Interim Results

RNS Number : 8103Z

Strix Group PLC

23 September 2020

 

23 September 2020

Strix Group Plc

("Strix" or the "Group")

Interim results for the 6 months ended 30 JuNE 2020

'Another resilient trading performance'

Strix (AIM: KETL), the AIM listed global leader in the design, manufacture and supply of kettle safety controls and other complementary water temperature management components, is pleased to announce its unaudited interim results for the six months ended 30 June 2020.

FINANCIAL SUMMARY

	Adjusted results1
	H1 2020	H1 2019	Change
	£m	£m	%3
Revenue	34.7	43.9	-21.0%
Gross profit	13.8	16.7	-17.6%
EBITDA2	13.6	14.9	-8.6%
Operating profit	10.6	12.2	-12.5%
Profit before tax	10.1	11.5	-12.5%
Profit after tax	9.8	10.9	-9.6%
Net debt⁴	36.9	33.4	+10.5%
Net cash generated from operating activities	8.3	10.9	-23.8%
Basic earnings per share	4.9p	5.7p	-14.0%
Diluted earnings per share	4.9p	5.4p	-9.3%
Interim dividend per share	2.6p	2.6p	0%

1.      Adjusted results exclude exceptional items, which include share based payment transactions, other reorganisation and strategic project costs. Adjusted results are non-GAAP metrics used by management and are not an IFRS disclosure. A table which shows both Adjusted and Reported results is included in the Chief Financial Officer's review.

2.  EBITDA, which is defined as earnings before finance costs, tax, depreciation and amortisation, is a non-GAAP metric used by management and is not an IFRS disclosure.

3.  Figures are calculated from the full numbers as presented in the consolidated financial statements.

4.  Adjusted net debt excludes lease liabilities recognised in accordance with IFRS 16.

FINANCIAL HIGHLIGHTS

· Gross profit margin increased to 39.7% (H1 2019: 37.9%) due to cost efficiency measures in excess of £3m delivered during H1

· Adjusted net debt in line with expectations at £36.9m following additional drawdown in 2020 (H1 2019: £33.4m), 1.08x EBITDA calculated on a trailing twelve month basis

· Net cash generated from operating activities decreased to £8.3m (H1 2019: £10.9m) due to reduction of sales in H1

· Refinancing of existing revolving credit facility, increasing headroom to £23.1m, negotiated with favourable terms in line with our previous facility

· Interim dividend payment of 2.6p (H1 2019: 2.6p) per share to be paid on 30 October 2020 reflecting Board's confidence in current trading

· Adjusted profit after tax decreased by only 9.6% versus a top line decrease of 21% following stringent cost efficiency measures in H1

FULL YEAR OUTLOOK

· Another solid performance with profitability remaining flat versus prior year, supported by record sales in Q3 based on replenishment of pipe-line stock and the normal seasonal uplift

· Aqua Optima business showing full year forecasted double digit growth ahead of 2019, with sales in the UK, Europe, Far East and Latin America all contributing to strong performance

· 14 new products ready to be launched by the end of 2020

· New Factory progressing well in Guangzhou, remaining on target to be fully operational by August 2021

· The Board remains committed to delivering a full year dividend of 7.7p in line with 2019

STRATEGIC HIGHLIGHTS

· Acquisition of Laica S.p.A, an Italian company focussed on water purification and the sale of small household appliances for personal health and wellness. The Acquisition is subject to approval from the Council of Ministers in Italy

· Global market share stable despite global pandemic and imposed lockdowns

· Continued focus on both safety and intellectual property actions resulting in a further kettle being withdrawn from sale and an additional website takedown

· Strengthened senior management team to support our strategic initiatives with particular emphasis on people development and commercialisation of new products

· Successfully launched established Halopure technology into sterilisation applications within both Farming (livestock drinking systems) and Dentistry markets to further diversify category

OPERATIONAL HIGHLIGHTS

· Continued investment in automation with a further 3 lines becoming fully automated in H1 2020 on budget and ahead of schedule

· New U90 automation line achieved 85% mass production efficiency (in line with original projections)

· Strix received "Best Co-operation Award" at the annual Supor Supplier Conference 

· Maintained "Benchmark" status following latest ISO audits

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

"The first half of 2020 has been an extraordinary period with substantial economic challenges inflicted by the COVID-19 pandemic. I am immensely appreciative of the efforts of our people during these uncertain times, who have continued to work diligently to support not only our customers, but also our local Communities and Governments.

"Strix has delivered a solid trading performance in H1 given the continued headwinds faced as a result of the global pandemic. Our performance shows the resilience of our business model, which benefits from geographical and product diversification, and is strengthened further by our prudent control of our balance sheet. Whilst Kettle control volumes were dampened during H1 in line with scenario planning, anticipated record sales in Q3 are expected to contribute to the full year forecasted performance.

 "We have managed our margins with continued focus on operational enhancements and cost improvements in our core business whilst remaining on track with key strategic projects. These include the construction of our new facility in China, integration of assets acquired from HaloSource in 2019, maintained focus on new product development and the acquisition of Laica S.p.A on 22^nd September 2020. Our latest acquisition will enhance our geographical coverage and product portfolio significantly.

 "Given the Board's confidence in the future outlook and with profitability remaining on track to achieve a flat performance year on year, an interim dividend of 2.6p will be paid on 30 October in line with our 2019 interim dividend.
 

For further enquiries, please contact:

Strix Group Plc Mark Bartlett, CEO Raudres Wong, CFO	[phone]
Zeus Capital Limited (Nominated Adviser and Joint Broker) Nick Cowles / Jamie Peel / Jordan Warburton (Corporate Finance)	[phone]
Stifel Nicolaus Europe Limited (Joint Broker) Matthew Blawat / Francis North	[phone]
IFC Advisory Limited (Financial PR and IR) Graham Herring / Tim Metcalfe / Florence Chandler	[phone]

Analyst Meeting

A briefing for analysts will be held via zoom at 09:30hrs on 23 September 2020. Analyst interested in attending the presentation should contact Florence Chandler at IFC Advisory ( [e-mail] ). Strix Group Plc's interim results for 2020 are available at www.strixplc.com .

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 is listed on the Alternative Investment Market of the London Stock Exchange (AIM: KETL).  

Cautionary Statement

Certain statements included or incorporated by reference within this announcement may constitute "forward-looking statements" in respect of the Group's operations, performance, prospects and / or financial condition. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words and words of similar meaning as "anticipates", "aims", "due", "could", "may", "will", "should", "expects", "believes", "intends", "plans", "potential", "targets", "goal" or "estimates". By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions and actual results or events may differ materially from those expressed or implied by those statements. Accordingly, no assurance can be given that any particular expectation will be met and reliance should not be placed on any forward-looking statement. Additionally, forward-looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. No responsibility or obligation is accepted to update or revise any forward-looking statement resulting from new information, future events or otherwise. Nothing in this announcement should be construed as a profit forecast. This announcement does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase any shares or other securities in the Company, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decisions relating thereto, nor does it constitute a recommendation regarding the shares or other securities of the Company. Past performance cannot be relied upon as a guide to future performance and persons needing advice should consult an independent financial adviser. Statements in this announcement reflect the knowledge and information available at the time of its preparation. Liability arising from anything in this announcement shall be governed by Isle of Man law. Nothing in this announcement shall exclude any liability under applicable laws that cannot be excluded in accordance with such laws.

 

Chief Executive's Review

In the first six months of 2020 we have delivered a solid trading performance given the unprecedented trading environment. This is a tribute to our colleagues around the globe, who have demonstrated their dedication and adaptability to unparalleled change in their daily working environment arising from the COVID-19 pandemic.

The Group reported revenue of £34.7m, a decline of 21.0% versus the same period in prior year (H1 2019: £43.9m) in line with our COVID-19 scenario planning expectations.

Adjusted EBITDA was £13.6m (H1 2019: £14.9m), a decrease of just 8.6% on H1 2019 as a result of lower sales, partially offset by reduced variable overheads. The Group's core focus at the height of the crisis was the conservation of its ongoing cash flow, resulting in the identification of in excess of £3.0m cost efficiency measures. Implemented initiatives, some of which were temporary, have enabled us to maintain our high cash generation. Given our positive trading position and strong balance sheet we have been able to continue with our capital allocation model, allowing us to progress with strategic capex investment and acquisitions.

Adjusted profit after tax fell by 9.6% to £9.8m (H1 2019: £10.9m) the biggest contributor to this was low sales in Q1 as a direct result of global lockdowns and reduced production.

The Group's adjusted net debt position has increased by 10.5% to £36.9m (H1 2019: £33.4m), which is approximately £6 million lower than budgeted for this financial year as a result of the cash conservation and efficiency measures. Following completion of the new £60.0m revolving credit facility, total committed debt at 30^th June amounted to £49.0m, giving combined cash and facility headroom of c.£23.1m delivering enhanced liquidity levels.

Given the Group's H1 2020 performance, a strong Q3 order book and the Board's confidence in the continued strength of cash generation, the Board has declared an interim dividend of 2.6p, payable on 30^th October 2020 to shareholders on the register as at 9^th October 2020.

The Group has experienced a marked recovery with a solid performance in June through August and a strong order book for September which underpins its confidence for adjusted profit after tax for the full year to be in line with the previous financial year assuming no significant increase in further lockdown restrictions being imposed or unforeseen macroeconomic shocks.

Kettle control volume sales

The COVID-19 pandemic disrupted both supply and demand in the Global Kettle market during H1. The pandemic's initial impact was supply side with disruptions affecting China based factories, where more than 90% of kettles are manufactured, as a result of the mandatory local lockdowns and an extended Chinese New Year period. Key factories were back in operation by early March showing increased demand from the China domestic market but the pandemic ultimately caused an overall volume drop in market demand of c.20% in 2020 Q1 versus 2019 Q1. Export volume demand in the West dampened through to mid-May due to lockdowns, with demand actively picking up as lockdowns were eased and supply chains replenished.

We have experienced a strong recovery moving into Q3 in line with our scenario planning. Q3 sales from kettle controls are expected to increase by 26% year on year to a record figure of approximately £24m.

The China domestic market was the first to be hit by COVID-19 but also the first to come out of lockdown. The China market's online presence resulted in an uptick in online sales during the pandemic through major platforms such as JD.com and Alibaba. In store recovery, where Strix products are more prominent, was slower, resulting in a reduction in H1 volume demand of 10% year on year with Q3 sales remaining slightly depressed.

The fundamental effect of the pandemic on the Regulated market led to supply side disruption in Q1. Lockdowns in mid-March contributed to a year on year volume drop of c.25% underperforming the overall market. In spite of over eight weeks of lockdowns, 2020 Q2 resulted in slight growth versus 2019 Q2, driven predominantly by the replenishment of the supply chain and the accelerated shift to ecommerce sales. Online sales grew in excess of 50% during the lockdowns and are continuing to show strong growth through to Q3. Overall in H1, the Regulated market performed slightly better than the overall market, down c.10% volume year on year, with Strix maintaining its value share of the sector and continuing to trade strongly into Q3 as per our original scenario planning.

The Less Regulated market, whilst still posting a year on year volume reduction of over 10% during Q1, was the strongest performing market sector. As the pandemic took hold, Q2 performance weakened by c.20% in 2020 versus Q2 2019, resulting in H1 being c.15% down year on year. South Africa, a strong market for Strix's immersed controls, was particularly impacted in H1 resulting in a drop in immersed sales offsetting some of the share gains made by Strix's newer, low cost range of underfloor controls.

Water Category

Despite the external pressures imposed by the global pandemic, the water category has continued to develop its product base and progressed towards our category growth aspirations.During H1, revenue grew by c.2% with a further acceleration of growth into Q3.

Whilst traditional High Street business has suffered, our multi-channel approach has seen the Aqua Optima business grow year on year, with sales in the UK, Europe, Far East and Latin America all contributing to a strong performance.

Appliance sales have been at the forefront of this success; The Lumi Chiller has featured in popular UK publications and subsequently delivered record 'sales out' figures across our retail partners. The Mark IV Evolve+ filter has been rolled out across our distribution base and shows increased market compatibility in the UK & EU, delivering increased sales versus its Mark II predecessor.

The business is well placed for further growth in the 2^nd half of the year with increased revenue forecasted in the 'trade brand' segment as key new listings gain momentum.  We will also build on the success of Lumi with the launch of the Aurora beverage station under Aqua Optima brand in Q4.  Aurora is a great example of Strix's mission to bring solutions to consumer needs combining our patented "true boil" technology & water filtration expertise. Aurora will offer chilled, filtered, variable temperature and "boiled water on demand". 

Performance of the assets acquired from HaloSource in the period has been in line with the Group's expectations. The astrea product has received significant interest from multiple parties with ongoing discussions with a leading global brand and a prominent North American home shopping network. Extending the life and performance of the astrea ONE filter for the US market, and a new plastic astrea ONE bottle (set to launch in H2), gives greater access to a younger and more price sensitive consumer. The Group continues to explore new distribution channels, and is currently in the final stages of commercialising a 'survival bottle' to open up the fishing & hunting retailer market. The Group continues to seek further opportunities to enter into agreements which will drive future profitability.

The recent acquisition of Laica, subject to approval from the Council of Ministers in Italy, will further enhance the Groups position within the water filtration market and accelerate the roadmap of new products for this growth category.

Appliances

The Group has continued to work on growing its appliances category with selected brand partners. In the Hot Water on Demand category, the new Aurora Instant Flow Heater/Chiller appliance is now undergoing development trials at the OEM, and tooling for the Duality project is underway with a US Brand signed-up to launch. In the Baby Care category, incremental projects are in the design phase with a leading baby care brand in both Asia and North America providing a more global reach in this growth market segment.

H1 has seen the acceleration of Strix Global Brand partnerships on new innovative project launches. Within 2020 there are already over 10 agreements in place within the appliances and baby care categories for exciting new launches across all regions.

New Product Development (NPD)

New product development remains a fundamental driver in the Group's core business strategy, with specific focus on the identification of cross category opportunities. Throughout 2020, the Group continues to make significant headway with our product development roadmap remaining on target to be ready to launch 14 new products by the year end, in line with our original objectives.

The Group has re-focused its commercialisation strategy in 2020, optimising cross category synergies within both our higher value small domestic appliance and water categories.

Our patented Instant Flow Heater (IFH) technology is gaining positive demand and will see significant new launches in the coming 12 months across multiple brands globally with key launches in EMEA, Asia and North America. Additionally, our Lumi water chiller has also seen accelerated success with sales volume increases in excess of 1,200%.

Filter development has seen further opportunities with three new products being launched to the Group's non wavering safety and quality standards. In 2020, the Group has started to introduce the Aqua Optima brand to North America with plans for a comprehensive filter, pitcher and appliance range, positioned to take advantage of the growing "Value Chic" segment in the US.

Following the successful launch of the U9 Series during 2017, the Group has successfully produced over seven million controls. The Group continues to develop this series with new variants launched to target the smaller size and split switch kettle appliances to further enhance the portfolio of "best in class" controls. The U6 series control for electronic kettles has subsequently shipped over 0.5 million sets since its launch, which has been supported by targeted IP actions.

The Group will continue to focus its highly skilled engineering resource towards enhancing our core technologies and innovating into new commercial markets.

Operations

Strix remains committed to delivering high quality sustainable products in a sustainable business environment with 2020 seeing further emphasis of our actions and opportunities in this direction. Driven by our key sustainable development goals (SDG's), the Group has evolved the existing management structure to fully integrate sustainability into the core business model. Emphasis of this progression is seen with the new China facility which will aid our SDG's fourfold; improved efficiency levels, product flows, automation, and increased opportunities to minimise our carbon emissions footprint.

Following the ISO surveillance audit, the Group's Isle of Man facility once again achieved the highest rating from Intertek - 'Benchmark' for all categories. The Board is proud to be one of the few audited companies to achieve and maintain this standard which highlights our continued focus on operational and environmental excellence and covers management, internal audits, corrective action, continuous improvement, operational control, governance and effective management of resources.

Strix continues to develop its automation lines in China with three completed production lines becoming fully automated in H1 2020 and a further two lines planned for H2 2020. The Group is also consistently achieving efficiencies in excess of 85% for the recently introduced U90 series line, with head count and cycle times below budget and a control produced every c.1.8 seconds. 

Commodity prices for key materials (silver, copper and hybrid plastics) have been periodically secured at or below budget pricing, in line with the Group's purchasing policy and appropriate stocks have been secured to prevent any potential logistics disruption resulting from BREXIT and the pandemic during 2020.

Dividend Policy

The Board remains committed to its progressive dividend policy, which is to maintain the dividend in line with future underlying earnings from a base of 7.7p for the 2020 financial year. The Group has consistently achieved strong cash conversion which will underpin this dividend alongside continued investment in the Group's asset base to deliver future profitable growth and support expansion into new areas which are aligned to the core competencies of the Group.

The dividend policy of the Company provides the flexibility to continue to invest in the Group's growth strategy and to take advantage of investment opportunities.

Future strategy

Strix will continue to develop a culture of achievement within the Group, with a strategy focused on driving shareholder value and employee engagement. As part of this strategy, the Group continues to broaden its senior management, engineering and commercial teams through strategic recruitment whilst further developing existing resources with training and development programmes aligned to Strix's wider growth objectives.

The Group will also continue to increase its focus on new product development and core technologies to enhance the product portfolio within the Small Domestic Appliance ("SDA") & Water categories. In particular, Strix will develop and launch both disruptive and innovative products to provide consumer and environmental benefits within the hot water on demand category to enhance functionality and value, as well as a range of filtration technologies to differentiate our existing portfolio and expand our addressable markets. In line with this strategy, the Group recently secured a number of collaborations with national and global brands in both the water dispense and water filtration categories, leveraging on its extensive relationships with brands and retailers worldwide.

Strix continues to actively seek opportunities that will add value across the Group through niche acquisitions or technologies. Acquisitions are subject to strict financial criteria and consistent with the Group's capital allocation priorities, to further enhance the Group's growth potential within the water and appliance categories.

Within Operations, the Group will continue to drive efficiency and process improvements with an ongoing commitment to lean manufacturing and further automation of appropriate production lines as volume dictates. Progress on the new manufacturing facility in China remains on track, both on budget and timeframe with the facility expected to be fully operational by August 2021 and will provide additional capacity to realise the Group's growth potential. The additional capacity will enable more efficient process flows as well as the ability to in-source additional products and further increase automation.

Outlook

Following the Group's solid performance in H1, notwithstanding COVID-19 impacts, our commitment towards key strategic projects remains resolute and continues to assist in delivering our long-term growth aspirations.

Our internal investment strategy focuses on the enhancement of our operations, reinforcing our overall business strategy. New additions to our senior management team, bolster the investment in our people and the commercialisation of new products that provide true consumer benefit.

Dedication to improving the Group's sustainability and productivity has seen continued investment in automation, assisting in the mitigation of future risk surrounding rising wage costs and further disruptions resulting from imposed lockdowns. 

Our core kettle market remains stable, maintaining our market leading value share despite the effects of the pandemic, ongoing trade tensions between the US and China, and the pending impact of Brexit. The acquisition of HaloSource in 2019, and our most recent acquisition of Laica S.p.A in 2020, strengthens our water category and widens our global reach.

The Group has experienced a marked recovery with a solid performance in June through August and a strong order book for September which underpins its confidence for adjusted profit after tax for the full year to be in line with the previous financial year assuming no significant increase in further lockdown restrictions being imposed or unforeseen macroeconomic shocks.

Mark Bartlett

Chief Executive

23 September 2020

Financial Review

		Adjusted results1				Reported results
		H1 2020   m	H1 2019   m	Change %2		H1 2020   m	H1 2019   m	Change %2
Revenue		34.7	43.9	-21.0%		34.7	43.9	-21.0%
Gross profit		13.8	16.7	-17.6%		13.8	16.7	-17.6%
Distribution costs		(2.1)	(2.6)	-17.3%		(2.1)	(2.6)	-17.3%
Administrative costs		(1.4)	(2.3)	-37.1%		(3.9)	(6.2)	-37.0%
Operating profit		10.6	12.2	-12.5%		8.1	8.2	-0.6%
EBITDA3		13.6	14.9	-8.6%		11.1	10.9	+1.8%
Profit before tax		10.1	11.5	-12.5%		7.5	7.5	+0.6%
Profit after tax		9.8	10.9	-9.6%		7.3	6.9	+6.3%
Net cash generated from operating activities		8.3	10.9	-23.8%		8.3	10.9	-23.8%

1.    Adjusted results exclude exceptional items, which include share-based payment transactions, other reorganisation and strategic project costs. Adjusted results are non-GAAP metrics used by management and are not an IFRS disclosure.

2.  Figures are calculated from the full numbers as presented in the condensed interim consolidated financial statements.

3.  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.

Financial performance

Revenue declined 21.0% to £34.7m (H1 2019: £43.9m) a reduction in line with the Group's scenario planning. Lower H1 profits were mainly attributable to lower sales of Kettle Controls, however due to the successful implementation of a range of efficiency measures and the management of our highly variable cost base, gross profit margin increased to 39.7% (H1 2019: 37.9%).

The Group generated an adjusted EBITDA of £13.6m, a decrease of 8.6% (H1 2019: £14.9m). Shortfall in H1 revenue is mitigated by £1.3m reduction in administration and distribution expenses due to cost efficiency initiatives, allowing EBITDA to arrive favourably at gross profit level. Reported EBITDA increased 1.8% to £11.1m (H1 2019: £10.9m) largely driven by lower share based payment costs (H1 2020: £1.0m, H1 2019: £3.1m).

Costs

The Group's key focus at the peak of the pandemic was the preservation of our ongoing cash position. Cost of sales decreased by 23.3% to £20.9m (H1 2019: £27.3m), predominantly driven by lower throughput leading to £3.9m reduction in material costs and £0.9m in labour costs.  Distribution expenses reduced by £0.4m, including reductions in advertising, travel, and sales tooling costs. Administration overhead costs are £0.8m lower than in the prior year due to a reduction in monthly salary costs linked to bonus accruals and headcount.

Cash flow

Net cash generated from operating activities reduced to £8.3m (H1 2019: £10.9m) predominately due to reduction in sales.  Working capital movement was maintained at prior year's level despite the softened macro-climate.

Cash flows for investing activities have increased by £0.3m from H1 2019. Major capital projects included the ongoing construction of Strix's new factory and the implementation of a new ERP system. The Group's capital expenditure plans have been re-phased, due to the drop in H1 demand, including deferment of automation lines and £3.0m factory construction costs, which have no impact on the construction completion date. The factory construction project's budget has remained on track at c.£20m.

Cash flows for financing activities included £0.7m of interest (H1 2019: £0.6m) and £0.5m new revolving credit facility loan arrangement fees.

Balance Sheet

Non-current assets increased to £37.0m (2019: £32.6m). Capital expenditure on land and factory in the first half year was £3.1m (H1 2019: £1.8m), with £3.0m re-phased to 2021 to preserve the Group's cash levels. Intangible assets have increased £2.3m largely due to the development of more new products and the new ERP system.

Current assets decreased slightly to £31.4m (2019: £32.5m). Trade debtor and prepayments reduced £1.0m in H1 to £8.3m (2019: £9.3m) where the reduction in sales levels have driven the decrease in debtors and with no change to the debtor's terms. Current liabilities decreased to £18.3m (2019: £21.2m), trade creditors and accruals dropped to £15.2m (2019: £17.7m), the year on year reduction driven by lower H1 trading activities and tightening of supply chain.

Net debt

The Group's net debt position as at 30^th June 2020 increased to £36.9m (2019: £33.4m), £5.9m lower than budgeted for the financial year. Completion of the new £60m revolving credit facility in May 2020, with RBS International Limited and Bank of China, has improved the Group's financial flexibility for the medium term. Following the refinancing of the facility, total committed debt facilities at 30th June amounted to £49.0m, giving a liquidity pool of £23.1m at H1. Net debt equated to 1.08 times trailing twelve months' EBITDA, which compares favourably to our debt covenant of 2.50 times. This places Strix in a strong position allowing us to emerge from the challenges of the pandemic, well-positioned.

To support the acquisition of Laica, the new facility will be extended to £80m with the addition of a third bank, the Bank of Ireland.  The terms remain favourable for a five-year period. 

Dividend

The Board is pleased to declare an interim dividend of 2.6p (H1 2019: 2.6p) per ordinary share. This interim dividend will be paid on 30^th October 2020 to shareholders on the Register at the close of business on 9^th October 2020. The ordinary shares will become ex-dividend on 8^th October 2020. We remain committed to paying a total dividend which will equate to 7.7p per share for the full financial year. Whilst the consolidated accounts show a deficit, significant reserves exist on the balance sheet of the dividend paying entity, Strix Group Plc.

Raudres Wong

Chief Financial Officer

23 September 2020

 

Condensed INTERIM consolidated statement of comprehensive income

for the period ended 30 June 2020 (unaudited)

	Note	(unaudited) Period ended 30 June  2020 £000s	(unaudited) Period ended 30 June  2019 £000s
Revenue	7	34,712	43,930
Cost of sales - before exceptional items		(20,948)	(27,188)
Cost of sales - exceptional items	6	-	(65)
Cost of sales		(20,948)	(27,253)
Gross profit		13,764	16,677
Distribution costs		(2,121)	(2,565)
Administrative expenses - before exceptional items		(1,416)	(2,251)
Administrative expenses - exceptional items	6	(2,517)	(3,989)
Administrative expenses		(3,933)	(6,240)
Other operating income		402	266
Operating profit		8,112	8,138
Analysed as:
Adjusted EBITDA1		13,589	14,909
Amortisation	8	(748)	(688)
Depreciation (excluding Right-of-use asset)	9	(1,491)	(1,401)
Right-of-use asset depreciation	9	(721)	(628)
Exceptional items	6	(2,517)	(4,054)
Operating profit		8,112	8,138
Finance costs	5	(585)	(677)
Finance income		8	11
Profit before taxation		7,535	7,472
Income tax expense		(217)	(607)
Profit after taxation		7,318	6,865
Other comprehensive income:
Net foreign currency translation adjustments		134	-
Total comprehensive income		7,452	6,865
Earnings per share (pence)
Basic	6	3.7	3.6
Diluted	6	3.6	3.4

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

 

Condensed INTERIM consolidated balance sheet

as at 30 June 2020 (unaudited)

	Note	(unaudited) 30 June 2020 £000s	(audited) 31 December 2019 £000s
Non-current assets
Intangible assets	8	9,365	7,068
Property, plant and equipment	9	27,636	25,525
Total non-current assets		37,001	32,593
Current assets
Inventories	10	10,991	9,497
Trade and other receivables	12	8,279	9,333
Cash and cash equivalents		12,103	13,658
Total current assets		31,373	32,488
Total assets		68,374	65,081
Equity and liabilities
Equity
Share capital		1,989	1,900
Share-based payment reserve		13,543	13,063
Accumulated deficit		(16,726)	(14,052)
Total deficit		(1,194)	911
Current liabilities
Trade and other payables	13	15,191	17,773
Future lease liabilities	17	1,589	1,508
Current income tax liabilities	13	1,471	1,929
Total current liabilities		18,251	21,210
Non-current liabilities
Future lease liabilities	17	2,258	2,960
Borrowings	14	49,000	40,000
Post-employment benefits		59	-
Total non-current liabilities		51,317	42,960
Total liabilities		69,568	64,170
Total equity and liabilities		68,374	65,081

 

Condensed INTERIM consolidated statement of changes in equity

as at 30 June 2020 (unaudited)

	Share capital	Share-based payment reserve	Accumulated deficit	Total deficit
(unaudited)	£000s	£000s	£000s	£000s
Balance at 1 January 2019	1,900	6,904	(21,180)	(12,376)
Transition to IFRS 16			(270)	(270)
Balance at 1 January 2019 (as adjusted)	1,900	6,904	(21,450)	(12,646)
Profit for the period	-	-	6,865	6,865
Other comprehensive expense	-	-	-	-
Total comprehensive income for the period	-	-	6,865	6,865
Transactions with owners recognised directly in equity:
Dividends paid (note 16)	-	-	(8,930)	(8,930)
Share-based payment transactions	-	3,053	-	3,053
Total transactions with owners recognised directly in equity	-	3,053	(8,930)	(5,877)
Balance at 30 June 2019	1,900	9,957	(23,515)	(11,658)
(unaudited)
Balance at 1 January 2020	1,900	13,063	(14,052)	911
Profit for the period	-	-	7,318	7,318
Other comprehensive income	-	-	134	134
Total comprehensive income for the period	-	-	7,452	7,452
Transactions with owners recognised directly in equity:
Dividends paid (note 16)	-	-	(10,126)	(10,126)
Share-based payment transactions	89	480	-	569
Total transactions with owners recognised directly in equity	89	480	(10,126)	(9,557)
Other transactions recognised directly in equity	-	-	-	-
Balance at 30 June 2020	1,989	13,543	(16,726)	(1,194)

 

Condensed INTERIM consolidated cash flow statement

for the PERIOD ended 30 June 2020 (unaudited)

		(unaudited)	(unaudited)
		Period ended	Period ended
		30 June 2020	30 June 2019
	Note	£000s	£000s
Cash flows from operating activities
Cash generated from operations	18a	8,988	11,272
Tax paid		(676)	(359)
Net cash generated from operating activities		8,312	10,913
Cash flows from investing activities
Purchase of property, plant and equipment	9	(4,294)	(4,646)
Capitalised development costs	8	(1,231)	(900)
Purchase of HaloSource Inc. assets		-	(953)
Purchase of intangibles	8	(1,458)	(253)
Proceeds on sale of property, plant and equipment		-	2
Finance income		7	11
Net cash used in investing activities		(6,976)	(6,739)
Cash flows from financing activities
Drawdowns under credit facility	18b	9,000	1,000
Finance costs paid		(691)	(556)
Principal elements of lease payments		(800)	(600)
Transaction costs related to borrowings		(480)	-
Dividends paid	16	(10,126)	(8,930)
Net cash used in financing activities		(3,097)	(9,086)
Net decrease in cash and cash equivalents		(1,761)	(4,912)
Cash and cash equivalents at the beginning of the period		13,658	13,521
Effects of foreign exchange on cash and cash equivalents		206	(17)
Cash and cash equivalents at the end of the period		12,103	8,592

Notes to the condensed INTERIM cONSOLIDATED financial statements

for the PERIOD ended 30 June 2020 (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 014963V. 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.

The principal activities of Strix Group Plc and its subsidiaries (together 'the Group') are the design, manufacture and supply of kettle safety controls and other components and devices involving water heating and temperature control, steam management and water filtration.

These condensed interim consolidated financial statements ('interim financial statements') were approved for issue on 23 September 2020. The interim report will be available 23 September on the Group's website www.strixplc.com and from the registered office. These interim financial statements are unaudited.

2. Principle accounting policies

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

Basis of preparation

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

These interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting". They do not include all the information required for a complete set of financial statements prepared in accordance with International Financial Reporting Standards as adopted by the European Union. However, explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual consolidated financial statements as at and for the year ended 31 December 2019. These interim financial statements should be read in conjunction with the last annual consolidated financial statements as at and for the year ended 31 December 2019.

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

Accounting policies

The interim financial statements have been prepared in accordance with the accounting policies set out in the Group's Annual Report and Accounts for the year ended 31 December 2019, which is available at www.strixplc.com.

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.

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 a subsidiary being measured at their fair values. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. The Group measures goodwill at the acquisition date as:

·	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.

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

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

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

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

Going concern

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

The Directors acknowledge that the Group is in a net liability position, as a consequence of the group reorganisation and the Company's admission to AIM which occurred during 2017 which included the distributions made to the former shareholders funded in part by a revolving credit facility (see note 14). In assessing the Group's going concern status, the Directors have made additional enquiries as to the appropriateness of continuing to adopt the going concern basis. In making this assessment they have considered:

·	the strong historic trading performance of the Group;
·	the current and past profitability of the Group;
·	budgets and cash flow forecasts for the period to December 2021;
·	the current financial position of the Group, including its cash and cash equivalents balances of £12.1m (YE 2019: £13.7m);
·	the availability of further funding should this be required (including the headroom of £11.0m (2019: £9.0m) on the revolving credit facility and the access to the AIM market afforded by the admission to AIM);
·	the current and past ability of the Group to meet its debt covenants;
·	the low liquidity risk the Group is exposed to; and
·	the Group operates within a sector that is experiencing relatively stable demand for its products.

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

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

EBITDA and adjusted EBITDA - non-GAAP performance measures

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

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

Seasonality of operations

The Group's revenue and profit after tax is subject to a degree of seasonality due primarily to the occurrence of the Chinese New Year public holiday during the first half of the year ('H1'), when the Group's major customers and suppliers based in China cease operations for a period. In the financial year ended 31 December 2019, 45.3% (2018: 45.7%) of the Group's revenue and 31.9% (2018: 36.6%) of the Group's profit after tax accumulated in H1.

Foreign currency translation

Functional and presentational currency

Items included in the financial information of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The functional currency of the Company, and most entities within the Group, is Sterling. This is also the Group's presentational currency. The functional currency of the following subsidiaries are currencies other than Sterling: Strix Hong Kong, which is the Hong Kong dollar; Strix USA, which is the United States Dollar; and HaloSource Shanghai, which is the Chinese Renminbi.

Transactions and balances

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

Group companies

The results and financial position of Strix Hong Kong, Strix USA and HaloSource Shanghai are translated into the presentation currency as follows:

·	assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet, or historic rates for certain line items;
·	income and expenses for each condensed interim consolidated statement of comprehensive income 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 the condensed interim consolidated statement of comprehensive income.

Leases

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

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

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

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

Measurement of future lease liabilities

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

·	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 determined, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.

Measurement of right-of-use assets

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

·	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

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

Extension and termination options

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

3. Critical accounting judgements and estimates

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

In preparing these interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty are the same as those that applied to the Group's Annual Report and Accounts for the year ended 31 December 2019.

4. Segmental reporting

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

Products and services

Revenue is generated by the Group on the sale of thermostatic controls, cordless interfaces, and other products such as water jugs and filters. Whilst under IFRS 8 there is only one segment, the information used to prepare the condensed interim consolidated financial statements is disaggregated into three product families, being 'Kettle controls', 'Water Category' and 'Other'. 'Other' relates to new technology products and other appliances which do not fit into 'Kettle controls' or 'Water Category'. An analysis of revenue by product family is provided in note 7. 'Water Category' includes the activities of 'Aqua Optima'.

Geographical

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

5. finance costs

	Period ended	Period ended
	30 June 2020	30 June 2019
	£000s	£000s
Letter of credit charges	51	26
Lease liability interest	53	44
Borrowing costs	481	607
Total finance costs	585	677

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

6. Earnings per share

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

	Period ended	Period ended
	30 June 2020	30 June 2019
Earnings (£000s)
Earnings for the purpose of basic and diluted earnings per share	7,318	6,865
Number of shares (000s)
Weighted average number of shares for the purposes of basic earnings per share	198,878	190,000
Weighted average dilutive effect of conditional share awards	2,872	10,679
Weighted average number of shares for the purposes of diluted earnings per share (000s)	201,750	200,679
Earnings per ordinary share (pence)
Basic earnings per ordinary share	3.7	3.6
Diluted earnings per ordinary share	3.6	3.4
Adjusted earnings per ordinary share (pence) 1
Basic adjusted earnings per ordinary share	4.9	5.7
Diluted adjusted earnings per ordinary share	4.9	5.4

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

	Period ended	Period ended
	30 June 2020	30 June 2019
	£000s	£000s
Profit for the year	7,318	6,865
Add back:
Share-based payments	1,030	3,053
COVID-19 net exceptional costs²	456	-
Strategic projects	673	936
Reorganisation costs	358	65
Adjusted earnings 1	9,835	10,919

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

^{2. COVID-19 net exceptional costs include certain employment costs and Government support grants.}

The denominators used to calculate both basic and adjusted earnings per share are the same as those shown above for both basic and diluted earnings per share. £662,000 of the £673,000 of 'Strategic projects' relate to the acquisition of Laica S.p.A in September 2020.

7. REVENUE

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

	Period ended	Period ended
	30 June 2020	30 June 2019
	£000s	£000s
Kettle controls	29,132	38,408
Water Category	5,039	4,964
Other	541	558
Total revenue	34,712	43,930

8. Intangible assetS

	2020
	Development costs	Software	Intellectual Property	Intangible Assets under Construction	Goodwill	Total
	£000s	£000s	£000s	£000s	£000s	£000s
At 1 January
Cost	9,837	922	488	-	384	11,631
Accumulated amortisation and impairment	(4,006)	(540)	(17)	-	-	(4,563)
Net book value	5,831	382	471	-	384	7,068
Period ended 30 June
Additions	1,418	27	70	564	-	2,079
Transfers in/(out)	-	23	-	1,131	-	1,154
Amortisation charges	(626)	(113)	(9)	-	-	(748)
Exchange differences	(170)	(5)	(22)	9	-	(188)
Closing net book value	6,453	314	510	1,704	384	9,365
At 30 June
Cost	11,085	967	536	1,704	384	14,676
Accumulated amortisation and impairment	(4,632)	(653)	(26)	-	-	(5,311)
Net book value	6,453	314	510	1,704	384	9,365

All amortisation charges have been treated as an expense, and allocated to cost of sales £696,000 (H1 2019: £633,000) and administrative expenses £52,000 (H1 2019: £55,000) in the condensed interim consolidated statement of comprehensive income.

There were no reversals of prior year impairments during the year. During the period, £1,131,000 of assets under construction were transferred in.  

	2019
	Development costs	Software	Intellectual Property	Goodwill	Total
	£000s	£000s	£000s	£000s	£000s
At 1 January
Cost	12,886	579	-	-	13,465
Accumulated amortisation and impairment	(8,324)	(337)	-	-	(8,661)
Net book value	4,562	242	-	-	4,804
Period ended 30 June
Additions	900	240	-	-	1,140
HaloSource acquisition	-	-	316	384	700
Amortisation charges	(585)	(103)	-	-	(688)
Exchange differences	-	-	12	-	12
Closing net book value	4,877	379	328	384	5,968
At 30 June
Cost	10,957	1,262	328	384	12,931
Accumulated amortisation and impairment	(6,080)	(883)	-	-	(6,963)
Net book value	4,877	379	328	384	5,968

All amortisation charges have been treated as an expense, and charged to cost of sales (£633,000) and administrative expenses (£55,000) in the condensed interim consolidated statement of comprehensive income.

There were no reversals of prior year impairments during the comparative period.

9. Property, plant and equipment

	2020
	Plant & machinery	Fixtures, fittings & equipment	Motor vehicles	Production tools	Land & Buildings	Right-of-use assets	Assets under construction	Total
	£000s	£000s	£000s	£000s	£000s	£000s	£000s	£000s
At 1 January
Cost	21,924	4,126	130	13,298	1,996	5,386	8,569	55,429
Accumulated depreciation	(14,444)	(2,935)	(67)	(11,291)	(33)	(1,135)	-	(29,904)
Net book value	7,480	1,191	64	2,007	1,963	4,251	8,569	25,525
Period ended 30 June
Additions	1,935	111	-	571	7	203	2,787	5,614
Transfers	(36)	(43)	-	56	-	-	(1,131)	(1,154)
Disposals	-	-	-	-	-	-	-	-
Depreciation charge	(612)	(387)	(16)	(426)	(50)	(721)	-	(2,212)
Exchange differences	11	(21)	-	(7)	-	(79)	(41)	(137)
Closing net book value	8,778	851	48	2,201	1,920	3,654	10,184	27,636
At 30 June
Cost	23,834	4,173	130	13,918	2,003	5,509	10,184	59,751
Accumulated depreciation	(15,056)	(3,322)	(83)	(11,717)	(83)	(1,856)	-	(32,117)
Net book value	8,778	851	48	2,201	1,920	3,654	10,184	27,636

Depreciation charges are allocated to cost of sales (£1,757,000), distribution costs (£61,000), and administrative expenses (£394,000) in the condensed interim consolidated statement of comprehensive income.

	2019
	Plant & machinery	Fixtures, fittings & equipment	Motor vehicles	Production tools	Land & Buildings	Right-of-use assets	Assets under construction	Total
	£000s	£000s	£000s	£000s	£000s	£000s	£000s	£000s
At 1 January
Cost	20,624	3,673	141	13,484	-	-	1,889	39,811
Accumulated depreciation	(14,695)	(2,595)	(51)	(11,377)	-	-	-	(28,718)
Net book value	5,929	1,078	90	2,107	-	-	1,889	11,093
Period ended 30 June
Additions	-	502	-	-	1,720	4,794	2,016	9,032
HaloSource acquisition	135	93	1	49	-	-	23	301
Transfers	409	59	-	44	-	-	(512)	-
Disposals	(9)	-	-	-	-	-	-	(9)
Depreciation charge	(532)	(365)	(12)	(492)	(6)	(622)	-	(2,029)
Exchange differences	(4)	(35)	(1)	-	-	(4)	-	(44)
Closing net book value	5,928	1,332	78	1,708	1,714	4,168	3,416	18,344
At 30 June
Cost	21,160	4,326	142	13,577	1,720	4,794	3,416	49,135
Accumulated depreciation	(15,232)	(2,994)	(64)	(11,869)	(6)	(626)	-	(30,791)
Net book value	5,928	1,332	78	1,708	1,714	4,168	3,416	18,344

Depreciation charges are allocated to cost of sales (£1,584,000), distribution costs (£212,000), and administrative expenses (£233,000) in the condensed interim consolidated statement of comprehensive income.

10. Inventories

	30 June 2020	31 December 2019
	£000s	£000s
Raw materials and consumables	6,372	5,071
Finished goods and goods in transit	4,619	4,426
	10,991	9,497

The cost of inventories recognised as an expense and included in cost of sales amounted to £12,189,000 (H1 2019: £ 16,738,000 ). The charge for impaired inventories was £129,000 (H1 2019: £442,000). There were no reversals of previous write-downs.

11. PRINCIPAL SUBSIDIARY UNDERTAKINGS OF THE GROUP

A list of all subsidiary undertakings controlled by the Group, which are all included in the interim financial statements, is set out below.

Subsidiary	Nature of business	Country of incorporation	% of ordinary shares held by the Company	% of ordinary shares held by the Group
			%	%
Sula Ltd	Holding company	IOM	100	100
Strix Ltd	Manufacture and sale of products	IOM	-	100
Strix Guangzhou Ltd	Manufacture and sale of products	China	-	100
Strix (U.K.) Ltd	Group's sale and distribution centre	UK	-	100
Strix Hong Kong Ltd	Sale and distribution of products	Hong Kong	-	100
Strix (China) Ltd	Construction of manufacturing facility	China	-	100
HaloSource Water Purification Technology (Shanghai) Co. Ltd	Manufacturing and sales of products	China	-	100
Strix (USA), Inc.	Research and development, sales, and distribution of products	USA	-	100

12. Trade and other receivables

	30 June 2020	31 December 2019
	£000s	£000s
Amounts falling due within one year:
Trade receivables	3,002	4,286
Trade receivables past due	315	502
Loss allowance	-	(50)
Trade receivables - net	3,317	4,738
Prepayments	1,339	1,042
Advance purchase of commodities	2,364	2,174
Other receivables	1,259	1,379
	8,279	9,333

Trade and other receivables are all current and any fair value difference is not material.

The amount of trade receivables past due is not material, therefore an aging analysis has not been presented (2019: same).

The advance purchase of commodities relates to a payment in advance to secure the purchase of certain key commodities at an agreed price to mitigate the commodity price risk.

£822,000 of prepayments were capitalised in 2017 in relation to transaction costs for non-current borrowings put in place as part of the Group reorganisation and admission to trading on AIM. At 30 June 2020 increased to £790,000 (2019: £506,000) due to the renewal of the revolving credit facility, these transaction costs were included within prepayments.

Other receivables include government grants due of £208,000 (2019: £201,000). There were no unfulfilled conditions in relation to these grants at the period 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.

Movement 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.

13. Trade and other payables

	30 June 2020	31 December 2019
	£000s	£000s
Trade payables	5,658	6,779
Current income tax liabilities	1,471	1,929
Social security and other taxes	148	98
Other liabilities	5,161	5,620
Payments in advance from customers	1,343	1,286
Accrued expenses	2,881	3,990
	16,662	19,702

The fair value of financial liabilities approximates their carrying value due to short maturities.

14. Borrowings

	30 June 2020	31 December 2019
	£000s	£000s
Non-current bank loans	49,000	40,000

Term and debt repayment schedule

	Currency	Interest rate	Maturity date	30 June 2020 carrying value (£000s)
Revolving credit facility	GBP	LIBOR +1.50% - 2.85%	27-May-25	49,000

On 27 May 2020, the Company entered into an agreement with RBS International Limited and Bank of China in respect of a revolving credit facility of £60,000,000.

All amounts become immediately repayable and undrawn amounts cease to be available for drawdown in the event of a third party gaining control of the Company. The Company and its subsidiaries, Strix Limited and Sula Limited, have entered into the agreement as guarantors, guaranteeing the obligations of the borrowers under the agreement.

The agreement contains representations and warranties which are usual for an agreement of this nature. The agreement also provides for the payment of a commitment fee, agency fee and arrangement fee, contains certain undertakings, guarantees and covenants (including financial covenants) and provides for certain events of default. During the period to 30 June 2020, the Group has not breached any of the financial covenants contained within the agreement.

Interest applied to the loan is calculated as the sum of the margin and LIBOR (or EURIBOR for any loan denominated in Euros). The margin is a calculated based on the Group's leverage as follows:

Leverage	Annualised margin %
Greater than or equal to 2.5x	2.85%
Less than 2.5x but greater than or equal to 2.0x	2.50%
Less than 2.0x but greater than or equal to 1.5x	2.20%
Less than 1.5x but greater than or equal to 1.0x	2.00%
Less than 1.0x	1.50%

15. CAPITAL Commitments

	30 June 2020	31 December 2019
	£000s	£000s
Contracted for but not provided in the interim financial statements: Property, plant and equipment	7,688	12,559

Construction of new factory

The above commitments include capital expenditure of £6,163,165 (2019: £10,472,000) relating to the construction of a new factory in Zengcheng district, China.

16. Dividends

The following amounts were recognised as distributions in the period:

	Period ended	Period ended
	30 June 2020	30 June 2019
	£000s	£000s
Final 2019 dividend of 5.1p per share (H1 2019: 4.7p)	10,126	8,930
Total dividends recognised in the period	10,126	8,930

In addition to the above dividend, since the end of the period the Directors have approved the payment of an interim dividend of 2.6p per share. The aggregate amount of the interim dividend expected to be paid on 30 October 2020 out of retained earnings at 30 June 2020, but not recognised as a liability at the period end, is £5,171,000. The payment of this dividend will not have any tax consequences for the Group.

17. FUTURE LEASE LIABILITIES

The table below shows the split of future leases payable between current and non-current in the condensed interim consolidated balance sheet:

	30 June 2020	31 December 2019
	000s	000s
Current future lease liabilities (due within 12 months)	1,589	1,508
Non-current future lease liabilities (due in more than 12 months)	2,258	2,960
Total Future Lease Liabilities payable	3,847	4,468

The Group adopted IFRS 16 from 1 January 2019.

18. Cash flow statement notes

a) Cash generated from operations

	Period ended	Period ended
	30 June 2020	30 June 2019
	£000s	£000s
Cash flows from operating activities
Operating profit	8,112	8,138
Adjustments for:
Depreciation of property, plant and equipment  9	1,491	1,401
Depreciation of right-of-use assets  9	721	628
Amortisation of intangible assets 8	748	688
Loss/(profit) on disposal of property, plant and equipment	-	6
Pension contributions made	59	(19)
Share based payment transactions	678	3,053
Net exchange differences	(61)	13
	11,748	13,908
Changes in working capital:
(Increase)/ decrease in inventories	(1,674)	(269)
(Increase)/ decrease in trade and other receivables	1,235	(4,053)
Increase / (decrease)  in trade and other payables	(2,321)	1,686
Cash generated from operations	8,988	11,272

b) Movement in net debt

	Non-cash movements
	At 1 January 2020	Cash flows	Currency movements	At 30 June 2020
	£000s	£000s	£000s	£000s
Non-current borrowings	(40,000)	(9,000)	-	(49,000)
Lease Liabilities	(4,468)	800	(179)	(3,847)
Total liabilities from financing activities	(44,468)	(8,200)	(179)	(52,847)
Cash and cash equivalents	13,658	(1,761)	206	12,103
Net debt	(30,810)	(9,961)	27	(40,744)

19. RELATED PARTY TRANSACTIONS

Key management compensation

The following table details the aggregate compensation paid in respect of key management, which includes the Directors and the members of the Trading Board, representing members of the senior management team from all key departments of the Group.

	Period ended	Period ended
	30 June 2020	30 June 2019
	£000s	£000s
Salaries and other short-term employment benefits	806	885
Post-employment benefits	81	74
Termination	48	-
Share-based payment transactions	820	2,125
	1,755	3,084

There are no defined benefit schemes for key management.

20. Post balance sheet events

The Group has entered into a conditional agreement to acquire the entire share capital of Laica S.p.A for an initial consideration of €19.6 million, comprising €11.6 million in cash and €8.0 million in Strix ordinary shares, with up to a further €12.0 million payable in cash subject to certain conditions being met, including threshold financial targets for the financial years ending 31 December 2021 and 2022.

The Group has no other post balance sheet events to disclose.

 

END

 

 

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