Interim Results

RNS Number : 9001R

Strix Group PLC

27 September 2017

 

27 September 2017

Strix Group Plc

("Strix" or the "Company")

Interim results for the 6 months ended 30 June 2017

Strix (AIM: KETL), the AIM listed global leader in the design, manufacture and supply of kettle safety controls and other components and devices, announces its unaudited interim results for the six months ended 30 June 2017. 

These results cover a period when the Company was not listed on AIM and a period prior to certain changes in the capital structure that were implemented pursuant to a corporate reorganisation in connection with the Company's admission to AIM. These results are presented on the same basis as set out in the Company's Admission Document, as detailed in notes 1 and 2 to the interim financial statements.

Highlights

·	A solid performance, in line with Board expectations
·	Revenues of £42.2m (H1 2016: £39.6m), increase of 6.7%
·	Adjusted EBITDA [1] of £14.2m (H1 2016: £13.4m), increase of 6.1%
·	Profit before tax of £10.3m (H1 2016: £9.4m), increase of 9.6%
·	Cash generated from operations £15.6m (H1 2016: £13.8m), increase of 12.4%
·	Launch of U9 series controls providing cost competitive, best in class safety controls
·	Installation of automated production line for U9 series allowing a 15% increase in throughput
·	Successful admission to AIM on 8 August 2017
·	Interim maiden dividend of 1p will be paid on 30 November 2017

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

Mark Bartlett, Chief Executive Officer, said:

"We have had a positive six months of trading, leading up to the successful admission to AIM, with both volume and revenues up c.7% on the same period in the prior year. The Group continues to make solid progress on its strategic initiatives launching the new U9 range of controls across all market segments.

"Export sales have been particularly strong with a growth of c.10% against the prior year. Our patented electronic controls (EK Series) continued to secure increased market share with volumes running c.90% above prior year.

"Our steadfast focus on safety initiatives, particularly in the regulated markets, provided a positive impact with several non-Strix products being withdrawn from retailers whilst at the same time we were able to secure high volume specifications with 3 major European retailers.

"We continue to build on our extensive customer relationships across the value chain whilst further developing our key technologies to secure our long term growth objectives. 

"The current prospect visibility, coupled with our continued focus on operational excellence, provides confidence in securing our full year outlook." 

The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

For further enquiries, please contact:

Strix Group Plc Mark Bartlett (CEO) Raudres Wong (CFO)	01624 829 829
Zeus Capital Limited (Nominated Advisor) Nick Cowles / Jamie Peel / Jordan Warburton (Corporate Finance) Dominic King (Corporate Broking)	020 3829 5000
IFC Advisory Limited (Financial PR & IR) Graham Herring / Tim Metcalfe / Heather Armstrong / Miles Nolan	020 3053 8671

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.

 

Chief Executive's Review

The first 6 months of 2017 have seen a solid performance of the core business across all segments resulting in a c.7% volume and revenue growth against the prior year.

The Company's revenues were £42.2m (H1 2016: £39.6m) an increase of 6.7% on prior year and adjusted EBITDA was £14.2m (H1 2016: £13.4m) up 6.1% on prior year. Profit before tax was £10.3m (H1 2016: £9.4m), an increase of 9.6%.

The Export business has shown particular strength, both in the regulated and less regulated sectors. Sales are up 10%, supporting somewhat slower than anticipated sales in the China domestic market, which has experienced an estimated 10% decline over the prior year following a boost in 2016, partially attributed to a health scare with low quality stainless steel kettles.

Given the Company's H1 2017 performance and the Board's confidence in the continued strength of cash generation, the Board has declared an interim maiden dividend of 1p, payable on 30 November 2017 to shareholders on the register as at 10 November 2017.

Our continued focus on new product development saw the introduction of the U9 series providing competitive, high specification products across all market segments and a robust platform to secure our longer term growth objectives within the core kettle markets.

Export Kettle control sales:

The Export market (regulated and less regulated combined) experienced an estimated growth of 10% during H1 2017.  

Sales of the low cost controls (Product Z) targeting emerging markets were strong and secured c. 200% growth over the prior year, building a solid base for the introduction of the U92 appliances under design. 

The North American market continued to show positive growth at c.14% with our UL certified controls out performing the market as we continue to focus on this key opportunity within the regulated sector.

The electronic control segment, incorporating our patented 5 pole control, also showed positive growth, running c.90% above prior year as consumers seek additional features and benefits within their kettle appliances.

China Domestic sales:

The overall China domestic market is estimated to have declined by c.10% following the strong sales in 2016, partially attributed to the health scare with low quality stainless steel kettles. Strix's market share has remained stable at c.50%, despite continued pressure from copyists.

As with the Export market, significant growth has been experienced in the electronic control segment with the Company seeing c. 100% growth over prior year. 

New Product Development (NPD):

Successful approval of the U90, U91 and U92 kettle control products during H1 2017 secured the launch of "best in class" products across all segments. More than 20 kettle appliances have been confirmed to date with negotiations ongoing for the remainder of the year. 

In addition to our standard kettle controls, H1 2017 also benefited from the launch of several new products into key markets which included the "Turbo Toaster", the Breville Hot cup (part of the water on demand segment) and the Aqua Optima filter kettle.

We will continue to leverage on our core competencies to focus our highly skilled engineering resource on additional products for the water on demand segments, whilst further enhancing the U9 series.   

Operations:

Production targets were met at both operation facilities with a production efficiency improvement of 6% achieved through the implementation of automation projects and sustained focus on continuous improvement.

During H1 2017, the new automated line was installed and commissioned for the U9 series allowing c.15% improvement in throughput. Further automated lines will be implemented during H2 for the current products and their associated connectors, securing improvement in both throughput and quality inspection.

We continue to drive lean and PPV (Purchase Price Variance) initiatives, coupled with design and efficiency improvements, to minimise the impact of pricing pressures experienced on both plastic and corrugated packing materials that have been impacted by a change in Chinese government policies.

Aqua Optima:

Aqua Optima experienced a slight reduction in revenues on prior year (4%) associated with an adverse product mix. These shortfalls were partially mitigated by a strong performance on Evolve sales which are forecast to strengthen through H2 2017 as distribution improves further.

Aqua Optima also successfully negotiated a number of private label contracts with key retailers securing incremental distribution in over 900 stores in UK and Central Europe. 

We continue to work with our Chinese partner, a major SDA OEM, where agreement has been secured to launch Aqua Optima across China during 2018.

Outlook:

The Board is confident with the future outlook and trading is in line with full year and Board expectations.

The core kettle control market remains positive, particularly the Export segment. The growth identified within the electronic control segment, coupled with the strong performance in the USA and regulated markets provide additional confidence over the short to medium term.

The successful launch of the U9 series during the first half of the year, in addition to the strong performance of our low cost controls in the less regulated markets, will ensure we have an appropriate product range to target all segments within the kettle market providing competitively positioned, best in class products.

The continued implementation of automation within our operations, including our standard product, coupled with continued focus on lean manufacturing initiatives will also ensure a competitive cost base and increased efficiencies.

The Aqua Optima team is in negotiation with several key UK retailers that are expected to secure H2 2017 revenues whilst the agreement with our partner in China will launch Aqua Optima in the largest global growth market.

Mark Bartlett

Chief Executive  

27 September 2017

Financial Review

 

		H1 2017           £m	H1 2016        £m		Increase/(Decrease)
					£m2	%2
Revenue		42.2	39.6		2.7	6.7%
Gross profit		15.7	14.4		1.3	9.1%
Distribution costs		(3.2)	(2.9)		0.3	8.6%
Administrative costs		(2.4)	(2.1)		0.3	14.7%
Operating Profit		10.3	9.4		0.9	9.6%
Adjusted EBITDA1		14.2	13.4		0.8	6.1%
Profit Before Tax		10.3	9.4		0.9	9.6%
Cashflow from Operations		15.6	13.8		1.7	12.4%

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

Note 2: Figures are calculated from the full numbers as presented in the condensed combined financial statements

Results Overview

The first six months volumes of component controls and Aqua Optima filters increased c.7% (H1 2016: 31.8m units) in comparison to the same period last year. Revenue grew 6.7% to £42.2m (H1 2016: £39.6m) representing solid growth in the export business in both regulated and less regulated markets. Gross profit increased by 9.1% to £15.7m (H1 2016: £14.4m) with increased sales in higher margins components; with a gross profit % increase to 37.2% (H1 2016: 36.4%).

The business generated an Adjusted EBITDA of £14.2m, an increase of 6.1% (H1 2016: £13.4m). With IPO-related expenses included, EBITDA is reported at £13.2m, not materially different to the previous year, when royalties to former group-company related parties in 2016 of £0.7m that will not be repeated in 2017 are excluded (H1 2016: £12.5m). Adjusted EBITDA margin is broadly in line with prior year at 33.6% (H1 2016: 33.8%).

Depreciation and amortisation at £2.9m was broadly unchanged from H1 2016. Operating profit was up by 9.6% over prior year to £10.3m (H1 2016: £9.4m), which is almost  the same percentage increase as before the royalties and exceptional costs included in the respective years.

Profit before tax was £10.3m (H1 2016: £9.4m). There is no corporation tax payable on the Company's non-China generated profits as the Isle of Man corporation tax rate is 0%.  Profit for the period attributable to equity shareholders is reported at £10.1m representing growth of 9.3% over the previous period (H1 2016: £9.2m). 

The Company has declared a maiden interim dividend of 1p which will be paid on 30 November 2017.

Costs

Cost of sales increased by 5.4% to £26.5m (H1 2016: 25.1m) primarily due to increased sales volume. Distribution costs increased by 8.6% to £3.2m (H1 2016: £2.9m) mainly due to an increase in investments in tooling subsidies to support conversion in new specifications.  Administrative expenses before exceptional costs decreased by 28.6% to £1.5m (H1 2016: £2.1m), which was mainly attributable to royalties to former group-company related parties not being repeated in 2017. Exceptional costs were £897k higher than 2016 due to IPO related expenses.

Cash flow

Cash generated from operations of £15.6m, an increase of £1.7m or 12.4% over the previous period (H1 2016: £13.8m). This represents an EBITDA to cash conversion ratio of c. 118% which continues to illustrate the Company's strong cash generation capability.

Balance Sheet

The balance sheet comparison as presented is 30 June 2017 comparing to 31 December 2016. A Pro-forma balance sheet is included in section 4 - Post balance sheet events, to illustrate the significant movements due to corporate re-organisation post Admission.

Property, plant and equipment increased to £8.9m (2016: £8.1m).  Capital additions were £2.0m in H1 2017 compared to £2.8m in 2016 with increased emphasis on automations and initial investment in the new product lines in 2017. Depreciation of £1.6m was in line with expectations (2016: £2.0m).  Net intangible assets (comprising capitalised development costs) decreased in line with expectations, to £5.6m (2016: £6.2m) as a result of projects with shorter amortisation periods.

Current assets excluding former Group related parties balances increased to £28.1m (2016: £25.2m) as a result of cash increasing from £11.0m to £13.5m. Trade and other receivables reduced to £5.3m at 30 June 2017 from £5.6m at 31 December 2016.

Current liabilities excluding former group related parties balances increased from £15.2m at 2016 to £17.6m at H1 2017 as a result of higher trade payables due to higher trading activities.

Dividend

We remain committed to enhancing shareholder value and our previously communicated dividend policy. The Board is pleased to declare an interim dividend of 1p per ordinary share. This interim dividend will be paid on 30 November 2017 to Shareholders on the Register at the close of business on 10 November 2017. The ordinary shares will become ex-dividend on 9 November 2017.  We remain committed to paying a total dividend which will equate to a 7% yield (based on the IPO placing price of 100p per ordinary share) pro rata for the 5 months following Admission for the financial year ending 31 December 2017.

Raudres Wong

Chief Financial Officer

27 September 2017

Condensed combined income statement

for the half year ended 30 June 2017 (unaudited)

		(unaudited) Half year ended 30 June  2017 £'000	(unaudited) Half year ended 30 June  2016 £'000
Revenue		42,216	39,551
Cost of sales - before exceptional items		(26,475)	(25,107)
Cost of sales - exceptional items		(23)	(35)
Cost of sales		(26,498)	(25,142)
Gross profit		15,718	14,409
Distribution costs		(3,168)	(2,916)
Administrative expenses - before exceptional items		(1,490)	(2,088)
Administrative expenses - exceptional items		(931)	(22)
Administrative expenses		(2,421)	(2,110)
Other operating income		158	-
Operating profit		10,287	9,383
Analysed as:
-Adjusted EBITDA1		14,188	13,378
-Royalty charges		-	(820)
-Amortisation		(1,397)	(1,165)
-Depreciation		(1,550)	(1,953)
-Exceptional items		(954)	(57)
Operating profit		10,287	9,383
Net finance income/(costs)		(1)	1
Profit before taxation		10,286	9,384
Income tax expense		(207)	(160)
Profit for the period attributable to equity shareholders		10,079	9,224

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

All results derive from continuing operations.

Condensed combined statement of comprehensive income

for the half year ended 30 June 2017 (unaudited)

		(unaudited) Half year ended 30 June  2017 £'000	(unaudited) Half year ended 30 June  2016 £'000
Profit for the period attributable to equity shareholders		10,079	9,224
Total comprehensive income for the period		10,079	9,224

 

Condensed combined balance sheet

as at 30 June 2017 (unaudited)

		30 June 2017 £'000	31 December 2016 £'000
Non-current assets
Intangible assets		5,636	6,224
Property, plant and equipment		8,912	8,075
Total non-current assets		14,548	14,299
Current assets
Inventories		9,184	8,560
Trade and other receivables		5,327	5,648
Receivables from related parties		380,292	370,950
Cash and cash equivalents		13,547	10,959
Total current assets		408,350	396,117
Total assets		422,898	410,416
Total invested capital		259,373	249,294
Non-current liabilities
Borrowings		1,000	1,000
Post-employment benefits		229	249
Total non-current liabilities		1,229	1,249
Current liabilities
Trade and other payables		16,883	14,288
Payables to related parties		144,700	144,700
Current income taxes payable		713	843
Derivative financial instruments		-	42
Total current liabilities		162,296	159,873
Total liabilities		163,525	161,122
Total liabilities and equity		422,898	410,416

 

Condensed combined statement of changes in invested capital

as at 30 June 2017 (unaudited)

			Total invested capital £'000
Balance at 1 January 2016			227,219
Profit for the period			9,224
Total comprehensive income for the period			9,224
Balance at 30 June 2016			236,443
Balance at 1 January 2017			249,294
Profit for the period			10,079
Total comprehensive income for the period			10,079
Balance at 30 June 2017			259,373

 

Condensed combined cash flow statement

for the half year ended 30 June 2017 (unaudited)

	Half year ended 30 June  2017 £'000	Half year ended 30 June 2016 £'000
Cash flows from operating activities
Profit before taxation	10,286	9,384
Adjustments for:
Depreciation	1,550	1,953
Amortisation of intangible fixed assets	1,397	1,165
Pension cost contributions in excess of charge	(20)	(20)
Movement in derivative financial instruments	(42)	(6)
Profit on disposal of fixed assets	(1)	(2)
Net finance costs/(income)	1	(1)
Operating cash flows before movements in working capital	13,171	12,473
Movements in working capital:
(Increase)/decrease in inventories	(624)	728
Decrease in trade and other receivables	321	2,012
Increase/(decrease) in trade and other payables	2,696	(1,370)
Net cash generated from operations	15,564	13,843
Income tax paid	(337)	(160)
Net cash generated from operating activities	15,227	13,683
Cash flows from investing activities
Cash transfer to group companies	(9,342)	(11,554)
Purchase of intangible assets	(810)	(637)
Purchase of property, plant and equipment	(2,488)	(1,010)
Proceeds on sale of property, plant and equipment	1	2
Interest received	-	1
Net cash used in investing activities	(12,639)	(13,198)
Cash flows from financing activities
Payments with related parties	-	1,755
Net cash generated from financing activities	-	1,755
Net increase in cash and cash equivalents	2,588	2,240
Cash and cash equivalents at beginning of period	10,959	10,175
Cash and cash equivalents at end of period	13,547	12,415

Notes to the condensed combined interim financial statements

for the half year ended 30 June 2017 (unaudited)

1. General information

STRIX Group Plc ("the Company") was incorporated and registered in the Isle of Man on 12 July 2017 as a company limited by shares under the Isle of Man Companies Act 2006 with the name Steam Plc and with the registered number 014693V. The Company changed its name to STRIX Group Plc on 24 July 2017. The address of its registered office is Forrest House, Ronaldsway, Isle of Man, IM9 2RG. 

The Company's shares were admitted to trading on AIM, a market operated by the London Stock Exchange on 8 August 2017. These condensed combined interim financial statements ('interim financial statements') are the Company's first subsequent to its admission to AIM and were approved for issue on 26 September 2017. These interim financial statements are unaudited.

Given that the Company was incorporated after the balance sheet date of these interim financial statements, the Company has prepared and presented half-year condensed combined financial statements for the "Operating Group" at 30 June 2017. This basis of preparation is consistent with what the Company presented in its Admission Document dated 27 July 2017, which incorporates the financial information of each of the Operating Group's subsidiaries that had been previously reported on a standalone basis. Further detail regarding the basis of preparation is set out in note 2.

The Operating Group is a collection of subsidiaries owned at 30 June 2017 by the former Parent Company of the Operating Group, being Strix Investments Limited. The Operating Group does not constitute a separate legal group, however all the entities comprising the Operating Group were under common management and common control throughout the periods presented in these interim financial statements.

The entities that comprise the Operating Group are incorporated and domiciled in the UK, China, Hong Kong, Isle of Man, and Bermuda. The principal activities of the Operating Group are the design, manufacture and sale of thermostatic controls and cordless interfaces, trading under the name Strix. The principal activities of the subsidiaries included in the Operating Group financial information are as follows:

Subsidiary	Nature of business
Sula Limited	Holding company
Strix Limited	Manufacture and sale of products
Strix Guangzhou Ltd	Manufacture and sale of products
Strix Far East Ltd	Sale of certain of the group's appliances
Strix (U.K.) Limited	Group's sale and distribution centre
Strix Hong Kong Ltd	Sale and distribution of products
Strix Finance (U.K.) Ltd	Financing group activities
Strix Finance (IOM) Ltd	Financing group activities (liquidated 27 February 2017)

2. Basis of preparation and accounting policies

The Operating Group does not constitute a separate legal group. The Company has prepared condensed combined interim financial statements on a basis that is consistent with the Historical Financial Information that was prepared for the purposes of its Admission Document dated 27 July 2017, in that it combines the results, assets and liabilities of each of the companies constituting the Operating Group (see note 1) by applying the principles underlying the consolidation procedures of IFRS 10 'Consolidated Financial Statements' ("IFRS 10") for each of the half year periods ended 30 June 2016 and 30 June 2017 and as at 30 June 2017 and 31 December 2016. On such basis, the condensed combined interim financial statements sets out the Operating Group's balance sheets as of 30 June 2017 and 31 December 2016 and combined results of the Operating Group's operations and cash flows for the half years ended 30 June 2016 and 2017.

The condensed combined interim financial statements have been prepared in accordance with this basis of preparation, IAS 34 Interim Financial reporting as adopted by the EU, and with those parts of the Isle of Man Companies Acts as applicable to companies reporting under IFRS. They do not include information required for a complete set of financial statements prepared in accordance with IFRSs as adopted by the EU. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the financial position and performance of the Operating Group subsequent to 31 December 2016 the balance sheet date of the most recent period presented in the Historical Financial Information within the Company's Admission Document, which can be found on the Company's website.

This basis of preparation describes how the condensed combined interim financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and the IFRS Interpretation Committee interpretations (together "IFRS"). These condensed combined interim financial statements should be read in conjunction with the Historical Financial Information for the three years ended 31 December 2016 which have been prepared in accordance with the basis of preparation set out in note 2 to the Historical Financial Information within the Company's Admission Document.

IFRS does not provide for the preparation of condensed combined interim financial statements and, accordingly, in preparing the condensed combined interim financial statements certain accounting conventions commonly used for the preparation of historical financial information for inclusion in investment circulars as described in the Annexure to SIR 2000 "Standards for Investment Reporting applicable to public reporting engagements on historical financial information" issued by the UK Auditing Practices Board have been applied to the preparation of these financial statements.

- The condensed combined interim financial statements has been prepared by aggregating the financial  results, assets and liabilities of each of the companies constituting the Operating Group and by applying the principles underlying the consolidation procedures of IFRS 10 for the half year periods ended 30 June 2016 and 2017 and as at 30 June 2017 and  31 December 2016.

- The Operating Group has not in the past constituted a separate legal group and therefore it is not meaningful to show share capital or an analysis of reserves for this combined Operating Group. As such, the net assets of Operating Group are represented by the cumulative investment of the Parent Company in the Operating Group (shown as ''Invested Capital'').

- As the financial information has been prepared on a combined basis, it is not possible to measure earnings per share. Accordingly, the requirement of IAS 33 'Earnings per Share' to disclose earnings per share has not been complied with.

The condensed combined interim financial statements of the Operating Group does not necessarily reflect what the results of operations, financial position, or cash flows would have been had the Operating Group been a separate entity or the future results of the Operating Group as it exists subsequent to 30 June 2017.

Going concern

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

After making appropriate enquiries, the Directors have a reasonable expectation that the Company and the Operating Group have adequate resources to continue in operational existence for the foreseeable future and for at least one year from the date of issue of these condensed combined interim financial statements. As a result the Directors continue to adopt the going concern basis in preparing the condensed combined interim financial statements.

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

At the date of authorisation of the condensed combined interim financial statements, the following new standards and interpretations which have not been applied in this financial information were in issue but not yet effective (and in some cases, had not yet been adopted by the EU):

§ IFRS 15 - Revenue from Contracts with Customers (effective 1 January 2018)

§ IFRS 9 - Financial instruments (effective 1 January 2018)

§ IFRS 16 - Leases (effective 1 January 2019)

The adoption of IFRS 15 and IFRS 9 is not expected to have a material impact on the financial information of the Company in the period of initial application when the relevant standards come into effect. The Directors are still assessing the impact of IFRS 16 but do not believe it will have a material impact on the financial information of the Company.

The principal accounting policies that have been applied to the condensed combined interim financial statements are set out below. These policies have been consistently applied to all years presented unless otherwise stated.

Basis of combination

Subsidiaries

Subsidiaries are entities controlled by the Operating Group. Control exists when the Operating Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. Control is generally accompanied by a shareholding of more than one half of the voting rights.

Transactions eliminated on consolidation

Intragroup balances, and any gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the condensed combined interim financial statements.

Foreign currency translation

Functional and presentational currency

Items included in the financial information of each of the Operating Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The functional currency of the Company, and all entities within the Operating Group, is pounds sterling. This is also the Operating Group's presentational currency.

Transactions and balances

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

Group companies

As all of the entities within the Operating Group have a sterling functional currency, there are no cumulative exchange differences on combination of the results and balances of foreign operations.

Property, plant and equipment

Owned assets

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, those components are accounted for as separate items of property, plant and equipment.

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 Operating Group and the cost of the item can be measured reliably.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the income statement.

Leased assets

Leases under which the Operating Group assumes substantially all the risks and rewards of ownership of an asset are classified as finance leases. Property, plant and equipment acquired under finance leases is recorded at fair value or, if lower, the present value of minimum lease payments at inception of the lease, less depreciation and any impairment.

Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in the other long-term payables. The interest element of the finance cost is charged to the income statement 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 property, plant and equipment under finance leases is depreciated over the shorter of the useful life of the asset and lease term. The costs associated with operating leases are taken to the income statement on an accruals basis over the period of the lease.

Where the Company or Operating Group enters into a lease which entails taking substantially all the risks and rewards of ownership of an asset, the lease is treated as a "finance lease".

Depreciation

Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term. The estimated useful lives are as follows:

·      Plant & machinery	3-10 years
·      Fixtures, fittings & equipment	3 years
·      Motor vehicles	3-5 years
·      Production tools	1-5 years

The residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

Capital assets under construction

The Operating Group manufactures some of its production tools and equipment. The costs of construction are included within a separate category within property, plant and equipment 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 income statement within cost of sales.

Intangible assets

Development costs

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 product development so that it will be available for use;
·	Management intends to complete the product development and use or sell it;
·	It can be demonstrated how the product development will develop probable future economic benefits;
·	Adequate technical, financial, and other resources to complete the development and to use or sell the product are available; and
·	Expenditure attributable to the product during its development can be reliably measured.

Capitalised development costs include employee, travel and patent application costs. Internal costs that are capitalised are limited to incremental costs specific to the project.

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

Amortisation

Amortisation is charged to the income statement within cost of sales on a straight-line basis over the estimated useful lives of intangible assets of 2-5 years.

Patents

The costs of renewing and maintaining patents are expensed in the income statement as they are incurred, unless they qualify for capitalisation as development expenditure.

Impairment of non-financial assets

Assets not subject to amortisation are tested annually for impairment. 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.

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. Development costs are reviewed on a regular basis and projects where the technical feasibility, or the other factors noted in the 'Intangibles - Development costs' section above can no longer be supported, are written off to the income statement immediately.

Financial assets

Classification

The Operating Group classifies its financial assets as loans and receivables. Management determines the classification of its financial assets at initial recognition.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that arise principally through the provision of services to customers. They are initially recognised at fair value, and are subsequently stated at amortised cost using the effective interest method. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. Loans and receivables comprise mainly cash and cash equivalents and trade and other receivables, including amounts owed by related entities. Trade and other receivables relate mainly to the sale of products to trade customers.

Impairment of financial assets

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Operating Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable.  

For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within cost of sales and administrative expenses in the income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

Financial liabilities

The Operating 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 and other payables, amounts owed to group undertakings, other liabilities and accruals and deferred income and 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.

Trade and other 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 payments in advance from customers and rebates.

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates. Preference shares, which are mandatorily redeemable on a specific date, are classified as liabilities.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less.

Derivative financial instruments

The Operating Group enters into forward commodity contracts to minimise the market price exposure that arises at the point the commodity purchase is transacted. The Operating Group does not apply hedge accounting and re-measurements of the derivative financial instruments are recognised in the income statement. The use of financial derivatives is governed by the Operating Group's treasury policies, as approved by the Board. The Operating Group does not use derivative financial instruments for speculative purposes. All derivative financial instruments are initially measured at fair value on the contract date and are re-measured at fair value at subsequent reporting dates.

Employee benefits

The Operating 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.

Pensions

A subsidiary company operates both a defined contribution scheme and a defined benefit scheme for the benefit of its employees. A defined contribution plan is a pension plan under which the Operating Group pays fixed contributions into a separate entity. The Operating 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 Operating Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due.

The liability recognised in the balance sheet in respect of the defined benefit scheme is the present value of the defined benefit obligation at the balance sheet 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 annually by independent actuaries using the Projected Unit Credit 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 income statement within administrative expenses.

Actuarial gains and losses are recognised immediately in the statement of comprehensive income. Net defined benefit pension scheme deficits before tax relief are presented separately on the face of the balance sheet within non-current liabilities. Where material, any attributable deferred income tax asset is included within the deferred income tax asset in the balance sheet and is subject to the recognition criteria as set out in the accounting policy on deferred income tax.

Inventories

Inventories consist of raw materials and finished goods which are valued at the lower of cost and net realisable value. Cost comprises that expenditure which has been incurred in the normal course of business in bringing the products to their present location and condition, and include all related production and engineering overheads valued at cost. At the end of each reporting period, inventories are assessed for impairment. If an item of inventory is impaired, the identified inventory is reduced to its selling price less costs to complete and an impairment charge is recognised in the income statement.

Revenue

Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods supplied, stated net of discounts, returns and rebates allowed by the Operating Group and value added taxes. The Operating Group recognises revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; which is generally on despatch. The Operating Group bases its estimate of return on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. All revenue is derived from the principal activities of the Operating Group.

Revenue also includes royalty and licensing income which is recognised in the period it becomes due.

Cost of sales

Cost of sales comprise costs arising in connection with the manufacture of thermostatic controls and cordless interfaces. 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.

Exceptional items

Items that are material in size, unusual or infrequent in nature are included within operating profit and disclosed separately as exceptional items in the income statement. The separate reporting of exceptional items helps provide an indication of the Operating Group's underlying performance, and include capital transaction, reorganisation and IPO related costs.

EBITDA and Adjusted EBITDA

Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) and Adjusted EBITDA are non-GAAP measures used by management to assess the operating performance of the Operating Group. EBITDA is defined as profit before finance costs, tax, depreciation and amortisation. Exceptional items and royalty charges are excluded from EBITDA to calculate adjusted EBITDA.

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

Research and development

Research expenditure is written off to the income statement 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 balance sheet as an intangible asset and amortised over its useful economic life.

Net finance costs

Finance costs

Finance costs comprise interest charges on pension liabilities.

Finance income

Finance income comprises bank interest receivable on funds invested.

Income tax 

Income tax for the years presented comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting to the Board of directors which has been identified as the chief operating decision maker. The Board of directors consists of the Executive Directors and the Non-Executive directors. The Operating Group's activities consist solely of the design, manufacture and sale of thermostatic controls and cordless interfaces, primarily to the Chinese market. It is managed as one entity and management have consequently determined that there is only one operating segment.

Government grants

Subsidiary companies receive grants from the Isle of Man and Chinese governments towards revenue expenditure. The grants are dependent on the subsidiary company having fulfilled certain operating, investment and profitability criteria in the financial year. The grants are credited directly to the income statement and presented within "other operating income" when all appropriate conditions are satisfied.

Related party transactions

The Operating Group discloses transactions with related parties which are not wholly owned within the same group.

3. Critical accounting judgements and estimates

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

The Directors consider that the following estimates and judgements are likely to have the most significant effect on the amounts recognised in the condensed combined interim financial statements.

Critical judgements in applying the entity's accounting policies

Going concern

The Directors have prepared the condensed combined interim financial statements on a going concern basis. In making this judgment the Directors have considered the Company's and the Operating Group's financial position, current intentions, profitability of operations and access to financial resources and analysed the impact of the situation in the financial markets on the operations of the Operating Group.

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 sterling. This may change as the Operating Group's operations and markets change in the future. 

Capitalisation of development costs

The Directors consider the factors set out in paragraph 'Intangibles - Development costs' above with regard to the timing the capitalisation of the development costs incurred. This requires judgement in determining when the different stages of development have been met.

Critical accounting estimates

Impairment of capitalised development costs

The Operating Group considers whether capitalised development costs are impaired. Where an indication of impairment is identified the estimation or recoverable value requires estimation of the future cash flows and the continued commercial viability of the capitalised project.

4. Post balance sheet date events

Incorporation of Company and changes in share capital

As explained in note 1, subsequent to 30 June 2017 the Company was incorporated and registered in the Isle of Man to be the new parent company to the Operating Group. The Company was incorporated on 12 July 2017 and changed its name to Strix Group Plc on 24 July 2017.

Under the Isle of Man Companies Act 2006, the Company is not required to have an authorised share capital. The issued capital of the Company on incorporation was one A ordinary share of £1, issued to Darbara Limited. This share was transferred to Strix Group Limited prior to the Company's Admission to AIM, and subsequently repurchased and cancelled by the Company as part of the Pre Admission Reorganisation.

Pursuant to a resolution of the Board passed on 27 July 2017, it was resolved that, conditional upon Admission, 190,000,000 new Ordinary Shares be issued and allotted in connection with the Placing. Following Admission on 8 August 2017, the Company's share capital was £1.9m.

Pre-Admission Reorganisation

A number of changes in the structure of the Operating Group were effected as part of a Pre Admission Reorganisation of the Operating Group. As part of that Pre-Admission Reorganization, the following resolutions were passed and agreements were entered into:

a)    Strix Limited and Strix Group Limited entered into a sale and purchase agreement pursuant to which Strix Group Limited contributed the entire issued share capital of Strix Far East Limited to Strix Limited, for no consideration. Strix Limited and Strix Group Limited entered into a sale and purchase agreement pursuant to which Strix Group Limited agreed to sell all of the preference shares in the issued capital of Strix (U.K.) Limited to Strix Limited for £1. In addition, a resolution was approved to convert all of the preference shares in Strix (U.K.) Limited into ordinary shares.

b)    The Company and Strix Group Limited entered into a sale and purchase agreement pursuant to which Strix Group Limited agreed to transfer the entire issued share capital of Sula Limited to the Company in consideration for the issue to Strix Group Limited of one A ordinary share in the capital of the Company at a premium equal to the aggregate fair market value of the Operating Group.

c)     On 27 July 2017 the directors of the Company passed a resolution to, conditional upon Admission, reduce the Company's share capital which took effect upon Admission on 8 August 2017.

d)    The Company and Strix Group Limited entered into a share buyback agreement, conditional on Admission, pursuant to which the Company agreed to repurchase and cancel all of the A ordinary shares in the capital of the Company held by Strix Group Limited (being the initial A ordinary share issued on incorporation of the Company and subsequently transferred to Strix Group Limited, prior to Admission together with the A ordinary share issued to Strix Group Limited in (b) above in consideration of the payment to Strix Group Limited of an amount equal to the net proceeds of the Placing and an agreed level of surplus cash in the Operating Group.

e)     A number of intercompany balances between the Operating Group and related entities were either settled by way of dividend or written off.

Share incentive plans

On 8 August 2017 the Strix Group Plc Long Term Incentive Plan (the "LTIP") was adopted by the Board and on the same date, the Board granted options of 5,700,000 Ordinary Shares of 1p each in the Company to the CEO and CFO.  On 15 August 2017, the Board further granted options of 3,431,505 Ordinary Shares of 1p each to the senior executives and general staff of the Company.

Revolving Credit Facility Agreement

On 27 July 2017, members of the Operating Group entered into a revolving credit facilities agreement with certain banks in respect of a revolving credit facility of £70,000,000. Interest is payable on amounts drawn down at the rate of 2.20 per cent. above LIBOR. The term of the agreement is five years from the date of the agreement.   As at 31 August 2017 the amount drawn down was £60,774,400.

Pro-forma Balance Sheet

In view of the significant movements in balances as a result of the Admission, the Directors consider it appropriate to present a pro-forma balance sheet to illustrate the impact:

	Operating Group as at 30 June 2017		Pre-Admission Reorganisation	Net proceeds of the Placing receivable by the Company	Repurchase of the existing share capital	Refinancing			Unaudited Pro Forma Total
	£'000		£'000	£'000	£'000	£'000	£'000			£'000
	(Note 1)		(Note 2)	(Note 3)	(Note 4)	(Note 5)	(Note 5)
Assets
Non-current assets
Intangible assets	5,636		-	-	-	-	-			5,636
Property, plant and equipment	8,912		-	-	-	-	-			8,912
Total non-current assets	14,548		-	-	-	-	-			14,548
Current assets
Inventory	9,184		-	-	-	-	-			9,184
Trade and other receivables	5,327		-	-	-	-	-			5,327
Receivables from related parties	380,292		(380,292)	-	-	-	-			-
Cash and cash equivalents	13,547		-	175,403	(198,846)	60,774	(48,000)			2,878
Total current assets	408,350		(380,292)	175,403	(198,846)	60,774	(48,000)			17,389
Total assets	422,898		(380,292)	175,403	(198,846)	60,774	(48,000)			31,937
Liabilities
Non-current liabilities
Financial liabilities - borrowings	1,000		(1,000)	-	-	60,774	-			60,774
Post-employment benefits	229		-	-	-	-	-			229
Total non-current liabilities	1,229		(1,000)	-	-	60,774	-			61,003
Current liabilities
Trade and other payables	16,883		-	-	-	-	-			16,883
Payables due to related parties	144,700		(144,700)	-	-	-	-			-
Income taxes payable	713		-	-	-	-	-			713
Derivative financial instruments	-		-	-	-	-	-			-
Total current liabilities	162,296		(144,700)	-	-	-	-			17,596
Total liabilities	163,525		(145,700)	-	-	60,774	-			78,599
Invested capital/(deficit)	259,373		(234,592)	175,403	(198,846)	-	(48,000)			(46,662)

Notes

(1) This is the balance sheet as at 30 June 2017 as reported in this interim financial statements.

(2) This column reflects the following adjustments relating to the Pre Admission Reorganisation:

(a) the release of the receivables from related entities of £380,292k and the forgiveness of payables to related entities of £144,700k;

(b) Preference shares held by Strix Group Limited were transferred to the Operating Group for a nominal £1;

(c) Strix Far East Limited was legally transferred to the Operating Group for nil consideration. The financial results and position of Strix Far East is included within the interim financial statements as explained in Note 2; and

(d) the Company was incorporated on 12 July 2017 and became the parent and ultimate holding company of the Operating Group through the issue of 1 A Ordinary Share to Strix Group Limited in exchange for the entire issued share capital of Sula Limited. This insertion of the Company will constitute a group reorganisation and will be accounted for using merger accounting principles in the financial statements in the year to 31 December 2017.

(3) This column reflects the net proceeds of £175,403k in relation to the Placing received by the Company after fees and expenses of approximately £14,597k.

(4) This column reflects the repurchase and subsequent cancellation of the 1 A Ordinary Share of the Company together with the payment of excess cash to related parties. This amount is equivalent to the net proceeds from the Placing receivable by the Company of £175,403k together with excess cash transferred to related parties of approximately £23,443k. By receiving only the net proceeds of the Placing, the equity and loan note holders have in effect borne the costs associated with the Placing and Admission of approximately £14,597k.             

(5) These columns reflect the refinancing that happened on 27 July 2017 in connection with the Placing and the drawdown of £60,774k of the New Debt Facilities (including fees) which will be classified within non-current liabilities and the subsequent payment to related parties of £48,000k.

5. Interim report

An electronic version of this report is available from the London stock exchange, or may be obtained from the Company's website at www.strixplc.com.

6. Principal risks and uncertainties

The Company and the Operating Group operate a structured risk management process, which identifies and evaluates risks and uncertainties and reviews mitigation activity. Risks are categorised as strategic, financial, operational, reputational or compliance in nature. The following risks and uncertainties could impact performance. Mitigating actions are in place which are monitored regularly by the Board.

Strategic

The Operating Group relies on key customers

The Operating Group has a number of key customer relationships, being some of the largest OEMs in the global market. The top 10 customers contributed c.66 per cent. of the Operating Group's revenues in the financial year ended 31 December 2016, with the largest customer making up c.19 per cent. of the Operating Group's revenues. The loss of any of these key customer relationships could have a material adverse effect on the Operating Group's business, financial condition and results of operations.

Reliance on key suppliers

The Operating Group relies upon certain key suppliers, although dual source arrangements are in place across the supplier base. As a result, if alternative supply sources could not fulfil the required demand, the Operating Group is exposed to a number of risks, including the risk of supply disruption, the risk of key suppliers increasing prices and the risk of a key supplier suffering a quality issue which impacts upon the quality of the Operating Group's products. All of these risks, which apply across the marketplace, could have a negative impact on the Operating Group's business and, if required, the engagement of alternative suppliers may increase the Operating Group's cost base.

Competitors and market pressures

The Operating Group operates in competitive and price sensitive markets, and a number of low cost competitors exist that may attempt to increase their market share by undercutting Strix on pricing, launching new brands amongst other tactics. If a significant shift in market pricing occurs and the Operating Group is not able to mitigate this by reducing costs accordingly, the Operating Group's revenues and profitability may be negatively affected. The markets in which the Operating Group operate in may become more price sensitive.

Financial

Raw material and commodity prices and general cost inflation

Whilst the Operating Group manages its input costs as far as possible, a significant change in the cost of certain raw materials, particularly silver and copper, if sustained for a prolonged period, could affect the Operating Group's profit margins and ultimate profitability.

Any change in the costs of operating the Operating Group could impact on the Operating Group's profitability. Such cost increases could be incurred from increments in supplier costs (including, amongst other things, raw materials and energy costs, particularly electricity costs), employment costs or wage inflation, or increases in costs to be incurred due to regulatory change. Although such costs are accounted for, where these can be estimated, in future budgets for the Operating Group, not all cost increases are capable of being estimated adequately in advance.

Foreign exchange risk

The Operating Group's payments and receipts are predominantly in Sterling and US Dollars and a depreciation in the dollar against Sterling would adversely impact margins earned.

In addition, under the current regulations on foreign exchange control in the PRC, foreign investment enterprises are allowed to distribute their profits or dividends in foreign currencies to foreign investors through designated foreign exchange banks without the prior approval of the State Administration for Foreign Exchange of China. However, the exchange of the Yuan Renminbi ("RMB") into foreign currencies for capital items such as direct investment, loans and security investment, is subject to strict controls and requires the approval of the State Administration for Foreign Exchange of China. The distribution of the Operating Group's profits and dividends may be adversely affected if the Chinese Government imposes greater restriction on the ability of the RMB to be exchanged into foreign currencies. If there are any changes to the current regulations, there can be no assurance that the Operating Group will be able to obtain sufficient foreign exchange to pay dividends or satisfy other foreign exchange requirements in the future.

Operational

Manufacturing facilities

The Operating Group currently manufactures the majority of its products at its main manufacturing facility in Guangzhou, China. If for any reason, including product mix changes, a capacity constraint is created, or should the operations at this site become disrupted for whatever reason (or reasons), and/or the Operating Group is unable to find a suitable manufacturing site, the Operating Group's ability to meet the demands of its customers could be affected. Any of the above could negatively impact the Operating Group's relationships with its customers.

Reputational

Reputation with customer base

The Operating Group's reputation for, and delivery of high quality products with high standards of safety, is key to a number of direct and indirect customers in choosing to specify Strix products. Should Strix suffer product quality or safety issues, leading to a negative impact on its reputation with customers, future performance could be significantly impaired.

Compliance

Contractual arrangements

The arrangements that the Operating Group has entered into with certain of its customers, distributors and sales partners, as well as certain of its service providers have been, on occasion, potentially inadequately documented. There can be no assurance that the Operating Group will not in the future face challenges or disputes in relation to the contractual or other arrangements with third parties with whom limited written contractual arrangements have been entered into.

Intellectual Property

The Operating Group relies on a combination of patents, design registrations, design rights, trademarks, trade secrets, copyright, and other contractual agreements and technical measures to protect its proprietary intellectual property rights. The Operating Group's success will in part depend on its ability to establish, protect and enforce proprietary rights relating to the development, manufacture, use or sale of its existing and proposed products.

 

END

 

 

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