 11,712 2,635 1,226 17,846 19,785 20,067 103 73,374
---------------------------- ------------ --------- ------------- -------------- -------- --------- ------------- ---------
Amortisation charges have been treated as an expense, and are
allocated to cost of sales (GBP1,707,000), distribution costs
GBPNIL and administrative expenses (GBP356,000) in the consolidated
statement of comprehensive income.
The Group's goodwill, customer relationships and brands
predominantly relate to those arising on the acquisition of LAICA
which was completed in 2020, and also on the acquisition of the
Billi entities (including pre-existing intangibles assets), which
were acquired in the current year (note 14). The goodwill, customer
relationships and brands recognised on acquisition of the Billi
entities have been measured on a provisional basis to allow for any
potential adjustments resulting from any new information obtained
within one year of the date of acquisition about facts and
circumstances that existed at the date of acquisition.
In the current year, the carrying values of existing goodwill
and brands have been subject to an annual impairment test, and the
recoverable amounts assessed at each cash generating unit (CGU)
level determined on the basis of value-in-use calculations over a
five-year forecast period. The key assumptions applied in the
value-in-use calculations for LAICA are a discount rate of 12%,
variable trading margins, variable revenue growth rates as well as
the terminal growth rate of 2%. Based on these calculations, there
is sufficient headroom over the carrying values of goodwill and
brands hence no impairment has been recognised in the current year
and there were no reversals of prior year impairments during the
year (2021: same). An impairment test of the intangibles arising on
the acquisition of the Billi entities has not been performed given
that they were acquired on 30 November 2022.
The results of the Group impairment tests are dependent upon
estimates and judgements, particularly in relation to the key
assumptions described above. Sensitivity analysis to a reasonable
and possible change in the most sensitive assumption, being the
discount rate, was undertaken. An increase of 1% would decrease the
headroom by circa GBP3.4m but still leave headroom over the
carrying values of the goodwill and brands (circa GBP23.4m).
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
in amortisation of GBP694,000 for the full year 2022. Going
forward, the amortisation charges will be in line with the revised
useful life.
2021
----------------------------------------------------------------------------------------------------
Intangible
assets
Development Intellectual Customer under
costs Software Property relationships Brands Goodwill construction Total
------------ --------- ------------- -------------- -------- --------- ------------- --------
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
At 1 January
Cost 12,346 3,286 834 2,406 6,643 9,906 - 35,421
Accumulated amortisation
and impairment (4,999) (710) (64) - - - - (5,773)
---------------------------- ------------ --------- ------------- -------------- -------- --------- ------------- --------
Net book value 7,347 2,576 770 2,406 6,643 9,906 - 29,648
---------------------------- ------------ --------- ------------- -------------- -------- --------- ------------- --------
Period ended 31 December
Additions 3,609 950 299 - - - 238 5,096
Acquisition of LAICA S.p.A.
(note 14) - - - - - (487) - (487)
Transfers - - - - - - (172) (172)
Disposals (cost) (29) (8) (1) - - - - (38)
Disposals (accumulated
amortisation) - 8 - - - - - 8
Amortisation charge (1,563) (495) (47) (205) - - - (2,310)
Exchange differences 42 2 (4) (165) (469) (683) - (1,277)
---------------------------- ------------ --------- ------------- -------------- -------- --------- ------------- --------
Closing net book value 9,406 3,033 1,017 2,036 6,174 8,736 66 30,468
---------------------------- ------------ --------- ------------- -------------- -------- --------- ------------- --------
At 31 December
Cost 15,971 4,186 1,128 2,232 6,174 8,736 66 38,493
Accumulated amortisation
and impairment (6,565) (1,153) (111) (196) - - - (8,025)
---------------------------- ------------ --------- ------------- -------------- -------- --------- ------------- --------
Net book value 9,406 3,033 1,017 2,036 6,174 8,736 66 30,468
---------------------------- ------------ --------- ------------- -------------- -------- --------- ------------- --------
Amortisation charges were treated as an expense, and allocated
to cost of sales (GBP2,029,000), distribution costs GBPNIL and
administrative expenses (GBP281,000) in the consolidated statement
of comprehensive income.
GBP172,000 worth of intangible assets under construction were
reclassified to property plant and equipment.
12. PROPERTY, PLANT AND EQUIPMENT
2022
----------------------------------------------------------------------------------------------------------------
Fixtures, Right-of-use
Plant fittings Land assets Point Assets
& & Motor Production & (note of use under
machinery equipment vehicles tools Buildings 26) dispensers construction Total
---------- ---------- --------- ----------- ---------- ------------- ----------- ------------- ---------
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
At 1 January
Cost 26,093 5,833 218 12,829 20,541 6,450 - 2,176 74,140
Accumulated
depreciation (13,812) (3,084) (185) (10,564) (529) (3,203) - - (31,377)
--------------- ---------- ---------- --------- ----------- ---------- ------------- ----------- ------------- ---------
Net book value 12,281 2,749 33 2,265 20,012 3,247 - 2,176 42,763
--------------- ---------- ---------- --------- ----------- ---------- ------------- ----------- ------------- ---------
Period ended
31 December
Additions 2,904 1,503 23 864 125 505 - (78) 5,846
Acquisition of
Billi
(note 14) 419 211 17 - - 1,237 1,386 144 3,414
Transfers - - - - - - - - -
Disposals
(cost) (90) (237) (1) - - (698) - - (1,026)
Disposals
(accumulated
depreciation) 53 157 1 - - 125 - - 336
Depreciation
charge (1,402) (883) (23) (484) (426) (920) (63) - (4,201)
Exchange
differences 48 20 (6) (1) 1 129 36 5 232
--------------- ---------- ---------- --------- ----------- ---------- ------------- ----------- ------------- ---------
Closing net
book value 14,213 3,520 44 2,644 19,712 3,625 1,359 2,247 47,364
--------------- ---------- ---------- --------- ----------- ---------- ------------- ----------- ------------- ---------
At 31 December
Cost 29,988 8,124 375 13,693 20,690 8,678 1,430 2,247 85,225
Accumulated
depreciation (15,775) (4,604) (331) (11,049) (978) (5,053) (71) - (37,861)
--------------- ---------- ---------- --------- ----------- ---------- ------------- ----------- ------------- ---------
Net book value 14,213 3,520 44 2,644 19,712 3,625 1,359 2,247 47,364
--------------- ---------- ---------- --------- ----------- ---------- ------------- ----------- ------------- ---------
Point-of-use dispensers were acquired as part of the acquisition
of Billi. Refer to Note 14.
Depreciation charges are allocated to cost of sales
(GBP3,149,000), distribution costs (GBP184,000) and administrative
expenses (GBP868,000) in the consolidated statement of
comprehensive income. In addition, borrowing costs of GBPnil (2021:
GBP306,000), calculated at prevailing rates of the revolving credit
facility (note 19), have been capitalised to land and buildings in
the year.
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 fixtures and fittings, plant and
machinery and production tools were reassessed and extended with
the resulting impact being a decrease in depreciation of
GBP1,098,000 for the full year 2022. Going forward, the
depreciation charges will be in line with the revised useful
lives.
2021
---------------------------------------------------------------------------------------------------
Fixtures, Right-of-use
Plant fittings Land assets Assets
& & Motor Production & (note under
machinery equipment vehicles tools Buildings 26) construction Total
---------- ---------- --------- ----------- ---------- ------------- ------------- ---------
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
At 1 January
Cost 22,750 4,367 137 14,013 3,737 6,533 16,751 68,288
Accumulated depreciation (12,686) (3,428) (95) (12,140) (129) (2,605) - (31,083)
---------------------------- ---------- ---------- --------- ----------- ---------- ------------- ------------- ---------
Net book value 10,064 939 42 1,873 3,608 3,928 16,751 37,205
---------------------------- ---------- ---------- --------- ----------- ---------- ------------- ------------- ---------
Period ended 31 December
Additions 86 2,474 20 1 - 1,474 10,086 14,141
Transfers 5,257 - - 1,183 18,386 - (24,654) 172
Disposals (cost) (7,021) (1,238) (5) (901) (2,297) (1,469) - (12,931)
Disposals (accumulated
depreciation) 5,720 1,140 4 833 322 772 - 8,791
Depreciation charge (1,776) (568) (27) (724) (78) (1,396) - (4,569)
Exchange differences (49) 2 (1) - 71 (62) (7) (46)
---------------------------- ---------- ---------- --------- ----------- ---------- ------------- ------------- ---------
Closing net book value 12,281 2,749 33 2,265 20,012 3,247 2,176 42,763
---------------------------- ---------- ---------- --------- ----------- ---------- ------------- ------------- ---------
At 31 December
Cost 26,093 5,833 218 12,829 20,541 6,450 2,176 74,140
Accumulated depreciation (13,812) (3,084) (185) (10,564) (529) (3,203) - (31,377)
---------------------------- ---------- ---------- --------- ----------- ---------- ------------- ------------- ---------
Net book value 12,281 2,749 33 2,265 20,012 3,247 2,176 42,763
---------------------------- ---------- ---------- --------- ----------- ---------- ------------- ------------- ---------
Depreciation charges in the prior year were allocated to cost of
sales (GBP3,821,000), distribution costs (GBP90,000), and
administrative expenses (GBP658,000) in the consolidated statement
of comprehensive income.
13. PRINCIPAL SUBSIDIARY UNDERTAKINGS AND JOINT ARRANGEMENTS OF
THE GROUP
A list of all subsidiary undertakings controlled by the Group,
and existing joint arrangements the Group is currently part of,
which are all included in the consolidated financial statements, is
set out below.
% of
ordinary
shares
Country held by Nature
Name of entity Nature of business of incorporation the Group of shareholding
Sula Limited Holding company IOM 100 Subsidiary
Strix Limited Manufacture and sale IOM 100 Subsidiary
of products
Strix Guangzhou Dormant company China 100 Subsidiary
Limited
Strix (U.K.) Holding company and United Kingdom 100 Subsidiary
Limited group's sale and distribution
centre
Strix Hong Kong Sale and distribution Hong Kong 100 Subsidiary
Limited of products
Strix (China) Manufacture and sale China 100 Subsidiary
Limited of products
HaloSource Water Manufacture and sales China 100 Subsidiary
Purification of products
Technology (Shanghai)
Co. Limited
Strix (USA), Research and development, USA 100 Subsidiary
Inc. sales, and distribution
of products
LAICA S.p.A. Manufacture and sales Italy 100 Subsidiary
of products
LAICA Iberia Sale and distribution Spain 100 Subsidiary
Distribution of products
S.L.
LAICA International Sale and distribution Taiwan 67 Subsidiary
Corp. of products
Taiwan LAICA Sale and distribution Taiwan 67 Subsidiary
Corp. of products
Foshan Yilai Sale and distribution China 45 Joint venture
Life Electric of products
Appliances Co.
Limited.
LAICA Brand House Holding and licensing Hong Kong 45 Joint venture
Limited of trademarks
Strix Australia Holding company Australia 100 Subsidiary
Pty Limited
Billi UK Limited Manufacture and sale United Kingdom 100 Subsidiary
of products
Billi Australia Manufacture and sale Australia 100 Subsidiary
Pty Limited of products
Billi New Zealand Manufacture and sale New Zealand 100 Subsidiary
Limited of products
Billi R&D Limited Research and development Australia 100 Subsidiary
Billi Financial Financial Services Australia 100 Subsidiary
Services Limited
----------------------- ------------------------------- ------------------ ----------- -----------------
Incorporation of Strix Australia Pty Limited
On 26 October 2022, Strix Australia Limited was incorporated in
Australia and is a wholly-owned subsidiary of Strix (U.K.) Limited.
The entity was incorporated for the purpose of effecting the
acquisition of Billi.
Acquisition of Billi
On 30 November 2022, the Group completed the acquisition of the
entire issued share capital of Billi Australia Pty Ltd, Billi New
Zealand Ltd and Billi UK Ltd (together "Billi"). Details of the
acquisition are disclosed in note 14 below.
Group restrictions
Cash and cash equivalents held in China are subject to local
exchange control regulations. These regulations provide for
restrictions on exporting capital from those countries, other than
through normal dividends. The carrying amount of the cash and cash
equivalents included within the consolidated financial statements
to which these restrictions apply is GBP3,568,000 (2021:
GBP3,681,000). There are no other restrictions on the Group's
ability to access or use the assets and settle the liabilities of
the Group's subsidiaries.
14. ACQUISITIONS
Acquisitions made in the current year
On 30 November 2022, the Group, through its subsidiaries, Strix
(U.K.) Limited and newly incorporated Strix Australia Pty Limited,
acquired 100% of the share capital of Billi Australia Pty Ltd,
Billi New Zealand Ltd, and certain assets and liabilities through a
newly acquired company, Billi UK Ltd, (all together referred to as
"Billi"). The total consideration for the acquisition was
GBP38,912,000 paid in cash.
Goodwill of GBP10,885,000 has been recognised as the difference
between the purchase consideration of GBP38,912,000 and the
provisional fair values of the net assets acquired of
GBP28,027,000. The goodwill is attributable to new growth
opportunities, workforce and synergies of the combined business
operations, and it is not expected to be deductible for tax
purposes.
The objective of the acquisition is to accelerate the Group's
growth plans for its water and appliance categories and provide an
entry into the high growth and strategically important hot tap
market. Billi is a leading brand supplying premium filtered and
non-filtered instant boiling, chilled and sparkling water systems
with manufacturing operations based in Australia.
The acquisition has been accounted for as a business combination
in accordance with IFRS 3. As at the date of these financial
statements, the initial accounting for the acquisition of Billi is
preliminary, and fair values amounts are provisional, given the
short period of time since the date the acquisition was completed.
Fair values approximate gross contractual amounts. A reassessment
will be performed within twelve months post acquisition and final
amounts of fair values of assets and liabilities acquired will be
reported in the next reporting period.
Certain intangible assets were recognised on acquisition
including brands and customer relationships. The fair values of the
intangible assets were calculated using an income approach
(multi-period excess earnings method for customer related assets
and the royalty relief method for brands) based on a discounted
cash flow model that reflects the expected future income they will
generate. The discount rates applied to customer related assets
were based on the assessed Weighted Average Cost of Capital for
each territory of operations ranging from 14.9% to 16.2%, with a 1%
premium applied to brands, and a growth rate based on forecasted
revenues. The economic life of brands and customer relationships
applied within the model range from 11 years to 15 years. A
deferred tax liability has been recognised on the fair value
adjustments to intangible assets at the applicable corporate tax
rates.
Acquisition costs included within 'Administration expenses -
exceptional items' in the consolidated statement of comprehensive
income amounted to GBP2.6m. These have been designated as a
'separate transaction' per IFRS 3 and therefore not included as
part of the purchase consideration.
Net cash flows on acquisition of the business are as
follows:
2022
GBP000s
------------------------------------------ ---------
Consideration transferred on acquisition 38,912
less: Net cash acquired with business (1,254)
------------------------------------------ ---------
37,658
------------------------------------------ ---------
Billi contributed revenues of GBP2.7m and an adjusted profit
after tax of GBP0.6m to the Group for the period from 30 November
2022 to 31 December 2022. If Billi had been acquired at the
beginning of the year its contribution to revenues and adjusted
profits after tax would have been GBP38.8m and GBP5.6m
respectively. The following table details the Sterling equivalent
provisional fair values of assets and liabilities as acquired:
Book values FV Adjustments Fair values
GBP'000 GBP'000 GBP'000
Non-current assets
Intangible assets 5,993 23,209 29,202
Property, plant and equipment 3,609 (195) 3,414
Other non-current assets 130 - 130
------------------------------------ ------------ --------------- ------------
Total non-current assets 9,732 23,014 32,746
------------------------------------ ------------ --------------- ------------
Current assets
Inventories 6,461 (376) 6,085
Trade and other receivables 9,152 - 9,152
Cash and cash equivalents 1,254 - 1,254
------------------------------------ ------------ --------------- ------------
Total current assets 16,867 (376) 16,491
------------------------------------ ------------ --------------- ------------
Total assets 26,599 22,638 49,237
------------------------------------ ------------ --------------- ------------
Non-current liabilities
Lease liabilities more than 1 year 900 - 900
Deferred tax liability 654 8,357 9,011
Total non-current liabilities 1,554 8,357 9,911
------------------------------------ ------------ --------------- ------------
Current liabilities
Trade and other payables 10,919 - 10,919
Lease liabilities more than 1 year 380 - 380
Total current liabilities 11,299 - 11,299
------------------------------------ ------------ --------------- ------------
Total liabilities 12,853 8,357 21,210
------------------------------------ ------------ --------------- ------------
Net assets acquired 13,746 14,281 28,027
------------------------------------ ------------ --------------- ------------
Values have been translated at the closing exchange rates as at
the acquisition date.
Acquisitions in prior years:
Acquisition of Laica
The Group acquired 100% of the issued share capital of LAICA
S.p.A. in October 2020. The total consideration transferred for the
acquisition was GBP24.4m (EUR26.9m), made up of GBP11.7m (EUR13.0m)
paid in cash, the issue of 3,192,236 Strix Group plc ordinary
shares of GBP0.01 each with a total fair value of GBP7.3m
(EUR8.0m), and a further contingent consideration with a fair value
of GBP5.4m (EUR5.9m) representing an amount payable in cash subject
to certain conditions being met, including threshold financial
targets for the financial years ending 31 December 2021 and 2022.
Based on a post year-end arbitration process which was finalised in
February 2023 and the financial results of LAICA S.p.A. for the
year ended 31 December 2022, the actual fair value of the estimated
contingent consideration payable to the vendor shareholders has
been recorded at GBP4.9m (EUR5.6m) (2021: estimated fair value
(2021: GBP5.8m (EUR6.9m)).
In addition, a supplemental consulting arrangement was entered
into with the vendor shareholders of LAICA under which total costs
amounting to GBP4.4m (EUR4.9m) were payable in the financial years
ending 31 December 2021 and 2022, relating to compensation for
post-combination services contingent on the vendors remaining in
service. These costs have been accrued as the services are rendered
to LAICA. As at 31 December 2022, GBP2.6m (EUR2.9m) (2021: GBP1.7m
(EUR2.0m)) was accrued for services rendered to date.
The accruals relating to both the contingent consideration and
the compensation for the supplemental consulting agreement are
reflected as current liabilities as at 31 December 2022.
15. INVENTORIES
2022 2021
GBP000s GBP000s
------------------------------------- -------- --------
Raw materials and consumables 11,242 12,139
Finished goods and goods in transit 16,460 7,883
------------------------------------- -------- --------
27,702 20,022
------------------------------------- -------- --------
The cost of inventories recognised as an expense and included in
cost of sales amounted to GBP44,241,000 (2021: GBP52,396,000). The
provision for impaired inventories is GBP1,034,000 (2021:
GBP2,063,000). There were no inventory write-downs in 2022 (2021:
GBP246,000).
16. TRADE AND OTHER RECEIVABLES AND CURRENT INCOME TAX RECEIVABLES
2022 2021
GBP000s GBP000s
-------------------------------------- -------- --------
Amounts falling due within one year:
Trade receivables - current 15,967 10,958
Trade receivables - past due 3,580 2,493
--------------------------------------- -------- --------
Trade receivables - gross 19,547 13,451
Loss allowance (158) (104)
--------------------------------------- -------- --------
Trade receivables - net 19,389 13,347
--------------------------------------- -------- --------
Prepayments 2,335 496
Advance purchase of commodities 2,344 5,389
VAT receivable 1,279 5,261
Tax receivable 497 -
Other receivables 4,444 1,018
--------------------------------------- -------- --------
30,288 25,511
-------------------------------------- -------- --------
Trade and other receivables carrying values are considered to be
equivalent to their fair values. The amount of trade receivables
impaired at 31 December 2022 is equal to the loss allowance
provision (2021: same).
The advance purchase of commodities relates to a payment or
payments in advance to secure the purchase of key commodities at an
agreed price to mitigate the commodity price risk.
Other receivables include receivables from licencing income
recognised in the current year of GBP1,191,000 (2021: nil) and
GBP2,184,000 (2021: nil) rebates receivable from suppliers from
procurements made in prior years. Settlement of the rebates
receivable from suppliers will be via net cash settlement of future
purchases.
Deferred tax assets as at year end were GBP313,000 (2021:
GBP258,000).
Government grants due amounted to GBPnil (2021: GBP300,000).
There were no unfulfilled conditions in relation to these grants at
the year end, although if the Group ceases to operate or leaves the
Isle of Man within 10 years from the date of the last grant
payment, funds may be reclaimed.
The Group's trade and other receivables are denominated in the
following currencies:
2022 2021
GBP000s GBP000s
-------------------- -------- --------
Pound Sterling 7,773 5,471
Chinese Yuan 2,520 9,465
US Dollar 3,993 1,478
Euro 8,401 8,668
Hong Kong Dollar 120 118
Australian Dollar 6,839 -
New Zealand Dollar 512 -
Taiwan Dollar 130 311
--------------------- -------- --------
30,288 25,511
-------------------- -------- --------
Movements on the Group's provision for impairment of trade
receivables and the inputs and estimation technique used to
calculate expected credit losses have not been disclosed on the
basis the amounts are not material. The provision at 31 December
2022 was GBP158,000 (2021: GBP104,000).
17. CASH AND CASH EQUIVALENTS
The carrying amounts of the cash and cash equivalents are
denominated in the following currencies:
2022 2021
GBP000s GBP000s
-------------------- -------- --------
Pound Sterling 15,155 4,424
Chinese Yuan 2,506 3,622
US Dollar 6,959 8,183
Euro 4,471 2,584
Hong Kong Dollar 211 207
Australian Dollar 616 -
New Zealand Dollar 159 -
Taiwan Dollar 366 650
-------------------- -------- --------
30,443 19,670
-------------------- -------- --------
18. TRADE AND OTHER PAYABLES AND CURRENT INCOME TAX
LIABILITIES
2022 2021
GBP000s GBP000s
------------------------------------ -------- --------
Trade payables 10,010 11,060
Current income tax liabilities 444 1,631
Social security and other taxes 368 352
Customer rebates provisions 745 2,152
Capital creditors 2,848 2,256
VAT liabilities 546 130
Other liabilities 7,308 3,204
Payments in advance from customers 2,270 1,936
Accrued expenses 5,868 4,796
------------------------------------ -------- --------
30,407 27,517
------------------------------------ -------- --------
The fair value of financial liabilities approximates their
carrying value due to short maturities. Other liabilities include
goods received not invoiced amounts of GBP1,189,000 (2021:
GBP2,123,000), and an accrual of costs incurred as part of the
Billi acquisition of GBP3,356,000 (2021: nil). Deferred government
grants amounted to GBPnil (2021: GBP583,000). There were no
unfulfilled conditions in relation to these grants at the year end.
Movement in payments in advance from customers were all driven by
normal trading, with the full amounts due at beginning of the year
released to revenues in the current year.
The carrying amounts of the Group's trade and other payables are
denominated in the following currencies:
2022 2021
GBP000s GBP000s
-------------------- -------- --------
Pound Sterling 10,069 13,604
Chinese Yuan 7,228 7,249
US Dollar 1,051 1,951
Euro 4,461 4,030
Hong Kong Dollar 198 253
Australian Dollar 6,408 -
New Zealand Dollar 881 -
Taiwan Dollar 111 430
-------------------- -------- --------
30,407 27,517
-------------------- -------- --------
19. BORROWINGS
2022 2021
GBP000s GBP000s
------------------------------ -------- --------
Total current borrowings 14,734 1,064
------------------------------ -------- --------
Total non-current borrowings 103,092 69,782
------------------------------ -------- --------
Current bank borrowings comprise small individual short-term
arrangements for financing purchases and optimising cash flows
within the Italian subsidiary and were entered into by LAICA S.p.A.
prior to acquisition by the Group.
Current and non-current borrowings are shown net of loan
arrangement fees of GBP956,000 (2021: GBP181,000) and GBP1,770,000
(2021: GBP513,000), respectively.
Term and debt repayment schedule for long term borrowings
Currency Interest Maturity 31 December 31 December
rate date 2022 2021
Revolving Credit SONIA + 2.15%
Facility GBP to 4% 25-Oct-25 80,000 70,000
Term loan GBP SONIA + 2.15% 30-Nov-25 39,000 -
to 4%
EURIBOR 6M
Unicredit facility EUR + 1,2% 28-Jun-24 133 210
Banco BPM EUR 1.45% 30-Nov-23 167 329
BNP Paribas EUR 0.7945% 03-Feb-23 436 -
Credito Emiliano EUR 1.10% 04-Jan-23 221 -
Banco BPM EUR 1.69% 03-Jan-23 112 -
Banco BPM EUR 0.01692 03-Jan-23 54 -
Banco BPM EUR 1.00% 28-Feb-23 432 -
BNP Paribas EUR 0.18% 30-Apr-22 - 172
Banca Monte dei Paschi
di Siena EUR 0.19% 31-Jan-22 - 414
Banco BPM EUR 0.19% 31-Mar-22 - 404
Hedging EUR (3) 11
------------------------ ---------- -------------- ---------- ------------ ------------
120,552 71,540
----------------------------------- -------------- ---------- ------------ ------------
In the current year, the existing revolving credit facility
('RCF') agreement was further refinanced and amended on 25 October
2022 as follows:
New lenders - Barclays Bank Plc and HSBC Bank Plc came on board
as new lenders under the restated agreement.
Revolving credit facility - This relates to the RCF of
GBP80,000,000. The termination date has been revised to three years
after the fourth restatement date, 25 October 2025, with an option
to extend the term initially by twelve months and a further twelve
months thereafter. The purpose of the extended facility was to
finance the acquisition of Laica as well as other significant
capital projects including the new factory in China and ongoing
working capital needs of the Group. Under the amended agreement,
the purpose of the RCF remains the same. As at 31 December 2022,
the total facility available is GBP80,000,000 (2021:
GBP80,000,000).
Term loan - The Company obtained further funding on 30 November
2022 in the form of a three-year term loan of GBP49,000,000 payable
initially by a lump sum of GBP10,000,000 followed by eleven fixed
repayments thereafter with the first quarterly repayment of
GBP3,545,000 due and payable on 31 March 2023. The purpose of the
term loan was to finance the acquisition of Billi. The GBP10m
repayment was made towards the term loan on 30 November 2022. As at
31 December 2022, the outstanding balance on the term loan is
GBP39,000,000 (2021: GBPnil).
Interest applied to the revolving credit facility and term loan
is calculated as the sum of the margin and SONIA. The margin under
the amended agreement shall be 3.5% until 31 March 2023, and then
2.85% from 1 April 2023 to 30 June 2023, and thereafter margin will
be dependent on the net leverage 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 material
subsidiaries have entered into the agreement as guarantors,
guaranteeing the obligations of the borrowers under the agreement
(2021: same).
Transactions costs amounting to GBP2,324,000 (2021: GBP875,000)
incurred as part of refinancing and amending the RCF agreement were
capitalised and are being amortised over the period of three
years.
The various agreements contain 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 2022, the Group has not breached any of
the financial covenants contained within the agreements - see note
22(d) for further details. (2021: same)
The fair values of the borrowings are not materially different
from their carrying amounts, since the interest payable on those
borrowings is either close to current market rates or the
borrowings are of a short-term nature.
20. CAPITAL COMMITMENTS
2022 2021
GBP000s GBP000s
----------------------------------------------------- -------- --------
Contracted for but not provided in the consolidated
financial statements - Property, plant and
equipment 695 2,001
----------------------------------------------------- -------- --------
The above commitments include capital expenditure of GBP547,000
(2021: GBP1,639,000) relating to plant and machinery and production
equipment for the factory in China.
21. CONTINGENT ASSETS AND CONTINGENT LIABILITIES
There continues a number of ongoing intellectual property
infringement cases initiated by the Group, as well as patent
validation challenges brought by the defendants. All of these cases
are still subject to due legal process in the countries in which
the matters have been raised. As a result, no contingent assets
have been recognised at 31 December 2022 (2021: same), as any
receipts are dependent on the final outcome of each case. There are
also no corresponding contingent liabilities at 31 December 2022
(2021: same).
22. FINANCIAL RISK MANAGEMENT
The Group's activities expose it to a variety of financial
risks: market risk (including currency risk, interest rate risk and
commodity price risk), credit risk, liquidity risk and capital
management risk.
Risk management is carried out by the Directors. The Group uses
financial instruments where required to provide flexibility
regarding its working capital requirements and to enable it to
manage specific financial risks to which it is exposed.
Transactions are only undertaken if they relate to actual
underlying exposures and hence cannot be viewed as speculative.
(a) Market risk
(i) Foreign exchange risk
The Group operates predominantly in the IOM, UK, EU, US,
Australia, New Zealand and China and is therefore exposed to
foreign exchange risk. Foreign exchange risk arises on sales and
purchases made in foreign currencies and on recognised assets and
liabilities and net investments in foreign operations.
The Group monitors its exposure to currency fluctuations on an
ongoing basis. The Group uses foreign currency bank accounts to
reduce its exposure to foreign currency translation risk, and the
Group is naturally hedged against foreign exchange risk as it both
generates revenues and incurs costs in the major currencies with
which it deals. The major currencies the Group transacts in
are:
-- British Pounds (GBP)
-- Chinese Yuan (CNY)
-- United States Dollar (USD)
-- Euro (EUR)
-- Hong Kong Dollar (HKD)
-- Australian Dollar (AUD)
-- New Zealand Dollar (NZD)
-- Taiwan Dollar (TWD)
In December 2022, the Group entered into USD/GBP and USD/EUR
forward exchange rate contracts to sell the notional amount of
US$8,500,000 and hence mitigate the risk and impact of volatile
exchange rate movements seen during the year on group profits. The
fair value of these contracts at year-end is considered not
material.
Exposure by currency is analysed in notes 16, 17 and 18.
(ii) Interest rate risk
The Group is exposed to interest rate risk on its long-term
borrowings, being the revolving credit facility term loan and other
borrowings disclosed in note 19. The interest rates on the
revolving credit facility are variable, based on SONIA and certain
other conditions dependent on the financial condition of the Group,
which exposes the Group to cash flow interest rate risk which is
partially offset by cash held at variable rates. Other borrowings
are made up of both fixed rate loans and variable loans based on
EURIBOR.
(iii) Price risk
The Group is exposed to price risk, principally in relation to
commodity prices of raw materials. The Group enters into forward
commodity contracts or makes payments in advance in order to
mitigate the impact of price movements on its gross margin. The
Group has not designated any of these contracts as hedging
instruments in either 2022 or 2021 as they relate to physical
commodities being purchased for the Group own use. At 31 December
2022 and 2021, payments were made in advance to buy certain
commodities at fixed prices, as disclosed in note 16.
(iv) Sensitivity analysis
-- Foreign exchange risk: The Group is primarily exposed to
exchange rate fluctuations between GBP and USD, CNY, HKD, EUR, TWD,
AUD and NZD. Assuming a reasonably possible change in FX rates of
+10% (2021: +10%), the impact on profit would be a decrease of
GBP319,000 (2021: a decrease of GBP751,000), and the impact on
equity would be a decrease of GBP738,000 (2021: decrease of
GBP1,877,000). A -10% change (2021: -10%) in FX rates would cause
an increase in profit of GBP390,000 (2021: an increase in profit of
GBP918,000) and a GBP902,000 increase in equity (2021: GBP1,603,000
increase in equity). This has been calculated by taking the profit
generated by each currency and recalculating a comparable figure on
a constant currency basis, and by retranslating the amounts in the
consolidated balance sheet to calculate the effect on equity.
-- Interest rate risk: The Group is exposed to interest rate
fluctuations on its non-current borrowings, as disclosed in note
19. Assuming a reasonably possible change in the SONIA/EURIBOR rate
of +/-0.5% (2021: +/-0.5%), the impact on profit would be an
increase/decrease of GBP476,000 (2021: GBP313,000), and the impact
on equity would be an increase/decrease of GBP72,000 (2021:
GBP138,000). This has been calculated by recalculating the loan
interest using the revised rate to calculate the impact on profit,
and recalculating the year end loan interest balance payable using
the same rate.
-- Commodity price risk: The Group is exposed to commodity price
fluctuations, primarily in relation to copper and silver. Assuming
a reasonably possible change in commodity prices of +/-13% for
silver (2021: +/-14%) and +/-15% for copper (2021: +/-14%) based on
volatility analysis for the past year, the impact on profit would
be an increase/decrease of GBP1,346,000 (2021: GBP3,766,000). The
Group does not hold significant quantities of copper and silver
inventory, therefore the impact on equity would be the same as the
profit or loss impact disclosed (2021: same). This has been
calculated by taking the average purchase price of these
commodities during the year in purchase currency and recalculating
the cost of the purchases with the price sensitivity applied.
(b) Credit risk
The Group has policies in place to ensure that sales of goods
are made to clients with an appropriate credit history. The Group
uses letters of credit and advance payments to minimise credit
risk. Management believe there is no further credit risk provision
required in excess of the normal provision for doubtful
receivables, as disclosed in note 16. The amount of trade and other
receivables written off during the year amounted to less than 0.07%
of revenue (2021: less than 0.08% of revenue).
Cash and cash equivalents are held with reputable institutions.
All material cash amounts are deposited with financial institutions
whose credit rating is at least B based on credit ratings according
to Standard & Poor's. At year-end, GBP19,456,000 (2021:
GBP11,490,000) was held with one financial institution with a
credit rating of BBB. The following table shows the external credit
ratings of the institutions with whom the Group has cash
deposits:
2022 2021
GBP000s GBP000s
----- -------- --------
AA 797 -
A 4,132 3,989
BBB 25,450 15,633
B 27 11
n/a 37 37
----- -------- --------
30,443 19,670
----- -------- --------
(c) Liquidity risk
The Group maintained significant cash balances throughout the
period and hence suffers minimal liquidity risk. Cash flow
forecasting is performed for the Group by the finance function,
which monitors rolling forecasts of the Group's liquidity
requirements to ensure it has sufficient cash to meet operational
needs and so that the Group minimises the risk of breaching
borrowing limits or covenants on any of its borrowing facilities.
The Group has revolving credit facilities to provide access to cash
for various purposes. The facilities were fully utilised as at 31
December 2022 (2021: headroom of GBP10,000,000).
The table below analyses the group's financial liabilities as at
31 December 2022 into relevant maturity groupings based on their
contractual maturities for all non-derivative financial
liabilities. There are no derivative financial liabilities. The
amounts disclosed in the table are the contractual undiscounted
cash flows. Balances due within 12 months equal their carrying
balances as the impact of discounting is not significant.
Less than 6 6 - 12 Between 1 Between 2 Over 5 years Total Carrying
months months and 2 years and 5 years contractual amount
cash flows (assets) /
liabilities
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
--------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------
Trade and
other
payables 30,407 - - - - 30,407 30,407
Borrowings 8,478 7,212 14,226 90,636 - 120,552 117,826
Lease
liabilities 535 534 1,247 1,645 - 3,961 3,888
Contingent
consideration 7,532 - - - - 7,532 7,532
--------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------
Total
financial
liabilities 46,952 7,746 15,473 92,281 - 162,452 159,653
--------------- ------------- ------------- ------------- ------------- ------------- ------------ ------------
The table below analyses the respective financial liabilities as
at 31 December 2021 (the prior year):
Less 6 - Between Between Over Total Carrying
than 12 1 and 2 and 5 years contractual amount
6 months months 2 5 cash (assets)
years years flows /
liabilities
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
-------------------------- ---------- -------- -------- -------- --------- ------------- -------------
Trade and other
payables 27,517 - - - - 27,517 27,517
Borrowings 2,540 1,551 1,666 70,635 - 76,392 70,846
Lease liabilities 548 533 963 2,427 293 4,764 3,371
Contingent consideration 6,081 - 3,994 - - 10,075 7,464
-------------------------- ---------- -------- -------- -------- --------- ------------- -------------
Total financial
liabilities 36,686 2,084 6,623 73,062 293 118,748 109,198
-------------------------- ---------- -------- -------- -------- --------- ------------- -------------
(d) Capital risk management
The Group manages its capital to ensure its ability to continue
as a going concern and to maintain an optimal capital structure to
reduce the cost of capital. The aim of the Group is to maintain
sufficient funds to enable it to make suitable capital investments
whilst minimising recourse to bankers and/or shareholders. In order
to maintain or adjust capital, the Group may adjust the amount of
cash distributed to shareholders, return capital to shareholders,
issue new shares or raise debt through its access to the AIM
market.
Capital is monitored by the Group on a monthly basis by the
finance function. This includes the monitoring of the Group's
gearing ratios and monitoring the terms of the financial covenants
related to the revolving credit facilities as disclosed in note 19.
These ratios are formally reported on a quarterly basis. The
financial covenants were complied with throughout the period. At 31
December 2022 these ratios were as follows:
-- Debt Service Cover ratio (DSCR): circa 7.00x (2021:
n/a) - minimum per facility terms is 1.1x; and
-- Leverage ratio: 2.24x (2021: 1.31x) - maximum per facility
terms is 3.5x.
(e) Fair value hierarchy
This section explains the judgements and estimates made in
determining the fair values of the financial instruments that are
recognised and measured at fair value in the financial statements.
To provide an indication about the reliability of the inputs used
in determining fair value, the group has classified its financial
instruments into the three levels prescribed under the accounting
standards. An explanation of each level is as follows:
Level The fair value of financial instruments traded in
1: active markets (such as publicly traded derivatives,
and equity securities) is based on quoted market
prices at the end of the reporting period. The quoted
market price used for financial assets held by the
group is the current bid price. These instruments
are included in level 1.
Level The fair value of financial instruments that are
2: not traded in an active market (for example, over-the-counter
derivatives) is determined using valuation techniques
which maximise the use of observable market data
and rely as little as possible on entity-specific
estimates. If all significant inputs required to
fair value an instrument are observable, the instrument
is included in level 2.
Level If one or more of the significant inputs is not based
3: on observable market data, the instrument is included
in level 3. This is the case for unlisted equity
securities.
As part of the consideration for the acquisition of Laica S.p.A.
which occurred in October 2020, the Group agreed to pay a
contingent consideration of up to GBP6.4m (EUR7.1m) subject to
certain conditions being met, including threshold financial targets
for the financial years ending 31 December 2021 and 2022. Based on
a post year-end arbitration process which was finalised in February
2023, the actual fair value of the contingent consideration payable
to the vendor shareholders was set at GBP4,968,000 (EUR5,619,000)
(2021: estimated fair value of GBP5,785,000). In the previous year
and prior to this final arbitration, the fair value was estimated
by calculating the present value of future probability weighted
cashflows using a discount rate of 12.7%. The accrual for the
contingent consideration as at year end reflects the final amount
payable which is considered to be the fair value. The contingent
consideration has been classified as Level 3 (2021: same).
There have been no movements into or out of any levels during
the year.
The carrying amounts reflected in these financial statements for
cash and cash equivalents, current trade and other
receivables/payables and the fixed and floating rate bank
borrowings approximate their fair values.
23. SHARE BASED PAYMENTS
Long term incentive plan terms
As part of the admission to trading on AIM in August 2017, the
Group granted a number of share options to employees of the Group.
All of the shares granted are subject to service conditions, being
continued employment with the Group until the end of the vesting
period. The shares 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,
or share price targets for the three financial years from grant
date. Further awards have been made since August 2017 under the
same scheme on similar terms, with additional ESG-related
performance conditions added on for certain senior members of
management.
During 2020, the Group amended the terms of the Isle of Man
share options to conditional share awards.
Participation in the plan is at the discretion of the Board and
no individual has a contractual right to participate in the plan or
to receive any guaranteed benefits. Where the employee is entitled
to share options, these remain exercisable until the ten-year
anniversary of the award date. Where the employee is entitled to
conditional share awards, these are exercised on the vesting
date.
The dividends that would be paid on a share in the period
between grant and vesting reduce the fair value of the award if, in
not owning the underlying shares, a participant does not receive
the dividend income on these shares during the vesting period.
All of the options and conditional share awards are granted
under the plan for nil consideration and carry no voting rights. A
summary of the options and conditional share awards is shown in the
table below:
2022 2021
Number Number
of Shares of Shares
--------------------------- ------------ -----------
At 1 January 3,054,161 3,590,383
Granted during the year 600,131 1,095,107
Exercised during the year (734,608) (925,651)
Forfeited during the year (1,265,017) (705,678)
---------------------------- ------------ -----------
As at 31 December 1,654,667 3,054,161
---------------------------- ------------ -----------
The Group has recognised a total gain of GBP491,000 (2021:
expense of GBP1,549,000) in respect of equity-settled share-based
payment transactions in the year ended 31 December 2022.
For each of the tranches, the first day of the exercise period
is the vesting date and the last day of the exercise period is the
expiry date, as listed in the valuation model input table below.
The weighted average contractual life of options and conditional
share awards outstanding at 31 December 2022 was 8.7 years (2021:
8.4 years).
Valuation model inputs
The key inputs to the Black-Scholes-Merton model for the
purposes of estimating the fair values of the share options
outstanding at the end of the year are as follows:
Weighted Share
Share average options Share options
price probability outstanding outstanding
on grant of meeting at at
date performance 31 December 31 December
Grant date (p) Expiry date criteria 2022 2021
20 May 2019 157.80 20 May 2029 36.8% - 525,602
06 April 2020 170.00 06 April 2030 100.0% - 310,867
01 May 2020 183.40 01 May 2030 0.0% - 502,495
06 May 2020 181.00 06 May 2030 0.0% - 36,364
21 April 2021 290.00 21 April 2031 0.0% 803,919 820,285
01 January
01 January 2022 303.50 2032 100.0% 9,164 -
21 April 2022 208.50 21 April 2032 0.0% 382,359 -
--------------------- ---------- -------------- ------------- ------------- --------------
Total Share Options 1,195,442 2,195,613
--------------------- ---------- -------------- ------------- ------------- --------------
The key inputs to the Black-Scholes-Merton model for the
purposes of estimating the fair values of the conditional share
awards outstanding at the end of the year are as follows:
Weighted Conditional Conditional
Share average share awards share awards
price probability outstanding outstanding
on grant of meeting at at
date performance 31 December 31 December
Grant date (p) Vesting date criteria 2022 2021
20 May 2019 157.80 01 April 2022 36.8% - 304,254
19 August 2019 158.00 01 April 2022 28.0% - 4,250
24 February 2020 179.80 24 April 2022 100.0% - 10,772
06 April 2020 170.00 06 April 2022 100.0% - 90,104
31 December
01 May 2020 183.40 2022 0.0% - 165,759
31 December
06 May 2020 181.00 2022 100.0% - 28,481
31 December
21 April 2021 290.00 2023 29.0% 225,204 229,515
31 December
06 December 2021 296.50 2023 0.0% 16,090 16,090
31 December
06 December 2021 296.50 2024 0.0% 9,323 9,323
31 December
21 April 2022 208.50 2024 0.0% 208,608 -
Total conditional share awards 459,225 858,548
---------------------------------------------- ------------- -------------- --------------
Total share options and conditional share
awards 1,654,667 3,054,161
------------------------------------------------------------- -------------- --------------
The reduction in the fair value of the awards as a consequence
of not being entitled to dividends reduced the charge for the
options granted during the year by GBPnil (2021: GBPnil) and the
expected charge over the life of the options by a total of GBPnil
(2021: GBPnil).
The other factors in the Black-Scholes-Merton model do not
affect the calculation and have not been disclosed, as the share
options were issued for nil consideration and do not have an
exercise price. The weighted average fair value of the options
outstanding at the period end was GBP2.5719 (2021: GBP2.1217).
The movement within the share-based payments reserve during the
period is as follows:
2022 2021
GBP000s GBP000s
Shared-based payments reserves as at 1 January 2,039 1,913
Share based payments transactions (note 5(a)) (491) 1,549
Other share-based payments (136) (174)
Share based payments transferred to other reserves
upon exercise/vesting (1,210) (1,249)
---------------------------------------------------- --------- ---------
Shared-based payments reserves as at 31 December 202 2,039
---------------------------------------------------- --------- ---------
Other movements
Other transactions recognised directly in equity include the
settlement of dividend entitlements previously accrued as part of
the LTIP programme and employer contributions to national insurance
for vested LTIPs.
24. SHARE CAPITAL AND SHARE PREMIUM
Number Share
of shares Par value premium Total
(000s) GBP000s GBP000s GBP000s
----------------------------------- ----------- ---------- --------- --------
Allotted and fully paid: ordinary
shares of 1p each
Balance at 1 January 2022 206,672 2,066 11,073 13,139
Shares issues during the year 11,304 113 12,887 13,000
Transaction costs - - (2,285) (2,285)
Share options exercised during
the year (note 23) 735 7 - 7
----------------------------------- ----------- ---------- --------- --------
Balance at 31 December 2022 218,711 2,186 21,675 23,861
----------------------------------- ----------- ---------- --------- --------
Under the Isle of Man Companies Act 2006, the Company is not
required to have an authorised share capital.
The shares issued during the year consist of 11,304,347 shares
issued to finance the acquisition of the Billi entities as noted in
note 14 and the remaining shares relate to employee share-based
payments as noted in note 23. GBP13,000,000 was raised on the share
issue to finance the acquisition of Billi with GBP113,000
recognised in share capital and GBP12,887,000 recognised as share
premium. Associated transaction costs recognised directly in share
premium amounted to GBP2,285,000.
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at meetings of the Company. All shares rank pari passu in all
respects including voting rights and dividend entitlement.
See note 23 for further information regarding share-based
payments which may impact the share capital in future periods.
25. DIVIDS
The following amounts were recognised as distributions in the
year:
2022 2021
GBP000s GBP000s
Interim 2022 dividend of 2.75p per
share (2021: 2.75p) 5,699 5,679
Final 2021 dividend of 5.6p per share
(2020: 5.25p) 11,601 10,831
---------------------------------------- -------- --------
Total dividends recognised in the
year 17,300 16,510
---------------------------------------- -------- --------
In addition to the above dividends, since year end the Directors
have proposed the payment of a final dividend of 3.25p per share
(2021: 5.6p). The aggregate amount of the proposed final dividend
expected to be paid on 11 August 2023 out of retained earnings at
31 December 2022, 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.
2022 2021
GBP000s GBP000s
Final 2022 dividend of 3.25p per share (2021:
5.6p) 7,108 11,574
------------------------------------------------ -------- --------
Total dividends proposed but not recognised
in the year, and estimated to be recognised
in the following year. 7,108 11,574
------------------------------------------------ -------- --------
26. LEASES
a) Amounts recognised in the consolidated statement of financial
position
The consolidated statement of financial position shows the
following amounts relating to leases:
2022 2021
GBP000s GBP000s
------------------------------------------- -------- --------
Right-of-use assets
Land and buildings 3,625 3,247
-------------------------------------------- -------- --------
Total right-of-use assets 3,625 3,247
-------------------------------------------- -------- --------
Current future lease liabilities (due
within 12 months) 1,069 773
Non-current future lease liabilities (due
in more than 12 months) 2,819 2,598
-------------------------------------------- -------- --------
Total future lease liabilities 3,888 3,371
-------------------------------------------- -------- --------
Additions to the right-of-use liabilities during the 2022
financial year were GBP505,000 (2021: GBP1,474,000). Disposals of
right-of-use liabilities during the current year were GBP586,000
(2021: GBP735,000)
Short-term leases and leases of low values were recognised
directly in the consolidated statement of comprehensive income,
amounting to GBP106,000 (2021: GBP209,000).
Total cash outflows relating to all lease payments, including
short-term leases and leases of low values were GBP939,000 (2021:
GBP1,771,000).
The movement in lease liabilities is as follows:
2022 2021
GBP000s GBP000s
----------------------------------------- -------- --------
Balance as at 1 January 3,371 4,100
Additions 505 1,474
Disposals (586) (735)
Adjustments due to lease modifications - 35
Acquisition of Billi entities (note 14) 1,284 -
Repayments (833) (1,562)
Interest expense (included in finance
cost) 92 105
Sub-lease income - (40)
Foreign exchange differences 55 (6)
------------------------------------------ -------- --------
Balance as at 31 December 3,888 3,371
------------------------------------------ -------- --------
b) Amounts recognised in the consolidated statement of
comprehensive income
The statement of consolidated comprehensive income shows the
following amounts relating to leases:
2022 2021
GBP000s GBP000s
--------------------------------------- -------- --------
Depreciation of right-of-use assets (920) (1,396)
Short-term and low value leases (106) (209)
Interest expense (included in finance
cost) (92) (105)
Foreign exchange gains - 6
---------------------------------------- -------- --------
Total cost relating to leases (1,118) (1,704)
---------------------------------------- -------- --------
27. STATEMENT OF CASH FLOWS NOTES
a) Cash generated from operations
2022 2021
Note GBP000s GBP000s
----------------------------------------------- ------ -------- --------------
Cash flows from operating activities
Operating profit 19,916 23,720
Adjustments for:
Depreciation of property, plant and equipment 12 3,281 3,173
Depreciation of right-of-use assets 12 920 1,396
Amortisation of intangible assets 11 2,063 2,310
Share of losses from joint ventures 18 50
Loss on disposal of property, plant and
equipment 12 - 1,679
Other non-cash flow items 1,275 1,703
Share based payment transactions 23 (491) 1,400
Net exchange differences 6(a) 188 186
----------------------------------------------- ------ -------- --------------
27,170 35,617
Changes in working capital:
Increase in inventories (1,213) (5,320)
Decrease / (increase) in trade and other
receivables 3,159 (6,649)
(Decrease) / increase in trade and other
payables (4,549) 558
----------------------------------------------- ------ -------- --------------
Cash generated from operations 24,567 24,206
----------------------------------------------- ------ -------- --------------
Other non-cash flow items include accrual of amounts relating to
compensation for post-combination services, which were accrued part
of the acquisition of LAICA as the services were rendered (see note
14).
Share-based payment transactions include other transactions
recognised directly in equity included in the statement of changes
of equity.
b) Movement in net debt
Non-cash movements
At Cash flows Currency Other movements At
01 January movements 31 December
2022 2022
GBP000s GBP000s GBP000s GBP000s GBP000s
------------------------------------- ------------ ----------- ----------- ---------------- -------------
Borrowings, net of loan arrangement
fees (70,846) (46,487) (292) (201) (117,826)
Lease liabilities (3,371) 833 (55) (1,295) (3,888)
Total liabilities from financing
activities (74,217) (45,654) (347) (1,496) (121,714)
------------------------------------- ------------ ----------- ----------- ---------------- -------------
Cash and cash equivalents 19,670 11,340 (567) - 30,443
------------------------------------- ------------ ----------- ----------- ---------------- -------------
Net debt (54,547) (34,314) (914) (1,496) (91,271)
------------------------------------- ------------ ----------- ----------- ---------------- -------------
28. ULTIMATE BENEFICIAL OWNER
There is not considered to be any ultimate beneficial owner, as
the Company is listed on AIM. No single shareholder beneficially
owns more than 25% of the Company's share capital.
29. RELATED PARTY TRANSACTIONS
(a) Identity of related parties
Related parties include all of the companies within the Group,
however, these transactions and balances are eliminated on
consolidation within the consolidated financial statements and are
not disclosed, except for related party balances held with Joint
Ventures which are not eliminated.
The Group also operates a defined contribution pension scheme
which is considered a related party.
(b) Related party balances
Trading balances
Balance due Balance due
from to
2022 2021 2022 2021
GBP000s GBP000s GBP000s GBP000s
Related party
--------------------------------------- -------- -------- -------- --------
Foshan Yilai Life Electric Appliances
Co. Limited - 165 - -
LAICA Brand House Limited 26 25 - -
--------------------------------------- -------- -------- -------- --------
(c) Related party transactions
The following transactions with related parties occurred during
the year:
2022 2021
Name of related party GBP000s GBP000s
Transactions with related parties
Revenue earned from Foshan Yilai Life Electric
Appliances Co. Limited 261 298
Revenue earned from LAICA Brand House Limited 3 3
Contributions paid to The Strix Limited Retirement
Fund (note 5(c)(i)) (782) (684)
---------------------------------------------------- -------- --------
Further information is given on the related party balances and
transactions below:
-- Key management compensation is disclosed in note 5(b).
-- Information about the pension schemes operated by the
Group is disclosed in note 5(c), and transactions with
the pension schemes operated by the Group relate to contributions
made to those schemes on behalf of Group employees.
-- Information on dividends paid to shareholders is given
in note 25.
30. POST BALANCE SHEET EVENTS
The Group does not have any material events after the reporting
period to disclose.
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END
FR PPUGAWUPWGQR
(END) Dow Jones Newswires
March 29, 2023 02:00 ET (06:00 GMT)
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