TIDMKETL
RNS Number : 2563T
Strix Group PLC
24 March 2021
24 March 2021
Strix Group Plc
("Strix", the "Group" or the "Company")
Results for the year ended 31 December 2020
" A resilient trading performance in a challenging year
underpinning confidence in medium-term targets "
Financial Summary
Adjusted results(1)
------------------------
2020 2019 Change
------ ------ --------
GBPm GBPm %(5)
Revenue 95.3 96.9 -1.6%
Revenue - constant currency basis(2) 95.6 96.9 -1.3%
EBITDA(3) 38.1 36.9 +3.2%
Gross profit 39.4 39.6 -0.5%
Operating profit 32.1 31.5 +1.8%
Profit before tax 30.9 30.2 +2.4%
Profit after tax 29.5 28.9 +2.3%
Net debt(4) 37.2 26.3 +41.2%
Net cash generated from operating
activities 31.2 34.4 -9.2%
Basic earnings per share (pence) 14.9 15.2 -2.0%
Total dividend per share (pence) 7.85 7.70 2.0%
1. Adjusted results exclude exceptional items, which include
share based payment transactions and other reorganisation and
strategic project costs. Adjusted results are non-GAAP metrics used
by management and are not an IFRS disclosure.
2. Revenue - constant currency basis, which is defined as 2020
revenue restated at the exchange rates prevailing in 2019, is a
non-GAAP metric used by management and is not an IFRS
disclosure.
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.
4. Net debt excludes the impact of IFRS 16 lease liabilities,
pension liabilities, deferred taxes and earn-out provisions on
satisfaction of performance conditions.
5. Figures are calculated from the full numbers as presented in
the consolidated financial statements.
Financial Highlights
-- The Group reported revenue of GBP95.3m, a decline of
1.6% versus the same period in prior year significantly
ahead of COVID-19 scenario planning expectations with
marked recovery in H2.
-- Gross profit margin has further increased to 41.4% (2019:
40.9%). Adjusted EBITDA increased to GBP38.1m (2019:
GBP36.9m), representing a 3.2% increase, reflecting the
combined impact of product mix, a range of efficiency
measures including continued automation and strategic
initiatives.
-- The Group has significant liquidity providing financial
flexibility.
-- Net debt (excluding the impact of IFRS 16 lease liabilities)
has increased to GBP37.2m (2019: GBP26.3m) to fund the
LAICA acquisition, continued investment in compelling
growth opportunities as well as the new manufacturing
operations in China. This represents a n et debt/adjusted
EBITDA ratio of 1.0x.
-- Basic earnings per share and reported diluted earnings
per share were 14.9p (2019: 15.2p) and 12.2p (2019: 11.3p)
respectively.
-- Given the Group's resilient performance in 2020 and confidence
in the continued strength of its cash generation, the
Board confirms its intention to increase the total dividend
to 7.85 per share in respect of the 2020 financial year,
inclusive of the 2.6p per share paid as an interim dividend
and in line with its progressive dividend policy that
is linked to underlying earnings.
Strategic Highlights
-- Updated medium-term targets to double the Group's revenues
over the next five years primarily through organic growth
in its water and appliances categories. Alongside this
the Company will continue to grow market share in kettle
controls.
-- Expanded global market share by value of the kettle controls
market.
-- Acquisition of LAICA successfully completed in October
2020, expanding Strix's Water category and enhancing
its presence in the health and wellness market segment
of the appliance category, both of which are growth markets
and core to Strix's sustainability strategy. Integration
in line with plan to achieve the identified benefits
and the trading performance has been strong over the
period delivering double-digit revenue growth.
-- New manufacturing operations in China remains on target
to be on budget and fully operational by August 2021
as originally scheduled. The press machinery and test
lab facilities are being installed and the transfer and
commencement of some of the production lines has begun.
-- Launched HaloPure technology water purification and disinfection
solution and signed a contract to adopt it with Chia
Tai Group, one of the leading livestock companies operating
in China.
-- Continues to strengthen senior management, engineering
and commercial teams through strategic recruitment to
support medium term objectives.
Operational Highlights
-- Production efficiency of core kettle products improved
with 67% of all assembly lines now fully automated.
-- The U9 series of controls continue to show strong growth
with 33 million controls sold to date. The new U90 automation
line achieved labour and machine efficiency targets,
in line with original projections.
-- Focus on continuous improvement, automation and refinement
of existing processes has delivered significant improvement
in customer quality ppm (parts per million).
-- The Group was awarded Supor's "Best Cooperation" and
Xinbao's "Most Outstanding Contributor" in 2020.
-- Continued compliance with a range of international standards,
solidifying the quality and safety of our products and
internal processes (ISO9001, ISO14001, ISO45001, ISO50001,
ISO17025, ISO13485).
-- Successfully upgraded to SAP to improve real time data
and streamline internal processes.
Mark Bartlett, Chief Executive Officer of Strix Group plc,
said:
"We are pleased to report another resilient trading performance
in what has been a challenging year for all. We are particularly
proud of the way in which the Company has responded to the pandemic
and as a result the Group has produced revenue that is
significantly ahead of our COVID-19 scenario planning expectations
with a marked recovery in H2. In addition, the combined impact of
product mix and a range of efficiency measures, including continued
automation and strategic initiatives, has enabled the Group to
report an increase in both gross profit margin and the absolute
level of EBITDA generated.
"The Board has recently outlined its strategy of doubling
revenues in the next five years. Despite recent events, the Board
maintains its confidence in achieving this medium-term target,
primarily through organic growth in its water and appliances
categories whilst continuing to grow market share in kettle
controls.
"We are also delighted with the addition of the LAICA team
following the successful acquisition in October which will serve to
expand Strix's water category and enhance its presence in the
health and wellness segment of the appliance category, both of
which are growth markets and enhance Strix's sustainability
strategy.
"The much improved performance in the second half has continued
into 2021. The kettle controls category has a strong order book for
Q2 giving management confidence in delivering a significantly
stronger first half versus last year. In the water category, the
Group expects sales of the new products launched in 2020 to
accelerate this year as the retailers introduce them to their
in-store and online portfolios. 2021 will also see many of the
appliances created in 2020 penetrate the consumer markets across
the world with the most notable being the Aurora (Instant Flow
Heater/Chiller) in the first half, and Dual Flo and the expansion
of the Baby Care technology range in the second half.
"Given the Group's resilient performance in 2020 and confidence
in the continued strength of its cash generation, the Board
confirms its intention to increase total dividend to 7.85p per
share in respect of the 2020 financial year. The Group's commitment
to its dividend reflects the Board's confidence in the outlook for
the Group going forward."
For further enquiries, please contact:
Strix Group Plc
Mark Bartlett, CEO
Raudres Wong, CFO +44 (0) 1624 829829
Zeus Capital Limited (Nominated Advisor
and Joint Broker)
Nick Cowles / Jamie Peel / Jordan Warburton
(Corporate Finance) +44 (0) 20 3829 5000
Stifel Nicolaus Europe Limited (Joint
Broker)
Matthew Blawat / Francis North +44 (0) 20 7710 7600
IFC Advisory Limited (Financial PR and
IR)
Graham Herring / Tim Metcalfe / Florence
Chandler +44 (0) 20 3934 6630
ABOUT STRIX GROUP PLC
Isle of Man based Strix, is a global leader in the design,
manufacture and supply of kettle safety controls and other
components and devices involving water heating and temperature
control, steam management and water filtration.
Strix's core product range comprises a variety of safety
controls for small domestic appliances, primarily kettles. Kettle
safety controls require precision engineering and intricate
knowledge of material properties in order to repeatedly function
correctly. Strix has built up market leading capability and
know-how in this field since being founded in 1982.
Strix is admitted to trading on the AIM Market of the London
Stock Exchange (AIM: KETL).
Chairman Statement:
Introduction
2020 has been an extraordinary period with substantial economic
challenges inflicted by the COVID-19 pandemic. The Board is
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 successfully delivered modest growth in adjusted
profit after tax for the full year which is testament to how well
the Company has dealt with the challenges of the pandemic and
demonstrates the resilience of the business.
Strix's investment proposition is underpinned by a high quality,
resilient and robust business model which benefits from geographic
and product diversification. Its continued focus on efficiency
measures and strategic initiatives to manage its highly variable
cost base and prudent investment in compelling growth
opportunities, coupled with a solid balance sheet and low leverage
provides financial flexibility for the medium term to navigate
headwinds and deploy capital consistent with allocation of capital
priorities.
The Group's commitment to its increasing dividend, in line with
its progressive dividend policy that is linked to underlying
earnings, reflects the Board's confidence in the outlook for the
Group.
Medium-term strategy
At the recent Capital Markets Day in November, the Group
outlined its medium-term strategy stating that the Group aims to
double revenues over the next five years, primarily through organic
growth in its water and appliances categories. 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.
Alongside this it will continue to grow market share in Kettle
Controls and invest in compelling growth opportunities with
particular focus on new product development and a commercialisation
strategy that supports the medium-term growth ambition.
Sustainability remains of critical importance to the way the
Group operates and it reiterates its commitment to embed
sustainability into our business strategy and provide a safer
sustainable future for its customers.
Financial performance
The Group experienced a marked recovery in H2 2020 as
anticipated, and a strong order book has enabled it to deliver
GBP29.5m, circa 2% growth, in adjusted profit after tax for the
full year versus the previous financial year (2019: GBP28.9m).
Gross profit margin has further increased to 41.4% (2019:
40.9%), representing a 0.5% increase, reflecting the combined
impact of product mix, a range of efficiency measures including
continued automation and strategic initiatives. Adjusted EBITDA
increased to GBP38.1m (2019: GBP36.9m), representing a 3.2%
increase, reflecting Strix's strong ability to optimize the
overheads costs to accommodate the softening top line
performance.
Impact of COVID-19
Despite the unprecedented global macroeconomic disruption caused
by the COVID-19 pandemic, Strix has successfully implemented a
range of efficiency measures and strategic initiatives to manage
its highly variable cost base and cash resources prudently and
generated immediate savings to mitigate the impact of the
pandemic.
This has been done whilst continuing to invest in compelling
growth opportunities including the acquisition of LAICA, as well as
the new product development pipeline and the new manufacturing
operations in China.
The financial performance and operational progress illustrates
the resilience and robustness of the Strix business model and
following a period of continued investment means that it is well
placed to benefit from the acceleration in demand as we emerge in
the post pandemic environment as a stronger business.
Sustainability
Strix has a robust philosophy towards sustainability and our
goal is to embed sustainability into our business strategy, from
the way we package our products to the how our consumers use our
products.
In 2020, the Group has reassessed its approach to sustainability
with a view of integrating a sustainability strategy within core
business activities aligning ourselves with the UN's Sustainable
Development Goals (SDG's). In 2021, Strix aims to bring its
sustainability strategy to life, establishing baselines within our
identified key SDG's, and track improvements to clearly monitor our
progress year on year.
Strix's approach to sustainability involves all areas and
employees within the Group. The CEO is the main conduit for
sustainability management, reporting to the Board, alongside key
executive management.
Dividend policy
Given the Group's resilient performance in 2020 and confidence
in the continued strength of its cash generation, the Board
confirms its intention to increase total dividend to 7.85p per
share in respect of the 2020 financial year, inclusive of the 2.6p
per share paid as an interim dividend and in line with its
progressive dividend policy that is linked to underlying
earnings.
The final dividend will be paid on 2 June 2021 to shareholders
on the register at 7 May 2021 and the shares will trade ex-dividend
from 6 May 2021.
Board composition
During the period, we are delighted to report the appointment of
Richard Sells as a non-executive director who brings a wealth of
both advisory and board experience, coupled with extensive
operational and commercial expertise to the Strix Board. Richard
will head an ESG committee ensuring the Board is focused and
proactive in supporting sustainability initiatives across the
Group.
Annual General Meeting
The Company will be holding its Annual General Meeting on 27 May
2021, notice of which will be sent to shareholders in due course.
The format and arrangements for that meeting are likely to be
affected by the continuing restrictions that apply in response to
the ongoing COVID-19 pandemic. Further details will be set out in
the formal notice of meeting.
Gary Lamb
Chairman
CEO's report:
Introduction
Strix has continued to deliver on its strategic plans during
2020 which has strengthened the Group's position across its three
product categories; kettle controls, water, and appliances. The
Group has expanded its market leading value share of the global
kettle controls market whilst significantly expanding the size of
its water category through both strong organic growth and the
strategically compelling acquisition of Italian-based LAICA in
October which despite the disruption caused by the pandemic has
delivered strong double-digit revenue growth over the period. In
addition, the Group's medium-term strategy was updated at a Capital
Markets Day hosted in November outlining a path to double Group
revenues over the next five years primarily through organic growth
in its water and appliances categories.
Financial performance
The Group has delivered another solid performance in 2020 given
the unprecedented trading environment. This is a testament 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 GBP95.3m, a decline of 1.6% versus
the same period in prior year (2019: GBP96.9m) significantly ahead
of our COVID-19 scenario planning expectations. The Group
experienced a marked recovery in H2 as anticipated, which combined
with efficiency measures in H1, has enabled it to deliver circa 2%
growth in adjusted profit after tax for the full year versus the
previous financial year (2019: GBP28.9m).
This performance demonstrates the resilience of Strix's business
model, which benefits from geographical and product
diversification, and is strengthened further by the Group's high
cash generation and prudent control of its balance sheet. As at 31
December 2020, net debt was lower than previous guidance for this
financial year at GBP37.2m, having successfully implemented a range
of efficiency measures and strategic initiatives. This represents a
n et debt/adjusted EBITDA ratio of 1.0x.
This places Strix in a financially strong position and with a
disciplined approach to investment, will emerge from the pandemic
poised to continue to benefit from a sustained market recovery.
Given the Group's resilient performance in 2020 and confidence
in the continued strength of its cash generation, the Board
confirms its intention to increase total dividend to 7.85p per
share in respect of the 2020 financial year, inclusive of the 2.6p
per share paid as an interim dividend and in line with its
progressive dividend policy that is linked to underlying
earnings.
New product development
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 has made significant headway having delivered on the
targets outlined in the product development roadmap with the launch
of multiple new products.
The Group also re-focused its commercialisation strategy,
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 significantly increased
sales volume.
Filter development has seen further opportunities with several
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.
Throughout 2021, in line with our medium-term growth ambitions,
we have multiple new product launches. The Group will continue to
focus its highly skilled engineering resource towards enhancing our
core technologies and innovating into new commercial markets.
Kettle control category
The market experienced a strong bounce back in the second half
of 2020 to end the year broadly flat after the COVID-19 pandemic
disrupted both supply and demand in the Global Kettle market during
H1.
Throughout this period, Strix has managed to grow its market
leading position of the global kettle controls market, continuing
to grow the number of specifications using its latest platform
ranges and regions which demonstrates how successfully the Company
has dealt with the challenges of the pandemic.
The improved performance in the second half has continued into
2021. The kettle controls category has a strong order book for Q2
giving management the confidence in delivering a stronger first
half versus last year.
Regulated segments grew with a strong contribution from UK,
North America, Australia and New Zealand offsetting declines in
Mainland Europe. Less regulated segments also grew with strong
growth in South East Asia, Middle East and Russia offsetting
declines in South Africa and Eastern Europe. Some weakness was
experienced within the Chinese market last year which has begun to
show a marked recovery in 2021.
We have also continued to focus product development on
opportunities within the Regulated, Less Regulated and China
markets that will further strengthen Strix's position and support
our market share aspirations.
Following the successful launch of the U9 Series during 2017,
the Group has successfully produced over 33 million controls to
date. 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.
Lifetime energy footprint studies of kettles show that the
energy consumed in "use" is estimated at 95% of the total product
lifecycle energy requirements. Strix's goal is to reduce wastage in
this phase for existing products and to design new, innovative
products which reduce environmental wastage compared to the
incumbent technology or products. As a result, Strix has
successfully developed products and designs to reduce the level of
overfill in traditional kettles as well as new 'over-fill proof'
water heating products.
Water category
2020 was a transformational year for Strix's water filtration
category with the acquisition of LAICA in October and the Aqua
Optima brand delivering record sales for yet another year. Overall,
the water category reported a significant growth in revenue in 2020
with the combined contribution of LAICA and HaloPure
technology.
LAICA has a considerable global presence, an established product
range and an advanced new product roadmap. The acquisition will
provide some strategic consolidation of the water treatment range,
driving efficiencies and providing a comprehensive portfolio of
products for the Group globally. Strix's experienced management
team is working hard to ensure the integration of LAICA is executed
effectively to achieve the identified benefits and the trading
performance has been strong over the period delivering double-digit
revenue growth. The new, expanded, brand portfolio will be used for
the planned geographical expansion in the second half of 2021 for
consumer water. The Group expects many of the new product launches
in 2020 to accelerate this year as the retailers introduce them to
both their in-store and online portfolios.
For professional water, Strix launched the HaloPure technology
and recently announced that it was selected by Chia Tai Group, one
of the most specialized and well-known livestock companies
operating in China, and Strix installed its full system in January
2021. HaloPure's technology has become increasingly well recognised
by the market and the evolution of this technology to offer farming
solutions for clean drinking water is likely to result in
significant incremental business opportunities for the Group in the
future.
Water remains a limited natural resource experiencing ever
greater demand, expected to increase by 40% by 2030. Strix is
focused on enhancing the quality of water and providing sustainable
delivery mechanisms to replace the 7.7 billion plastic water
bottles used every year in the UK alone. Astrea and LAICA reusable
filtered water bottles offer significant benefits from purchased
bottled water in terms of re-usability of the container whilst also
significantly reducing transportation costs. To complete the full
product life cycle Aqua Optima has put a recycling agreement in
place in the UK with specialist TerraCycle. The acquisition of
HaloSource has brought new technology, including lead reduction and
patented bromine technology, that kills bacteria and viruses. These
technologies, coupled with the enhanced new product roadmap from
LAICA enable Strix to offer improved quality drinking water to both
the consumer and agriculture markets.
Appliance category
Strix seeks to use its technology to develop adjacent products
to solve problems in tangential markets. The Group looks to develop
products offering meaningful benefits to customers which can then
be commercialised through existing relationships with experienced
and trusted OEM's and consumer appliance specialists.
2020 has seen the acceleration of Strix Global Brand
partnerships on new innovative project launches. There are now
multiple agreements in place within the appliances and baby care
categories for exciting new launches across all regions.
2021 will see many of the appliances created in 2020 penetrate
the consumer markets across the world with the most notable being
the Aurora (Instant Flow Heater/Chiller) in the first half, and
Dual Flo and the expansion of the Baby Care technology range in the
second half.
Strix will continue to work closely with its key partners and
own brands to bring innovation to the markets delivering core
benefits in usability and sustainability to the consumer.
Operations review
The relocation of Strix's existing manufacturing operations in
China has continued to make excellent progress in line with the
projected schedule. The Group is pleased to report that Strix is
currently installing the press machinery and test lab facilities
and began the transfer and commencement of some of the production
lines which are now functional. The project remains on target to be
on budget and fully operational by August 2021, as originally
planned.
In addition, Strix continues to strengthen its senior
management, engineering and commercial teams through strategic
recruitment of Harry Kyriacou as Chief Commercial Officer, Neil
Austin as Water Category & Global Marketing Director and Emma
Cox as Group HR Director. Following the successful acquisition of
LAICA, the Group enhanced the finance function and internal
controls through the targeted recruitment of Nicolo Zanuso as Chief
Financial Officer and Riccardo Dolcetta as General Manager to align
a previously family-owned entity with the wider structure of the
Group.
Alongside this Strix continues to invest in compelling growth
opportunities with particular focus on a new product development
and commercialisation strategy that support the medium-term growth
ambition. It also actively seeks 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.
Defence of intellectual property
We remain committed to consumer safety where we continue to
initiate regulatory enforcement actions to remove unsafe and poor
quality products from the market utilising the European Rapid
Exchange of Information (RAPEX) alert system. Four such actions
have again been undertaken in 2020 resulting in product recalls and
withdrawal of kettles from Poland and Germany with surveillance and
preparatory work being widened to include Ukraine. We continue to
actively monitor the markets in which we operate for violation of
our intellectual property rights and have again taken action to
limit online sales in Europe of products that infringe our IP
culminating in the taking down of another electronic kettle.
Defence of intellectual property and regulatory enforcement remain
core activities of our business and there have now been 57 in total
since 2017.
Outlook
At the Capital Markets Day in November, the Group outlined its
medium-term strategy stating that the Group expects to double
revenues over the next five years primarily through organic growth
in its water and appliances categories. 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.
Alongside this it will continue to grow market share in kettle
controls and invest in compelling growth opportunities with
particular focus on new product development and commercialisation
strategy that support the medium-term growth ambition.
Sustainability remains of critical importance to the way the
Group operates and it reiterates its commitment to embed
sustainability into our business strategy and provide a safer
sustainable future for its customers. In 2020, the Group has
reassessed its approach to sustainability with a view of
integrating a sustainability strategy within core business
activities aligning ourselves with the UN's SDG's. In 2021, Strix
aims to bring sustainability strategy to life, establishing
baselines within our identified key SDG's, which we will track
improvements, and monitor our progress year on year.
Despite the unprecedented global macroeconomic disruption caused
by the COVID-19 pandemic, Strix has successfully implemented a
range of efficiency measures and strategic initiatives to manage
its highly variable cost base and cash resources prudently and
generated immediate savings to mitigate the impact of the pandemic.
This has been done whilst continuing to invest in compelling growth
opportunities including the acquisition of LAICA, as well as the
new manufacturing operations in China and successfully upgrading to
SAP to improve real time data and streamline internal
processes.
The financial performance and operational progress illustrates
the resilience and robustness of the Strix business model and
following a period of continued investment means that it is well
placed to benefit from the acceleration in demand as we emerge in
the post pandemic environment as a stronger business.
Despite the Group experiencing a marked recovery in H2, it
continues to face the challenging backdrop of increased commodity
prices, shipping and packaging costs, which it continues to
proactively manage and offset through a range of efficiency
measures and strategic initiatives, as well as any further
disruptions resulting from imposed lockdowns.
Given the Group's resilient performance in 2020 and confidence
in the continued strength of its cash generation, the Board
confirms its intention to increase total dividend to 7.85p per
share in respect of the 2020 financial year, inclusive of the 2.6p
per share paid as an interim dividend and in line with its
progressive dividend policy that is linked to underlying
earnings.
Strix reiterates confidence in its 2021 commitments and
executing on the medium-term strategy to deliver against its five
year targets.
Mark Bartlett
Chief Executive Officer
Chief Financial Officer's review
Adjusted results(1) Reported results
------------------------ ----------------------
2020 2019 Change 2020 2019 Change
------ ------ ----- ------ -------
GBPm GBPm %(5) GBPm GBPm %(5)
Revenue 95.3 96.9 -1.6% 95.3 96.9 -1.6%
Revenue - constant currency basis(2) 95.6 96.9 -1.3% 95.6 96.9 -1.3%
EBITDA(3) 38.1 36.9 +3.2% 32.6 29.6 +10.2%
Gross profit 39.4 39.6 -0.5% 38.9 39.4 -1.4%
Operating profit 32.1 31.5 +1.8% 26.6 24.2 +10.0%
Profit before tax 30.9 30.2 +2.4% 25.5 22.9 +11.3%
Profit after tax 29.5 28.9 +2.3% 24.1 21.5 +11.8%
Total comprehensive income 29.6 28.8 +2.9% 24.1 21.4 +12.7%
Net debt(4) 37.2 26.3 +41.2% 37.2 26.3 +41.2%
Net cash generated from operating
activities 31.2 34.4 -9.2% 31.2 34.4 -9.2%
Basic earnings per share (pence) 14.9 15.2 -2.0% 12.2 11.3p +8.0%
Total dividend per share (pence) 7.85 7.70 2.0% 7.85 7.70 2.0%
1. Adjusted results exclude exceptional items, which include
share based payment transactions and other reorganisation and
strategic project costs . Adjusted results are non-GAAP metrics
used by management and are not an IFRS disclosure.
2. Revenue - constant currency basis, which is defined as 2020
revenue restated at the exchange rates prevailing in 2019, is a
non-GAAP metric used by management and is not an IFRS
disclosure.
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.
4. Net debt excludes the impact of IFRS 16 lease liabilities,
pension liabilities, deferred taxes and earn-out provisions on
satisfaction of performance conditions.
5. Figures are calculated from the full numbers as presented in
the consolidated financial statements.
Financial Performance
Revenue for 2020 has declined by a modest 1.6% to GBP95.3m
despite the disruption of the pandemic worldwide. LAICA's addition
of two months' revenue since completion in October was GBP4.1m.
Strix has continued to increase its market leading position despite
the softened top line. Revenue on a constant currency basis was
down 1.3%.
Adjusted Gross profit was relatively flat versus the previous
year showing a modest GBP0.2m decline. This incorporates a gross
gain of GBP0.9m relating to the acquisition of LAICA. Adjusted
gross profit margin has further increased from 40.9% to 41.4%
reflecting the addition of LAICA, supported by a strong product mix
and lower labour costs, as a result of our continued
automation.
Adjusted EBITDA increased to GBP38.1m from GBP36.9m,
representing a 3.2% increase, reflecting Strix's strong ability to
optimize the overheads cost to accommodate the softening top line
performance. Excluding the acquisition of LAICA, adjusted EBITDA
increased 1.7% to GBP37.6m. Adjusted EBITDA is defined as profit
before depreciation, amortisation, finance costs, finance income,
taxation, and exceptional items including share based payments.
Adjusted operating profit was impacted by higher depreciation
including right-of-use asset and amortisation (2020: GBP6.0m; 2019:
GBP5.5m) and hence a lower increase of 1.8% to GBP32.1m (2019:
GBP31.5m) was delivered in the reported period. LAICA's
depreciation and amortisation was GBP75k for the two months and its
operating profit of GBP0.4m was included.
Adjusted profit before tax increased to GBP30.9m with a 2.4%
growth (2019: GBP30.2m) despite the softening market conditions.
LAICA's contribution was GBP0.3m. Net finance costs decreased by
GBP0.2m to GBP1.2m with a reduction in loans prior to the
acquisition of LAICA. The Group's reported profit before tax was
GBP25.5m (2019: GBP22.9m).
Adjusted profit after tax increased to GBP29.5m (2019:
GBP28.9m), which included LAICA's contribution of GBP0.2m, an
increase of 2.3%. Taxes were held at roughly the same level, at an
effective tax rate of 4.5% (2019: 4.4%) of the Group's adjusted
profit before tax. This is following a change in tax basis from
contract processing to an import processing model in China during
2019. The Group's reported profit after tax was GBP24.1m at 12%
growth (2019: GBP21.5m).
Adjusted diluted earnings per share and reported diluted
earnings per share were 14.3p (2019: 14.2p) and 11.7p (2019: 10.6p)
respectively. Weighted average number of diluted shares has
increased 1.7% due to the vesting of the 2017 IPO LTIPs, new equity
raised for the acquisition of LAICA and Zeus warrants being
exercised. Basic earnings per share were reported at 12.2p (2019:
11.3p), and adjusted for exceptional costs were 14.9p (2019:
15.2p).
Capital expenditure and capitalised development costs
Tangible assets had additions to net book value of GBP17.2m in
2020, compared to GBP15.4m in 2019. This includes GBP9.1m of new
factory construction (2019: GBP6.0m), plant, machinery and tooling
GBP3.9m (2019: GBP3.4m), and LAICA's addition of GBP3.7m. This
continued to demonstrate Strix's investment in its manufacturing
and development assets to support our strategic growth
objectives.
Intangible assets had additions to net book value of GBP14.6m
(excluding goodwill) in 2020, compared to GBP3.2m in 2019. This
includes GBP2.8m (2019: GBP2.4m) of capitalised development costs
relating to our R&D investment, GBP2.4m (2019: GBP0.3m) of
software due to our new ERP and MES system, and GBP0.4m (2019:
GBP0.5m) of intellectual property rights. LAICA's acquisition added
three more intangible valuations; Customers relationships GBP2.4m,
Brand name GBP6.6m, Goodwill GBP9.5m.
Share based payments
The total charge incurred in the consolidated statement of
comprehensive income in 2020 for share based payments was GBP1.9m
(2019: GBP5.9m). The charge was reduced in 2020 due to the tranche
of IPO share options being vested. Some additional share awards
were also granted during 2020 to incentivise and retain the
Directors and other employees whom the Board consider critical to
the achievement of the Group's strategic objectives.
Foreign Exchange
The Group is naturally hedged against movements in USD and CNY
as it both generates revenues and incurs costs in these currencies.
The impact of foreign exchange in 2020 is a loss of GBP0.5m (2019:
loss of GBP0.2m). Despite significant currency fluctuations in
2020, the foreign exchange loss is equivalent to only 0.5% (2019:
0.2%) of revenue.
Taxation
The effective tax rate for the year is equivalent to 4.5% (2019:
4.4%) of the Group's adjusted profit before tax. In 2019, in order
to mitigate the risk of higher tax charges in the future, the Group
changed its tax basis in China from the contract processing to the
import processing basis.
Balance Sheet
Property, plant and equipment increased to GBP37.2m (2019:
GBP25.5m). Capital additions include GBP9.1m for the new factory
under construction in Guangzhou (2019: GBP5.7m), GBP3.9m of plant
machinery and tooling (2019: GBP3.4m), and a GBP3.7m increase due
to the acquisition of LAICA. Depreciation increased to GBP4.5m
(2019: GBP4.2m), mainly linked to the increased plant machinery and
tooling (GBP2.2m) and right of use assets (GBP1.5m) (2019: GBP2.1m
and GBP1.3m respectively). Net intangible assets (comprising
capitalised development costs, goodwill, software and intellectual
property rights) increased by GBP22.6m (2019: GBP2.3m) driven by a
GBP18.8m increase due to the acquisition of LAICA, GBP2.2m increase
in investment in ERP system and GBP1.5m increase in capitalised
development costs in line with the Group's strategic growth
objectives.
Current assets increased to GBP51.3m compared to GBP32.5m in
2019 primarily due to LAICA's acquisition of current assets valued
at GBP16.8m. Inventory increased by GBP5.7m which was largely due
to the addition of LAICA of GBP4.5m. Non-current assets increased
by GBP34.4m from GBP32.6m, where LAICA's addition was GBP13.0m,
with the remainder mainly attributed to new factory construction
(GBP9.1m), increased automation facilities (GBP3.9m), and goodwill
from the acquisition of LAICA (GBP9.5m).
Current liabilities increased to GBP33.7m (2019: GBP21.2m)
primarily due to the addition of LAICA (GBP9.2m) that is made up of
trade payables, deferred consideration and short term
borrowings.
Non-current liabilities increased to GBP62.6m (2019: GBP43.0m),
primarily related to the LAICA's acquisition; LAICA's contingent
consideration (GBP5.4m) which is payable on the achievement of
performance conditions in 2021 and 2022, deferred tax liability
arising from acquisition accounting (GBP2.6m), LAICA's defined
benefit plan (GBP1.4m) and bank loans (GBP1.1m). A further GBP10.0m
was drawn down from the revolving line facility to finance the
LAICA acquisition which brought the total financing amount to
GBP50.0m.
Cash flow and net debt
The net increase in cash and cash equivalents over the year was
GBP1.9m (2019: GBP0.6m). This was primarily due to the proceeds
from Zeus' exercise of warrants of GBP3.8m offset by higher
dividend payment of GBP1.4m.
Net cash generated from operating activities was down GBP3.2m in
2020 to GBP31.2m (2019: GBP34.4m) with Net working capital outflows
of GBP1.7m, predominately due to the addition of LAICA. Net cash
used in investing activities has increased GBP7.8m (2019: GBP8.9m)
to GBP24.2m due to the acquisition of LAICA; and the increased
investment in both tangible and intangible assets.
Net debt (excluding the impact of IFRS 16 lease liabilities) has
increased from GBP26.3m in 2019 to GBP37.2m to fund the LAICA
acquisition, investment in capital expenditure and new factory
construction. We expect the Group's net debt and leverage to
maintain at roughly the same level with the Group's strong cash
generation ability to fund any incremental operating capex.
Including the impact of IFRS 16 lease liabilities, which was
adopted from 1 January 2019, net debt has increased to GBP41.3m
(2019: GBP30.8m).
The Group still has in place a revolving credit facility of
GBP80.0m (2019: GBP49.0m) of which GBP50.0m (2019: GBP40.0m) is
drawn down as at 31 December 2020. The Net debt (excluding the
impact of IFRS 16 lease liabilities) to adjusted EBITDA ratio as at
31 December 2020 was 1.0x (2019: 0.7x).
Raudres Wong
Chief Financial Officer
Consolidated statement of comprehensive income
for the year ended 31 December 2020
Note 2020 2019
---------------------------------------------- -----
GBP000s GBP000s
---------------------------------------------- ----- --------- ---------
Revenue 7 95,305 96,876
---------------------------------------------- ----- --------- ---------
Cost of sales - before exceptional items (55,896) (57,259)
Cost of sales - exceptional items 6 (504) (171)
---------------------------------------------- ----- --------- ---------
Cost of sales (56,400) (57,430)
Gross profit 38,905 39,446
Distribution costs (5,001) (5,287)
---------------------------------------------- ----- --------- ---------
Administrative expenses - before exceptional
items (3,479) (3,385)
Administrative expenses - exceptional
items 6 (4,952) (7,152)
Administrative expenses (8,431) (10,537)
Share of profits from joint ventures 61 -
Other operating income 1,101 587
---------------------------------------------- ----- --------- ---------
Operating profit 26,635 24,209
Analysed as:
---------------------------------------------- ----- --------- ---------
Adjusted EBITDA (1) 38,080 36,904
Amortisation 11 (1,477) (1,256)
Depreciation 12 (3,042) (2,903)
Right of use depreciation 12 (1,470) (1,323)
Exchange differences on translation
of foreign operations - 110
Other exceptional items 6 (5,456) (7,323)
---------------------------------------------- ----- --------- ---------
Operating profit 26,635 24,209
Finance costs 8 (1,194) (1,351)
Finance income 13 19
---------------------------------------------- ----- --------- ---------
Profit before taxation 25,454 22,877
Income tax expense 9 (1,384) (1,339)
Profit for the year 24,070 21,538
---------------------------------------------- ----- --------- ---------
Other comprehensive income/(expense)
Items that may be reclassified to profit
or loss:
Exchange differences on translation
of foreign operations 31 (110)
Total comprehensive income for the year 24,101 21,428
---------------------------------------------- ----- --------- ---------
Profit for the year attributable to:
Equity holders of the Company 24,049 21,538
Non-controlling interests 21 -
---------------------------------------------- ----- --------- ---------
24,070 21,538
---------------------------------------------- ----- --------- ---------
Total comprehensive income for the year
attributable to:
Equity holders of the Company 24,120 21,428
Non-controlling interests (19) -
---------------------------------------------- ----- --------- ---------
24,101 21,428
---------------------------------------------- ----- --------- ---------
Earnings per share (pence)
Basic 10 12.2 11.3
Diluted 10 11.7 10.6
---------------------------------------------- ----- --------- ---------
Note 1: Adjusted EBITDA, which is defined as earnings before
finance costs, tax, depreciation, amortisation, and exceptional
items, is a non-GAAP metric used by management and is not an IFRS
disclosure
Consolidated balance sheet
as at 31 December 2020
Note 2020 2019
ASSETS GBP000s GBP000s
--------------------------------- ----- -------- ---------
Non-current assets
Intangible assets 11 29,648 7,068
Property, plant and equipment 12 37,205 25,525
Investments in joint ventures 92 -
Total non-current assets 66,945 32,593
--------------------------------- ----- -------- ---------
Current assets
Inventories 15 15,224 9,497
Trade and other receivables 16 20,672 9,333
Cash and cash equivalents 17 15,446 13,658
--------------------------------- ----- -------- ---------
Total current assets 51,342 32,488
Total assets 118,287 65,081
--------------------------------- ----- -------- ---------
EQUITY AND LIABILITIES
--------------------------------- ----- -------- ---------
Equity
Share capital and share premium 24 13,130 1,900
Share based payment reserve 23 1,913 13,063
Retained earnings/(deficit) 6,290 (14,052)
Non-controlling interests 716 -
Total equity 22,049 911
Current liabilities
Trade and other payables 18 27,151 17,773
Borrowings 19 2,220 -
Future lease liabilities 26 1,254 1,508
Current income tax liabilities 18 3,048 1,929
Total current liabilities 33,673 21,210
--------------------------------- ----- -------- ---------
Non-current liabilities
Future lease liabilities 26 2,846 2,960
Deferred tax liability 14 2,558 -
Borrowings 19 50,426 40,000
Contingent consideration 14 5,380 -
Post-employment benefits 5(c) 1,355 -
--------------------------------- ----- -------- ---------
Total non-current liabilities 62,565 42,960
--------------------------------- ----- -------- ---------
Total liabilities 96,238 64,170
Total equity and liabilities 118,287 65,081
--------------------------------- ----- -------- ---------
Mark Bartlett Raudres Wong
Director Director
Consolidated statement of changes in equity
for the year ended 31 December 2020
Share Share Retained Total Non-controlling Total
capital based (deficit) Equity interests Equity
and share payment / earnings attributable
premium reserve to owners
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
----------------------------------- ----------- --------- ------------ -------------- ---------------- ---------
Balance at 1 January 2019 1,900 6,904 (21,180) (12,376) - (12,376)
----------------------------------- ----------- --------- ------------ -------------- ---------------- ---------
Transition to IFRS 16 (note 2) - - (270) (270) - (270)
--------------
Balance at 1 January 2019 1,900 6,904 (21,450) (12,646) - (12,646)
----------------------------------- ----------- --------- ------------ -------------- ---------------- ---------
Profit for the year - - 21,538 21,538 - 21,538
Other comprehensive income - - (110) (110) - (110)
---------
Total comprehensive income for the
year - - 21,428 21,428 - 21,428
----------------------------------- ----------- --------- ------------ -------------- ---------------- ---------
Dividends paid (note 25) - - (13,870) (13,870) - (13,870)
Share based payment transactions
(note
23) - 6,159 (238) 5,921 - 5,921
---------
Total transactions with owners
recognised
directly in equity - 6,159 (14,108) (7,949) - (7,949)
----------------------------------- ----------- --------- ------------ -------------- ---------------- ---------
Post-employment benefit
transactions
(note 5(c)) - - 78 78 - 78
----------------------------------- ----------- --------- ------------ -------------- ---------------- ---------
Other transactions recognised
directly
in equity - - 78 78 - 78
----------------------------------- ----------- --------- ------------ -------------- ---------------- ---------
Balance at 1 January 2020 1,900 13,063 (14,052) 911 - 911
----------------------------------- ----------- --------- ------------ -------------- ---------------- ---------
Profit for the year - - 24,049 24,049 21 24,070
Other comprehensive income - - 71 71 (40) 31
---------
Total comprehensive income for the
year - - 24,120 24,120 (19) 24,101
----------------------------------- ----------- --------- ------------ -------------- ---------------- ---------
Dividends paid (note 25) - - (15,310) (15,310) - (15,310)
Dividends paid to non-controlling
interests 108 108 (108) -
Acquisition of LAICA S.p.A. (note
14) - - - - 843 843
Transfers between reserves (note
23) - (13,019) 13,019 - - -
Issue of shares (note 24) 11,230 - - 11,230 - 11,230
Share based payment transactions
(note
23) - 1,869 - 1,869 - 1,869
---------
Total transactions with equity
holders
recognised directly in equity 11,230 (11,150) (2,183) (2,103) 735 (1,368)
----------------------------------- ----------- --------- ------------ -------------- ---------------- ---------
Other transactions recognised
directly
in equity (note 23) - - (1,595) (1,595) - (1,595)
----------------------------------- ----------- --------- ------------ -------------- ---------------- ---------
Balance at 31 December 2020 13,130 1,913 6,290 21,333 716 22,049
----------------------------------- ----------- --------- ------------ -------------- ---------------- ---------
Consolidated cash flow statement
for the year ended 31 December 2020
2020 2019
Note GBP000s GBP000s
------------------------------------------- ----- ---------- ---------
Cash flows from operating activities
Cash generated from operations 27 32,120 35,345
Tax paid (908) (985)
------------------------------------------- ----- ---------- ---------
Net cash generated from operating
activities 31,212 34,360
------------------------------------------- ----- ---------- ---------
Cash flows from investing activities
Purchase of property, plant and
equipment (12,999) (12,565)
Capitalised development costs 11 (2,808) (2,358)
Purchase of HaloSource Inc. assets
net of cash acquired 14 - (953)
Purchase of LAICA S.p.A net of
cash acquired 14 (6,735) -
Purchase of intangibles 11 (1,642) (518)
Proceeds on sale of property, plant
and equipment - 4
Finance income 13 19
Net cash used in investing activities (24,171) (16,371)
------------------------------------------- ----- ---------- ---------
Cash flows from financing activities
Drawdowns under credit facility 19 22,193 9,000
Repayment of borrowings 19 (12,339) (10,000)
Finance costs paid 19 (1,951) (1,198)
Principal elements of lease payments 26 (1,455) (1,301)
Proceeds from issue of new shares 23 3,800 -
Dividends paid 25 (15,310) (13,870)
Dividends paid to non-controlling (63) -
interests
Net cash used in financing activities (5,125) (17,369)
------------------------------------------- ----- ---------- ---------
Net increase in cash and cash equivalents 1,916 620
Cash and cash equivalents at the
beginning of the year 13,658 13,521
Effects of foreign exchange on
cash and cash equivalents (128) (483)
------------------------------------------- ----- ---------- ---------
Cash and cash equivalents at the
end of the year 15,446 13,658
------------------------------------------- ----- ---------- ---------
Notes to the consolidated financial statements
for the year ended 31 December 2020
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.
2. PRINCIPAL ACCOUNTING POLICIES
The Group's principal accounting policies, all of which have
been applied consistently to all of the years presented, are set
out below.
Basis of preparation
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRS") and International Financial Reporting Standards
Interpretation Committee ("IFRS IC") interpretations as adopted by
the European Union. The financial statements comply with IFRS as
issued by the International Accounting Standards Board (IASB). The
financial statements have been prepared on the going concern
basis.
The preparation of consolidated financial statements in
conformity with IFRS requires the use of certain critical
accounting estimates. It also requires management to exercise its
judgement in the process of applying the Group's accounting
policies. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are
significant to the consolidated financial statements, are disclosed
in note 3.
Historical cost convention
The financial statements have been prepared on a historical cost
basis, except for the following:
-- contingent consideration - measured at fair value
Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and all of its subsidiary undertakings.
Subsidiaries are fully consolidated from the date on which control
commences and are deconsolidated from the date that control ceases.
The financial statements of all group companies are adjusted, where
necessary, to ensure the use of consistent accounting policies.
Subsidiaries
Subsidiaries are entities controlled by the Group. Control
exists when the Group is exposed to or has the rights to variable
returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which
control is transferred to the Group. They are deconsolidated from
the date that control ceases.
Non-controlling interests in the results and equity of
subsidiaries are shown separately in the consolidated statement of
comprehensive income, consolidated statement of changes in equity
and the consolidated balance sheet, respectively.
Joint ventures
Joint ventures are joint arrangements of which the Group has
joint control, with rights to the net assets of those arrangements.
Joint control is the contractually agreed sharing of control of an
arrangement, which exists only when decisions about the relevant
activities require the unanimous consent of the parties sharing
control. Interests in joint ventures are accounted for using the
equity method of accounting (detailed below) after being recognised
at cost in the consolidated balance sheet.
Equity method of accounting
Under the equity method of accounting, investments in joint
ventures are initially recognised at cost and adjusted thereafter
to recognise the Group's share of the post-acquisition profits or
losses from the joint arrangement in profit or loss, and the
Group's share of movements in other comprehensive income of the
joint arrangement in other comprehensive income. Dividends received
from joint ventures are recognised as a reduction in the carrying
amount of the investment.
Unrealised gains on transactions between the Group and its joint
ventures are eliminated to the extent of the Group's interest in
these entities.
The carrying amount of equity-accounted investments is tested
for impairment in accordance with the impairment of assets policy
as described below in this note.
Transactions eliminated on consolidation
Intra-group balances, and any gains and losses or income and
expenses arising from intra-group transactions, are eliminated in
preparing the consolidated financial statements.
Business combinations
Business combinations are accounted for using the acquisition
method as at the acquisition date with the assets and liabilities
of subsidiaries being measured at their fair values. Any excess of
the cost of acquisition over the fair values of the identifiable
net assets acquired is recognised as goodwill. The Group measures
goodwill at the acquisition date as:
-- the fair value of the consideration transferred; plus
-- the recognised amount of any non-controlling interests
in the acquiree; plus
-- if the business combination is achieved in stages, the
fair value of the pre-existing interest in the acquiree;
less
-- the fair value of the identifiable assets acquired and
liabilities assumed.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are, with limited
exceptions, measured initially at their fair values at the
acquisition date. The Group recognises any non-controlling interest
in the acquired entity on an acquisition-by-acquisition basis at
the non-controlling interest's proportionate share of the fair
value of the acquired entity's net identifiable assets. Transaction
costs that the Group incurs in connection with a business
combination are expensed as incurred.
If the initial accounting for a business combination is
preliminary by the end of the reporting period in which the
business combination occurs, provisional amounts are reported.
Those provisional amounts are adjusted during the measurement
period, or additional assets or liabilities recognised to reflect
the facts and circumstances that existed as at the acquisition
date.
Contingent consideration is classified either as equity or a
financial liability. Amounts classified as a financial liability
are subsequently remeasured to fair value, with changes in fair
value recognised in profit or loss.
Going concern
These consolidated financial statements have been prepared on
the going concern basis.
The Directors have made enquiries to assess the appropriateness
of continuing to adopt the going concern basis. In making this
assessment they have considered:
-- the strong historic trading performance of the Group;
-- budgets and cash flow forecasts for the period to December 2023;
-- the current financial position of the Group, including its
cash and cash equivalents balances of GBP15.4m;
-- the availability of further funding should this be required
(including the headroom of GBP30.0m on the revolving credit
facility and the access to the AIM market afforded by the Company's
admission to AIM);
-- the low liquidity risk the Group is exposed to;
-- the fact that the Group operates within a sector that is
experiencing relatively stable demand for its products, amidst the
global COVID-19 pandemic; and
-- that there has been no disruption to the Group's manufacturing or supply chain.
Based on these considerations, the Directors have concluded that
there are no material uncertainties that may cast significant doubt
on its ability to continue as a going concern and the Group has
adequate resources to continue in operational existence for the
foreseeable future. As a result, the Directors continue to adopt
the going concern basis of accounting in preparing the annual
financial statements.
Foreign currency translation
Functional and presentational currency
Items included in the financial information of each of the
Group's entities are measured using the currency of the primary
economic environment in which the entity operates ("the functional
currency"). The consolidated financial statements are presented in
sterling, which is Strix Group Plc's functional and presentation
currency.
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of
such transactions, and from the translation of monetary assets and
liabilities denominated in foreign currencies at year end exchange
rates, are recognised in the consolidated statement of
comprehensive income within cost of sales.
Group companies
The results and financial position of foreign operations that
have a functional currency different from the presentation currency
are translated into the presentation currency as follows:
-- assets, including intangible assets and goodwill arising on
acquisition of those foreign operations, and liabilities for each
balance sheet presented are translated at the closing rate at the
date of that balance sheet, or at historic rates for certain line
items;
-- income and expenses for each statement of comprehensive
income presented are translated at average exchange rates (unless
this is not a reasonable approximation of the cumulative effect of
the rates prevailing on the transaction dates, in which case income
and expenses are translated at the dates of the transactions);
and
-- all resulting exchange differences are recognised in the
consolidated statement of comprehensive income.
Standards, amendments and interpretations adopted
There are no standards, amendments to standards or
interpretations that the Group has applied for the first time in
the reporting period commencing 1 January 2020 that have had a
material impact on the financial statements.
Standards, amendments and interpretations which are not
effective or early adopted
Certain new accounting standards and interpretations have been
published that are not mandatory for 31 December 2020 reporting
periods and have not been early adopted by the Group. These
standards are not expected to have a material impact on the entity
in the current or future reporting periods and on foreseeable
future transactions.
Property , plant and equipment
Initial recognition and measurement
Items of property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses. Cost includes the
original purchase price of the asset and the costs attributable to
bringing the
asset to its working condition for its intended use. When parts
of an item of property, plant and equipment have different useful
lives, the components are accounted for as separate items.
Subsequent costs are included in the asset's carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured
reliably. The carrying value of the replaced part is derecognised.
All other repairs and maintenance are charged to profit or loss
during the reporting period in which they are incurred.
Subsequent measurement
Depreciation is calculated using the straight-line method to
allocate the cost of the assets, net of any residual values, over
their estimated useful lives as follows:
-- Plant and machinery 3 - 10 years
-- Fixtures, fittings and equipment 2 - 5 years
-- Motor vehicles 3 - 5 years
-- Production tools 1 - 5 years
-- Right of use assets 2 - 8 years
-- Land and buildings 50 years
The Group manufactures some of its production tools and
equipment. The costs of construction are included within a separate
category within property, plant and equipment ("assets under
construction") until the tools and equipment are ready for use at
which point the costs are transferred to the relevant asset
category and depreciated. Any items that are scrapped are written
off to the consolidated statement of comprehensive income.
The assets' residual values and useful lives are reviewed at the
end of each reporting period.
Fixtures, fittings and other equipment includes computer
hardware.
Derecognition
Property, plant and equipment assets are derecognised on
disposal, or when no future economic benefits are expected from use
or disposal. Gains or losses arising from derecognition of
property, plant and equipment, measured as the difference between
net disposal proceeds and the carrying amount of the asset, are
recognised in the consolidated statement of comprehensive income on
derecognition.
Impairment
Tangible assets that are subject to depreciation are reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss
is recognised for the amount by which the asset's carrying amount
exceeds its recoverable amount. The recoverable amount is the
higher of an asset's fair value less costs to sell and value in
use.
Intangible assets
Initial recognition and measurement
The Group's intangible assets relate to goodwill, capitalised
development costs, intellectual property, customer relationships,
brands and computer software. Goodwill is the excess of the
consideration paid over the fair value of the identifiable assets,
liabilities and contingent liabilities in a business combination
and relates to assets which are not capable of being individually
identified and separately recognised. Goodwill acquired is
allocated to those cash-generating units ("CGUs") expected to
benefit from the business combination in which the goodwill arose.
Goodwill is measured at cost less any accumulated impairment losses
and is held in the functional currency of the acquired entity to
which it relates and remeasured at the closing exchange rate at the
end of each reporting period, with the movement taken through other
comprehensive income. The CGUs represent the lowest level within
the Group at which goodwill is monitored for internal management
purposes.
Capitalised development costs are recorded as intangible assets
and amortised from the point at which the asset is ready for use.
Internal costs that are incurred during the development of
significant and separately identifiable new products and
manufacturing techniques for use in the business are capitalised
when the following criteria are met:
-- it is technically feasible to complete the project so that it will be available for use;
-- management intends to complete the project and use or sell it;
-- it can be demonstrated how the project will develop probable future economic benefits;
-- adequate technical, financial, and other resources to
complete the project and to use or sell the project output are
available; and
-- expenditure attributable to the project during its development can be reliably measured.
Capitalised development costs include employee, travel and other
directly attributable costs necessary to create, produce and
prepare the asset to be capable of operating in the manner intended
by management.
Intellectual property is capitalised where it is probable that
future economic benefits associated with the patent will flow to
the Group, and the cost can be measured reliably. The costs of
renewing and maintaining patents are expensed in the consolidated
statement of comprehensive income as they are incurred.
Customer relationships, intellectual property and a brand have
been recognised on the acquisition of LAICA S.p.A. where it is
probable that future economic benefits will flow to the Group.
Computer software is only capitalised when it is probable that
future economic benefits associated with the software will flow to
the Group, and the cost of the software can be measured reliably.
Computer software that is integral to an item of property, plant
and equipment is included as part of the cost of the asset
recognised in property, plant and equipment.
Other development expenditures that do not meet these criteria
are recognised as an expense as incurred.
Subsequent measurement
The Group amortises intangible assets with a limited useful life
using the straight-line method over the following periods:
-- Capitalised development costs 2 - 5 years
-- Intellectual property Lower of useful or legal life
-- Technology and software 2 - 10 years
-- Customer relationships 10 - 13 years
-- Brands Indefinite useful life
Amortisation is charged to the consolidated statement of
comprehensive income on a straight-line basis over the estimated
useful lives above. Given proximity of the LAICA S.p.A. acquisition
to the year end, the intangible assets arising on acquisition have
not been amortised in the period and amortisation will be charged
straight-line basis over the estimated useful lives commencing 1
January 2021.
Derecognition
Intangible assets are derecognised on disposal, or when no
future economic benefits are expected from use or disposal. Gains
or losses arising from derecognition of intangible assets, measured
as the difference between the net disposal proceeds and the
carrying amount of the asset, and are recognised in the
consolidated statement of comprehensive income when the asset is
derecognised. Where a subsidiary is sold, any goodwill arising on
acquisition, net of any impairment, is included in determining the
profit or loss arising on disposal.
Impairment
Intangible assets that are subject to amortisation are reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss
is recognised for the amount by which the asset's carrying amount
exceeds its recoverable amount. The recoverable amount is the
higher of an asset's fair value less costs to sell and value in
use.
Goodwill and intangible assets that have an indefinite useful
life are not subject to amortisation and are tested annually for
impairment, or more frequently if events or changes in
circumstances indicate that they might be impaired.
An impairment loss is recognised for the amount by which the
asset's carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset's fair value less
costs of disposal and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash inflows which are largely
independent of the cash inflows from other assets or groups of
assets (cash-generating units). Non-financial assets other than
goodwill that suffered an impairment are reviewed for possible
reversal of the impairment at the end of each reporting period.
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.
The leasing activities of the Group and how these are accounted
for
The Group leases office space, workshops, warehouses and factory
space. Rental contracts are typically made for periods of 3 - 10
years, but may have extension options. Lease terms are negotiated
on an individual basis and contain a wide range of different terms
and conditions. The lease agreements do not impose any covenants,
but leased assets may not be used as security for borrowing
purposes.
Leases are recognised as a right-of-use ("ROU") assets and a
corresponding liability at the date at which the leased asset is
available for use by the Group. Each lease payment is allocated
between the liability, finance costs and foreign exchange (where
the lease is denominated in a foreign currency). The finance cost
is charged to profit or loss over the lease period so as to produce
a constant periodic rate of interest on the remaining balance of
the liability for each period. The right-of-use asset is
depreciated over the shorter of the asset's useful life and the
lease term on a straight line basis
Measurement of future lease liabilities
Assets and liabilities arising from a lease are initially
measured on a present value basis. Future lease liabilities include
the net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments),
less any lease incentives receivable
-- variable lease payments that are based on an index or
a rate
-- amounts expected to be payable by the lessee under residual
value guarantees
-- the exercise price of a purchase option if the lessee
is reasonably certain to exercise that options, and
-- the payment of penalties for terminating the lease, if
the lease term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be readily determined,
which is generally the case for leases in the Group, the lessee's
incremental borrowing rate is used, being the rate that the
individual lessee would have to pay to borrow the funds necessary
to obtain an asset of similar value to the right-of-use asset in a
similar economic environment with similar terms, security and
conditions.
Lease payments are allocated between principal and finance cost.
The finance cost is charged to the consolidated statement of
comprehensive income over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the
liability for each period.
Measurement of right-of-use assets
Right-of-use assets are measured at cost comprising the
following:
-- the amount of the initial measurement of lease liability
-- any lease payments made at or before the commencement
date less any lease incentives received
-- any initial direct costs, and
-- restoration costs
Right-of-use assets are generally depreciated over the shorter
of the asset's useful life and the lease term on a straight-line
basis.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in the consolidated statement of comprehensive income.
Short-term leases are leases with a lease term of 12 months or
less. Low-value assets comprise primarily IT equipment.
Extension and termination options
Extension and termination options are included in a number of
property leases across the Group. These terms are used to maximise
operational flexibility in terms of managing contracts.
Lease income
Lease income from operating leases where the Group is a lessor
is recognised in other income on a straight-line basis over the
lease term.
Financial assets
Classification
The Group classifies its financial assets as financial assets
held at amortised cost. Management determines the classification of
its financial assets at initial recognition.
The Group classifies its financial assets as at amortised cost
only if both of the following criteria are met:
-- the asset is held within a business model whose objective is
to collect the contractual cash flows; and
-- the contractual terms give rise to cash flows that are solely
payments of principal and interest.
Financial assets held at amortised cost are initially recognised
at fair value, and are subsequently stated at amortised cost using
the effective interest method. Financial assets at amortised cost
comprise cash and cash equivalents and trade and other receivables
(excluding prepayments and the advance purchase of commodities).
Trade receivables are amounts due from customers for products sold
performed in the ordinary course of business. They are due for
settlement either on a cash in advance basis, or generally within
45 days, and are therefore all classified as current. Other
receivables generally arise from transactions outside the usual
operating activities of the Group.
Impairment of financial assets
The Group assesses on a forward looking basis the expected
credit losses associated with its debt instruments carried at
amortised cost. The impairment methodology applied depends on
whether there has been a significant increase in credit risk.
The Group applies the expected credit loss model to financial
assets at amortised cost. For trade receivables, the Group applies
the simplified approach permitted by IFRS 9, which requires
expected lifetime losses to be recognised from initial recognition
of the receivables. Given the nature of the Group's receivables,
expected lifetime losses are not material.
Financial liabilities
With the exception of contingent consideration, the Group
initially recognises its financial liabilities at fair value net of
transaction costs where applicable and subsequently they are
measured at amortised cost using the effective interest method.
Financial liabilities comprise trade payables, payments in advance
from customers and other liabilities. They are initially recognised
at transaction price, unless the arrangement constitutes a
financing transaction, where the debt instrument is measured at the
present value of the future payments discounted at a market rate of
interest. Contingent consideration is measured at fair value with
changes in fair value recognised in profit or loss.
Trade payables are obligations to pay for goods or services that
have been acquired in the ordinary course of business from
suppliers. Trade payables are classified as current liabilities if
payment is due within one year or less. If not, they are presented
as non-current liabilities. Other liabilities include rebates.
Borrowings, including option-type arrangements, are recognised
initially at fair value. Option-type borrowing arrangements are
subsequently measured at amortised cost. Fees paid on the
establishment of such option-type arrangements are recognised as a
'right to borrow' asset, and are capitalised as a pre-payment for
liquidity services and amortised over the period of the facility to
which the fees relate. This prepayment has been deducted from the
carrying value of the financial liability at 31 December 2020. In
the prior year the amount is included within prepayments. The prior
year amounts have not be restated as they are not considered to be
material.
Borrowing costs
General and specific borrowing costs that are directly
attributable to the acquisition, construction or production of a
qualifying asset are capitalised during the period of time that is
required to complete and prepare the asset for its intended use or
sale. Qualifying assets are assets that necessarily take a
substantial period of time to get ready for their intended use or
sale. Investment income earned on the temporary investment of
specific borrowings, pending their expenditure on qualifying
assets, is deducted from the borrowing costs eligible for
capitalisation. Other borrowing costs are expensed in the period in
which they are incurred.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits with a maturity of three months or less. While cash and
cash equivalents are also subject to the impairment requirements of
IFRS 9, impairment losses are not material.
Employee benefits
The Group provides a range of benefits to employees, including
annual bonus arrangements, paid holiday entitlements and defined
benefit and contribution pension plans.
Short-term benefits
Short-term benefits, including holiday pay and similar
non-monetary benefits, are recognised as an expense in the period
in which the service is rendered. The Group recognises a liability
and an expense for bonuses where contractually obliged or where
there is a past practice that has created a constructive
obligation.
Pensions
Subsidiary companies operate both defined contribution and
defined benefit plans for the benefit of their employees.
A defined contribution plan is a pension plan under which the
Group pays fixed contributions into a separate entity. The Group
has no legal or constructive obligations to pay further
contributions if the fund does not hold sufficient assets to pay
all employees the benefits relating to employee service in the
current and prior periods. The Group has no further payment
obligations once the contributions have been paid. The
contributions are recognised as employee benefit expense when they
are due. A defined benefit plan is a pension plan that is not a
defined contribution plan.
Typically, defined benefit plans define an amount of pension
benefit that an employee will receive on retirement, usually
dependent on one or more factors, such as age, years of service or
compensation.
The liability recognised in the consolidated 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 by qualified independent
actuaries using the projected unit method. The present value of the
defined benefit obligation is determined by discounting the
estimated future cash outflows using interest rates of high quality
corporate bonds that are denominated in the currency in which the
benefits will be paid, and that have terms to maturity
approximating to the terms of the related pension liability.
The net pension finance cost is determined by applying the
discount rate, used to measure the defined benefit pension
obligation at the beginning of the accounting period, to the net
pension obligation at the beginning of the accounting period taking
into account any changes in the net pension obligation during the
period as a result of cash contributions and benefit payments.
Pension scheme expenses are charged to the consolidated
statement of comprehensive income within administrative expenses.
Actuarial gains and losses are recognised immediately in the
consolidated statement of comprehensive income. Net defined benefit
pension scheme deficits before tax relief are presented separately
on the face of the consolidated balance sheet within non-current
liabilities.
Share based payments
The Group has issued conditional equity settled share based
options and conditional share awards under a Long Term Incentive
Plan ("LTIP") in the parent company to certain employees. Under the
LTIP, the Group receives services from employees as consideration
for equity instruments of the Group. The fair value of the employee
services received in exchange for the grant of the options is
recognised as an expense.
The total amount to be expensed is determined by reference to
the fair value of the options granted:
-- including any market performance conditions such as the
requirement for the Group's shares to be above a certain price for
a pre-determined period;
-- excluding the impact of any service and non-market
performance vesting conditions, including earnings per share
targets, dividend targets, and remaining an employee of the Group
over a specified period of time; and
-- including the impact of any non-vesting conditions, where relevant.
These awards are measured at fair value on the date of the grant
using an option pricing model and expensed in the consolidated
statement of comprehensive income on a straight line basis over the
vesting period, after making an allowance for the estimated number
of shares that will not vest. The level of vesting is reviewed and
adjusted bi-annually in the consolidated statement of comprehensive
income, with a corresponding adjustment to equity.
If the terms of an equity settled award are modified, at a
minimum, an expense is recognised as if the terms had not been
modified. An additional expense is recognised for any modification
that increases the total fair value of the share based payment, or
is otherwise beneficial to the employee, as measured at the date of
modification.
If an equity award is cancelled by forfeiture, where the vesting
conditions (other than market conditions) have not been met, any
expense not yet recognised for that award as at the date of
forfeiture is treated as if it had never been recognised. At the
same time, any expense previously recognised on such cancelled
equity awards is reversed, effective as at the date of
forfeiture.
The dilutive effect, if any, of outstanding options is included
in the calculation of diluted earnings per share.
Further details on the awards is included in note 23.
Inventories
Inventories consist of raw materials and finished goods which
are valued at the lower of cost and net realisable value. Cost is
determined using the first in, first out ("FIFO") method. Cost
comprises 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 at cost. Net realisable value is the estimated selling
price in the ordinary course of business, less applicable selling
expenses. At the end of each reporting period, inventories are
assessed for impairment. If inventory is impaired, the identified
inventory is reduced to its selling price less costs to complete
and an impairment charge is recognised in the consolidated
statement of comprehensive income.
Revenue
The Group primarily recognises revenue from the sales of goods
to its customers. The amount of revenue relating to the provision
of services is minimal and the Group does not undertake any
significant long-term contracts with its customers where revenue is
recognised over time.
The transaction price is based on the sales agreement with the
customer. Revenue is reported net of sales rebates, which are based
on a certain volume of purchases by a customer within a given
period. Other than sales rebates, there is no variable
consideration. Rebates are contractually agreed taking into
consideration the type of customer, the type of transaction and the
specifics of each arrangement. No element of financing is deemed
present because the sales are made under normal credit terms, which
is consistent with market practice.
Revenue (continued)
The performance obligation is the delivery of goods to
customers, and revenue is recognised on dispatch for most revenue
transactions. Otherwise, revenue is recognised when the products
have been shipped to a specific location, or when the risks of
obsolescence and loss have been transferred to the OEM or
wholesaler. There are a very small number of revenue transactions
where different performance obligations and/or recognition patterns
occur. All of the amounts recognised as revenue are based on
contracts with customers.
The Group does not create any contract assets or contract
liabilities and all amounts are recognised as trade receivables as
there are no performance conditions other than the passage of time.
Payment terms for the majority of customers are to pay cash in
advance of the goods being delivered. The Group recognises these
balances within trade and other payables on the consolidated
balance sheet as "Payments in advance from customers". At the point
the revenue is recognised, these balances are transferred from
"Payments in advance from customers" to revenue. For the majority
of other customers payment is normally due within 30 to 45 days
from the date of sale.
Due to the simple nature of the Group's revenue no significant
judgments have been made in the application of IFRS 15.
All revenue is derived from the principal activities of the
Group.
Cost of sales
Cost of sales comprise costs arising in connection with the
manufacture of thermostatic controls, cordless interfaces, and
other products such as water jugs and filters. Cost is based on the
cost of purchases on a first in, first out basis and includes all
direct costs and an appropriate portion of fixed and variable
overheads where they are directly attributable to bringing the
inventories into their present location and condition. This also
includes an allocation of non-production overheads, costs of
designing products for specific customers and amortisation of
capitalised development costs.
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 consolidated statement of comprehensive
income. The separate reporting of exceptional items helps provide
an indication of the Group's underlying performance, and includes
restructuring costs, exit costs, share based payment transaction
costs and costs relating to certain strategic projects.
Research and development
Research expenditure is written off to the consolidated
statement of comprehensive income within cost of sales in the year
in which it is incurred. Development expenditure is written off in
the same way unless the Directors are satisfied as to the
technical, commercial and financial viability of the individual
projects. In this situation, the expenditure is classified on the
consolidated balance sheet as a capitalised development cost.
Finance costs
Finance costs comprise interest charges on pension liabilities,
interest on non-current borrowings, and finance charges relating to
letters of credit. Finance costs are recognised when the right to
make a payment is established.
Finance income
Finance income comprises bank interest receivable on funds
invested. Finance income is recognised when the right to receive a
payment is established.
Income tax
Income tax for the years presented comprises current 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 in the countries where the Company and its
subsidiaries operate and generate taxable income, and any
adjustment to tax payable in respect of previous years.
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the
consolidated financial statements. However, deferred tax
liabilities are not recognised if they arise from the initial
recognition of goodwill. Deferred income tax is also not accounted
for if it arises from initial recognition of an asset or liability
in a transaction other than a business combination that, at the
time of the transaction, affects neither accounting nor taxable
profit or loss. Deferred income tax is determined using tax rates
(and laws) that have been enacted or substantively enacted by the
end of the reporting period and are expected to apply when the
related deferred income tax asset is realised or the deferred
income tax liability is settled.
The deferred tax liability in relation to investment property
that is measured at fair value is determined assuming the property
will be recovered entirely through sale.
Deferred tax assets are recognised only if it is probable that
future taxable amounts will be available to utilise those temporary
differences and losses.
Deferred tax liabilities and assets are not recognised for
temporary differences between the carrying amount and tax bases of
investments in foreign operations where the company is able to
control the timing of the reversal of the temporary differences and
it is probable that the differences will not reverse in the
foreseeable future.
Deferred tax assets and liabilities are offset where there is a
legally enforceable right to offset current tax assets and
liabilities and where the deferred tax balances relate to the same
taxation authority. Current tax assets and tax liabilities are
offset where the entity has a legally enforceable right to offset
and intends either to settle on a net basis, or to realise the
asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except
to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax
is also recognised in other comprehensive income or directly in
equity, respectively.
Share capital and share premium
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new ordinary shares are shown
in equity as a deduction from the proceeds. Share premium has
arisen on the issue of shares during the year and is distributable.
Share capital and share premium have been grouped for the purposes
of financial statement presentation.
Dividends
Dividends are recognised when they become legally payable. In
the case of interim dividends to equity shareholders, this is when
declared by the Directors. In the case of final dividends, this is
when approved by the shareholders at the AGM.
Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker.
The chief operating decision maker, who is responsible for
allocating resources and assessing the performance of the operating
segments, has been identified as the Board of Directors. The Board
of Directors consists of the Executive Directors and the
Non-Executive Directors.
Government grants
Subsidiary companies receive grants from the Isle of Man and
Chinese governments towards revenue and capital expenditure.
Government grants are recognised at their fair value where there is
a reasonable assurance that the grant will be received and all
attached conditions complied with.
Revenue grants are recognised as income over the period
necessary to match the grant on a systematic basis to the costs
that it is intended to compensate. The grant income is presented
within other operating income in the consolidated statement of
comprehensive income.
Capital grants are recognised by deducting the carrying amount
of the asset. The grant is recognised in profit or loss over the
life of a depreciable asset as a reduced depreciation expense. The
grants are dependent on the subsidiary company having fulfilled
certain operating, investment and profitability criteria in the
financial year, primarily relating to employment.
EBITDA and adjusted EBITDA - non-GAAP 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. Exceptional items charges 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.
3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of the Group's 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.
Critical judgements in applying the entity's accounting
policies
Going concern
The Directors have prepared the consolidated financial
statements on a going concern basis. In making this judgment the
Directors have considered the Company's and the 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 Group,
as set out in the paragraphs entitled 'Going concern' in note
2.
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,
with the exception of Strix (Hong Kong) Ltd which has a Hong Kong
Dollar functional currency, Strix (USA), Inc. which has a United
States Dollar functional currency, HaloSource Water Purification
Technology (Shanghai) Co. Ltd which have a Chinese Yuan functional
currency, LAICA S.p.A which has a Euro functional currency and
LAICA International Corp. which has a Taiwan Dollar functional
currency. This may change as the Group's operations and markets
change in the future.
Capitalisation of development costs
The Directors consider the factors set out in the paragraphs
entitled 'Intangible assets - initial recognition and measurement'
in note 2 with regard to the timing of the capitalisation of the
development costs incurred. This requires judgement in determining
when the different stages of development have been met.
Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future.
The resulting accounting estimates will, by definition, seldom
equal the related actual results. The estimates and assumptions
that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next
financial year are disclosed below.
Acquisition of a subsidiary
In performing the acquisition accounting, the fair value of the
consideration transferred (including contingent consideration) and
fair value of the assets acquired and liabilities assumed have been
measured. Initially, these are measured on a provisional basis and
if new information obtained within one year of the date of
acquisition about facts and circumstances that existed at the date
of acquisition identifies adjustments to the above amounts, or any
additional provisions that existed at the date of acquisition, then
the accounting for the acquisition will be revised. The key inputs
used are disclosed in note 14.
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
has been managed as one entity and management have consequently
reported internally on the Group's performance as one segment.
The Board of Directors has identified 3 reportable segments from
a product perspective, namely: kettle controls, water category and
appliances.
The Board of Directors primarily uses a measure of gross profit
to assess the performance of the operating segments, broken down
into revenue and cost of sales for each respective segment which is
reported to them on a monthly basis. Information about segment
revenue is disclosed below, as well as in note 7.
A prior year comparative analysis has not been provided has no
such analysis had been presented to the Board of Directors
previously for monthly management reporting purposes. Consequently
the prior year comparative analysis of gross profit has been not
been disclosed in this note.
2020
(GBP000s)
Kettle Water
controls categories Appliances Total
Revenue 79,816 11,744 3,745 95,305
Cost of sales (44,022) (9,387) (2,991) (56,400)
Gross profit 35,794 2,357 754 38,905
========== ============ =========== =========
Assets and liabilities
No analysis of the assets and liabilities of each operating
segment is provided to the Board of Directors as part of monthly
management reporting. Therefore no analysis of segmented assets or
liabilities is disclosed in this note.
Non-current assets (i) attributed to country of domicile and
(ii) attributable to all other foreign countries
A geographical analysis of revenue from external customers has
not been presented, as the OEMs to whom the majority of sales are
made are primarily based in China.
In accordance with IFRS 8, the following table discloses the
non-current assets located in both the Company's country of
domicile (the Isle of Man) and foreign countries, primarily China,
where one of the Group's principle subsidiaries is domiciled.
2020 2019
GBP000s GBP000s
---------------------------------------------- -------- --------
Country of domicile
Intangible assets 8,888 6,137
Property, plant and equipment 2,958 3,381
---------------------------------------------- -------- --------
Total country of domicile non-current assets 11,846 9,518
---------------------------------------------- -------- --------
Foreign countries
Intangible assets 20,760 931
Property, plant and equipment 34,247 22,144
---------------------------------------------- -------- --------
Total foreign non-current assets 55,007 23,075
---------------------------------------------- -------- --------
Total non-current assets 66,853 32,593
---------------------------------------------- -------- --------
Major customers
In 2020, there were two major customers that individually
accounted for at least 10% of total revenues (2019: two customers).
The revenues relating to these customers in 2020 were GBP13,683,000
and GBP11,618,000 (2019: GBP20,816,000 and GBP11,064,000).
5. EMPLOYEES AND DIRECTORS
(a) Employee benefit expenses
2020 2019
GBP000s GBP000s
-------------------------------------------- -------- --------
Wages and salaries 18,347 17,981
Defined contribution pension cost (note
5(c)(i) and 5(c)(iii)) 631 646
-------------------------------------------- -------- --------
Employee benefit expenses 18,978 18,627
-------------------------------------------- -------- --------
Share based payment transactions (note 23) 1,869 5,944
-------------------------------------------- -------- --------
Total employee benefit expenses 20,847 24,571
-------------------------------------------- -------- --------
(b) Key management compensation
The following table details the aggregate compensation paid in
respect of the key management, which includes the Directors and the
members of the Trading Board, representing members of the senior
management team from all key departments of the Group.
2020 2019
GBP000s GBP000s
------------------------------------------------- -------- --------
Salaries and other short-term employee benefits 1,673 1,787
Post-employment benefits 160 160
Termination benefits 99 100
Share based payment transactions 404 4,525
------------------------------------------------- -------- --------
2,336 6,572
------------------------------------------------- -------- --------
- There are no defined benefit schemes for key management.
Pension costs under defined contribution schemes are included in
the post-employment benefits disclosed above.
(c) Retirement benefits
(i) The Strix Limited Retirement Fund
The Strix Limited Retirement Fund is a defined contribution
scheme under which the assets of the scheme are held separately
from those of the Group in an independently administered fund. The
pension cost charge represents costs payable by the Group to the
fund and amounted to GBP611,000 (2019: GBP646,000).
(ii) The Strix Limited (1978) Retirement Fund
The Strix Limited (1978) Retirement Fund is a defined benefit
scheme providing benefits based on final pensionable pay. The
assets of the scheme are held separately from those of the Group.
The trustees of the pension fund are required by law to act in the
interest of the fund and of all relevant stakeholders in the
scheme. The trustees are responsible for the investment policy with
regard to the assets of the fund.
The scheme is closed to new members and future accruals. During
2019, all retirement benefit plan obligations relating to the
defined benefit scheme were transferred to Aviva. On transfer,
income of GBP78,000 was recognised directly in equity.
The remainder of the disclosures required by IAS 19 have not
been included in these financial statements as the scheme is not
material to the Group.
(iii) LAICA S.p.A. Termination Indemnity
LAICA S.p.A., acquired by the Group on 26 October 2020 (note
14), operates a defined benefit plan for its employees in
accordance with the Italian Termination Indemnity (named
"Trattamento di Fine Rapporto" or "TFR") provisions defined by the
National Civil Code (Article 2120). In accordance with IAS 19, the
TFR provision is a defined benefit plan, which is based on the
principle to allocate the final cost of benefits over the periods
of service which give rise to an accrual of deferred rights under
each particular benefit plan.
The calculation of the liability is based on both the length of
service and on the remuneration received by the employee during
that period of service. Article 2120 states that severance pay is
due to the employee by the Companies in any case of termination of
the employment contract. For each year of service, severance pay
accruals are based on total annual compensation divided by 13.05.
Although the benefit is paid in full by the employer, part (0.5% of
pay) of the annual accrual is paid to INPS by the employer, and is
subtracted from the severance pay accruals for the contribution
reference period. As of 31 December of every year, the severance
pay accrued as of 31 December of the preceding year is revalued by
an index stipulated by law as follows: 1.5% plus 75% of the
increase over the last 12 months in the consumer price index, as
determined by the Italian Statistical Institute.
In accordance with IAS 19, the determination of the present
value of the liability is carried out by an independent actuary
under the projected unit method. This method considers each period
of service provided by workers at the company as a unit of
additional right. The actuarial liability must therefore be
quantified based on seniority reached at the valuation date and
re-proportioned based on the ratio between the years of service
accrued at the reference date of the assessment and the overall
seniority reached at the time scheduled for the payment of the
benefit. Furthermore, this method provides to consider future
salary increases, due to any cause (inflation, career, contract
renewals, etc.), up to the time of termination of the employment
relationship.
The below chart summarises the defined benefit pension liability
of LAICA S.p.A. at 31st December 2020:
GBP'000
Liability as at date of acquisition by the
Group (26 Oct 2020) 878
Current service cost for the period 20
Liability as at 31 December 2020 898
The key actuarial assumptions used in arriving at these figures
include:
-- annual discount rate of 2.5%
-- annual price inflation of 6.0%
-- annual TFR increase of 2.1%
-- demographic assumptions based on INPS published data
The remainder of the post-employment benefit liability of
GBP457,000 (2019: GBPnil) as at 31 December 2020 is made up of
contractual post-employment liabilities within LAICA S.p.A. that do
not meet the definition of a defined benefit plan in accordance
with IAS 19.
6. EXPENSES
(a) Expenses by nature
2020 2019
GBP000s GBP000s
------------------------------------------ -------- --------
Employee benefit expense 18,978 18,627
Depreciation charges 3,042 2,903
ROU depreciation charges 1,470 1,323
Amortisation and impairment charges 1,477 1,298
Exceptional items - reorganisation costs 334 171
Exceptional items - strategic projects 3,253 1,208
Exceptional items - share based payment
transactions 1,869 5,944
Foreign exchange losses 505 266
------------------------------------------ -------- --------
Research and development expenditure totalled GBP4,117,000
(2019: GBP4,439,000), and GBP2,808,000 (2019: GBP2,358,000) of
development costs have been capitalised during the year.
(b) Exceptional items
Strategic project costs relate to certain projects being
undertaken to support the achievement of the Group's strategic
plans including the acquisitions of LAICA S.p.A. and HaloSource
disclosed in note 14, COVID-19 costs of GBP630,000 and the
implementation of a new global Enterprise resource planning
system.
The share based payment transactions relate to conditional share
options and awards issued to certain employees. Further details are
provided in note 23.
(c) Auditor's remuneration
During the year the Group (including its subsidiaries) obtained
the following services from the Company's auditor as detailed
below:
2020 2019
GBP000s GBP000s
----------------------------------------------- -------- --------
Fees payable to Company's auditor and its
associates for the audit of the consolidated
financial statements 178 124
Fees payable to Company's auditor and its
associates for other services:
- the audit of Company's subsidiaries 24 4
- other assurance services 12 9
- tax compliance and other 7 5
----------------------------------------------- -------- --------
221 142
----------------------------------------------- -------- --------
7. REVENUE
The following table shows a disaggregation of revenue into
categories by product line:
2020 2019
GBP000s GBP000s
----------------- ---------- --------
Kettle controls 79,816 85,799
Water category 11,744 9,829
Appliances 3,745 1,248
----------------- ---------- --------
Total revenue 95,305 96,876
----------------- ---------- --------
8. FINANCE COSTS
2020 2019
GBP000s GBP000s
----------------------------- -------- --------
Letter of credit charges 89 65
Right-of-use lease interest 103 110
Borrowing costs 1,002 1,176
----------------------------- -------- --------
Total finance costs 1,194 1,351
----------------------------- -------- --------
9. TAXATION
2020 2019
Analysis of charge in year GBP000s GBP000s
----------------------------------------- -------- --------
Current tax (overseas)
Current tax on overseas profits for the
year 1,384 1,265
Adjustments in respect of prior years -
overseas - 74
----------------------------------------- -------- --------
Total tax charge 1,384 1,339
----------------------------------------- -------- --------
Overseas tax relates primarily to tax payable by the Group's
subsidiary in China. During 2016, the Group's Chinese subsidiary
paid additional tax of GBP1.1m following a benchmarking assessment
by the Chinese tax authorities relating to contract processing
businesses in the years 2009 to 2014. The potential additional
liabilities for 2015 to 2018 of GBP0.9m (2019: GBP1.2m), has been
included within the current tax liability balance in the
consolidated balance sheet as a result. The Chinese subsidiary
converted to an import processing model in 2019.
A deferred tax liability of GBP2,558,000 (2019: GBPnil) has been
recognised as part of the fair value acquisition accounting of
LAICA S.p.A. (note 14) relating to the timing differences arising
on the recognition of intangible assets.
As the most significant subsidiary in the Group is based on the
Isle of Man, this is considered to represent the most relevant
standard rate for the Group. The tax assessed for the year is
higher than the standard rate of income tax in the Isle of Man of
0% (2019: 0%). The differences are explained below.
2020 2019
GBP000s GBP000s
------------------------------------------- -------- --------
Profit on ordinary activities before tax 25,454 22,877
------------------------------------------- -------- --------
Profit on ordinary activities multiplied - -
by the rate of income tax in the Isle of
Man of 0% (2019: 0%)
Impact of higher overseas tax rate 1,384 1,265
Adjustments in respect of prior years -
overseas - 74
------------------------------------------- -------- --------
Total taxation charge 1,384 1,339
------------------------------------------- -------- --------
The Group is subject to Isle of Man income tax on profits at the
rate of 0% (2019: 0%), Chinese income tax on profits at the rate of
25% (2019: 25%) and Italian income tax on profits at a rate of
27.9% (2019: n/a), following the acquisition of the Italian
subsidiary LAICA S.p.A. on 26 October 2020.
10. EARNINGS PER SHARE
The calculation of basic and diluted earnings per share is based
on the following data.
2020 2019
------------------------------------------------ ---------- --------
Earnings (GBP000s)
Earnings for the purposes of basic and diluted
earnings per share 24,049 21,538
------------------------------------------------ ---------- --------
Number of shares (000s)
Weighted average number of shares for the
purposes of basic earnings per share 197,432 190,000
Weighted average dilutive effect of share
awards 8,947 12,845
Weighted average number of shares for the
purposes of diluted earnings per share 206,379 202,845
------------------------------------------------ ---------- --------
Earnings per ordinary share (pence)
Basic earnings per ordinary share 12.2 11.3
Diluted earnings per ordinary share 11.7 10.6
------------------------------------------------ ---------- --------
Adjusted earnings per ordinary share (pence)
(1)
Basic adjusted earnings per ordinary share
(1) 14.9 15.2
Diluted adjusted earnings per ordinary share
(1) 14.3 14.2
------------------------------------------------ ---------- --------
The calculation of basic and diluted adjusted earnings per share
is based on the following data:
2020 2019
----------------------------------
GBP000s GBP000s
---------------------------------- -------- --------
Profit for the year 24,049 21,538
---------------------------------- -------- --------
Add back:
Reorganisation costs/exit costs 334 171
Strategic project costs 3,253 1,208
Share based payment transactions 1,869 5,944
Adjusted earnings (1) 29,505 28,861
---------------------------------- -------- --------
(1) Adjusted results exclude exceptional items, which include
share based payment transactions and other strategic project costs.
Adjusted results are non-GAAP metrics used by management and are
not an IFRS disclosure
The denominators used to calculate both basic and adjusted
earnings per share are the same as those shown above for both basic
and diluted earnings per share.
11. INTANGIBLE ASSETS
2020
--------------------------------------------------------------------------------------
Development Intellectual Customer Brand
costs Software Property relationships name Goodwill Total
------------ --------- ------------- --------------- -------- --------- --------
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
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 31 December
Additions 2,808 2,363 140 - - - 5,311
Acquisition of LAICA S.p.A.
(note 14) - - 214 2,406 6,643 9,522 18,785
Disposals (cost) (300) - - - - - (300)
Disposals (accumulated
depreciation) 267 - - - - - 267
Amortisation charge (1,260) (170) (47) - - - (1,477)
Exchange differences 1 1 (8) - - - (6)
------------------------------ ------------ --------- ------------- --------------- -------- --------- --------
Closing net book value 7,347 2,576 770 2,406 6,643 9,906 29,648
------------------------------ ------------ --------- ------------- --------------- -------- --------- --------
At 31 December
Cost 12,346 3,286 834 2,406 6,643 9,906 35,421
Accumulated amortisation and
impairment (4,999) (710) (64) - - - (5,773)
------------------------------ ------------ --------- ------------- --------------- -------- --------- --------
Net book value 7,347 2,576 770 2,406 6,643 9,906 29,648
------------------------------ ------------ --------- ------------- --------------- -------- --------- --------
Amortisation charges have been treated as an expense, and are
allocated to cost of sales (GBP1,410,000), distribution costs
GBPnil and administrative expenses (GBP67,000) in the consolidated
statement of comprehensive income.
GBP861,000 (2019: GBPnil) of assets from property plant and
equipment (note 12) have been reclassified to intangible assets.
These amounts are included within the additions of software and
intellectual property.
2019
-----------------------------------------------------------
Development Intellectual
costs Software Property Goodwill Total
------------ --------- ------------- --------- --------
GBP000s GBP000s GBP000s GBP000s GBP000s
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 31 December
Additions 2,358 343 175 - 2,876
HaloSource acquisition - - 316 384 700
Impairment (42) - - - (42)
Amortisation charges (1,036) (202) (18) - (1,256)
Exchange differences (11) (1) (2) - (14)
-------------------------- ------------ --------- ------------- --------- --------
Closing net book value 5,831 382 471 384 7,068
-------------------------- ------------ --------- ------------- --------- --------
At 31 December
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
-------------------------- ------------ --------- ------------- --------- --------
Amortisation charges in the prior year were treated as an
expense, and were allocated to cost of sales (GBP1,153,000),
distribution costs GBPnil, and administrative expenses (GBP103,000)
in the consolidated statement of comprehensive income.
There were no reversals of prior year impairments during the
year (2019: same).
12. PROPERTY, PLANT AND EQUIPMENT
2020
------------------------------------------------------------------------------------------------------
Fixtures, Right-of-use
Plant fittings Land assets Assets
& & Motor Production & (note under
machinery equipment vehicles tools Buildings 26) construction Total
---------- ----------- ---------- ----------- ----------- ------------- ------------- ---------
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
At 1 January
Cost 21,924 4,126 130 13,298 1,996 5,386 8,569 55,429
Accumulated
depreciation (14,444) (2,935) (66) (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
31
December
Additions - 413 - - - - 13,094 13,507
LAICA S.p.A.
acquisition 769 37 7 - 1,769 1,150 - 3,732
Transfers 3,239 - - 715 7 - (4,822) (861)
Disposals
(cost) (3,136) (209) - - - - - (3,345)
Disposals
(accum.
dep'n) 3,125 208 - - - - - 3,333
Depreciation
charge (1,367) (701) (29) (849) (96) (1,470) - (4,512)
Exchange
differences (46) - - - (35) (3) (90) (174)
-------------- ---------
Closing net
book
value 10,064 939 42 1,873 3,608 3,928 16,751 37,205
-------------- ---------- ----------- ---------- ----------- ----------- ------------- ------------- ---------
At 31
December
Cost 22,750 4,367 137 14,013 3,737 6,533 16,751 68,288
Accumulated
depreciation (12,686) (3,428) (95) (12,140) (129) (2,605) - (31,083)
-------------- ---------- ----------- ---------- ----------- ----------- ------------- ------------- ---------
Net book
value 10,064 939 42 1,873 3,608 3,928 16,751 37,205
-------------- ---------- ----------- ---------- ----------- ----------- ------------- ------------- ---------
Depreciation charges are allocated to cost of sales
(GBP3,601,000), distribution costs (GBP137,000) and administrative
expenses (GBP774,000) in the consolidated statement of
comprehensive income.
During the year, 861,000 (2019: GBPnil) of assets under
construction have been reclassified to intangible assets. These
amounts are included within the additions in note 11. In addition,
borrowing costs of GBP190,000 (2019: GBP54,000) have been
capitalised to land and buildings in the year.
2019
------------------------------------------------------------------------------------------------------
Fixtures, Right-of-use
Plant fittings Land assets Assets
& & Motor Production & (note under
machinery equipment vehicles tools Buildings 26) construction Total
---------- ----------- ---------- ----------- ----------- ------------- ------------- ---------
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
At 1 January
Cost 20,624 3,673 141 13,484 - - 1,889 39,811
Opening
balance
at adoption
of
IFRS 16 - - - - - 3,343 - 3,343
Accumulated
depreciation (14,695) (2,595) (51) (11,377) - - - (28,718)
-------------- ---------- ----------- ---------- ----------- ----------- ------------- ------------- ---------
Net book
value 5,929 1,078 90 2,107 - 3,343 1,889 14,436
-------------- ---------- ----------- ---------- ----------- ----------- ------------- ------------- ---------
Period ended
31
December
Additions - 743 - - 1,996 2,344 10,041 15,124
HaloSource
acquisition 135 93 1 49 - - 23 300
Transfers 2,545 - - 819 - - (3,364) -
Disposals (9) - - - - - - (9)
Depreciation
charge (1,119) (758) (27) (966) (33) (1,323) - (4,226)
Exchange
differences (1) 35 - (2) - (113) (20) (101)
-------------- ---------
Closing net
book
value 7,480 1,191 64 2,007 1,963 4,251 8,569 25,525
-------------- ---------- ----------- ---------- ----------- ----------- ------------- ------------- ---------
At 31
December
Cost 21,924 4,126 130 13,298 1,996 5,386 8,569 55,429
Accumulated
depreciation (14,444) (2,935) (66) (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
-------------- ---------- ----------- ---------- ----------- ----------- ------------- ------------- ---------
Depreciation charges in the prior year were allocated to cost of
sales (GBP3,453,000), distribution costs (GBP355,000), and
administrative expenses (GBP418,000) in the consolidated statement
of comprehensive income.
PRINCIPAL SUBSIDIARY UNDERTAKINGS AND JOINT ARRANGEMENTS OF THE
GROUP
A list of all subsidiary undertakings controlled by the Group,
and existing joint arrangements the Group is currently part of,
which are all included in the consolidated financial statements, is
set out below.
% of
ordinary
shares
held
Country by the Nature of
Name of entity Nature of business of incorporation Group shareholding
%
-------------------------- ------------------------------ ------------------ ---------- --------------
Sula Limited Holding company IOM 100 Subsidiary
Strix Limited Manufacture and sale IOM 100 Subsidiary
of products
Strix Guangzhou Manufacture and sale China 100 Subsidiary
Limited of products
Strix (U.K.) Limited Group's sale and distribution UK 100 Subsidiary
centre
Strix Hong Kong Sale and distribution Hong Kong 100 Subsidiary
Limited of products
Strix (China) Limited Construction of manufacturing China 100 Subsidiary
facility
HaloSource Water Manufacture and sales China 100 Subsidiary
Purification Technology of products
(Shanghai) Co.
Limited
Strix (USA), Inc. Research and development, USA 100 Subsidiary
sales, and distribution
of products
Strix Italy S.R.L. Holding company Italy 100 Subsidiary
LAICA S.p.A. Manufacture and sales Italy 100 Subsidiary
of products
LAICA Iberia Distribution Sale and distribution Spain 100 Subsidiary
S.L. of products
LAICA International Sale and distribution Taiwan 67 Subsidiary
Corp. of products
Taiwan LAICA Corp. Sale and distribution Taiwan 67 Subsidiary
of products
Foshan Yilai Life Sale and distribution China 45 Joint venture
Electric Appliances of products
Co. Limited.
LAICA Brand House Holding and licensing Hong Kong 45 Joint venture
Limited of trademarks
-------------------------- ------------------------------ ------------------ ---------- --------------
Incorporation of Strix Italy S.R.L.
On 26 August 2020, Strix Italy S.R.L. was incorporated in Italy
and is a wholly owned subsidiary of Strix (U.K.) Limited. The
entity was incorporated for the purposes of effecting the
acquisition of LAICA S.p.A.
Acquisition of issued share capital of LAICA S.p.A.
On 26 October 2020, the Group completed the acquisition of the
entire issued share capital of LAICA S.p.A., including its
subsidiaries and interests in joint ventures. Details of the
acquisition are disclosed in note 14 below.
Group restrictions
Cash and cash equivalents held in China are subject to local
exchange control regulations. These regulations provide for
restrictions on exporting capital from those countries, other than
through normal dividends. The carrying amount of the assets
included within the consolidated financial statements to which
these restrictions apply is GBP4,618,000 (2019: GBP2,300,000).
There are no other restrictions on the Group's ability to access
or use the assets and settle the liabilities of the Group's
subsidiaries.
14. ACQUISITION OF LAICA
On 26 October 2020, the Group completed the acquisition of 100%
of the issued share capital of LAICA S.p.A. ("LAICA") through its
newly incorporated subsidiary, Strix Italy S.R.L. ("Strix Italy").
LAICA is an Italian company focussed on water purification and the
sale of small household appliances for personal health and
wellness. The Group entered into a share purchase agreement with
vendor shareholders of LAICA, pursuant to which it has acquired
control of LAICA, including its subsidiaries and interests in joint
ventures. The total initial consideration for the acquisition was
GBP11.7m (EUR13.0m), of which GBP10.1m was paid upfront in cash and
the remaining GBP1.6m was settled 8 March 2021 (note 18), and the
issue of 3,192,236 Strix Group plc ordinary shares of GBP0.01 each
with a total fair value of GBP7.3m (EUR8.0m).
A further contingent consideration of up to GBP6.4m (EUR7.1m) is
payable in cash subject to certain conditions being met, including
threshold financial targets for the financial years ending 31
December 2021 and 2022. The fair value of the contingent liability
is GBP5.4m and was estimated by calculating present value of the
future expected cash flows using a discount rate of 12.7%. In
addition, a supplemental consulting arrangement has been entered
into for GBP4.4m (EUR4.9m) related to compensation for
post-combination services, which will be expensed in future years
as the services are rendered to LAICA.
The Board considered the acquisition to represent an expansion
of the Group's Water category, as well as an enhancement of its
presence in the health and wellness market, thereby capitalising on
the double-digit growth of global sales for both the small domestic
appliance and water markets, driven by increased consumer demand.
LAICA has a considerable global presence, an established product
range and an advanced new product roadmap. The acquisition will
also provide some consolidation of the water treatment range,
driving efficiencies and providing a comprehensive portfolio of
products for the Group.
As at the date of these financial statements, the initial
accounting for the acquisition of LAICA is preliminary given the
short period of time since the date the acquisition was completed
and the impact of Covid-19 restrictions. The provisional fair value
of the assets and liabilities acquired were as follows:
Book values FV Adjustments Fair values
GBP000s GBP000s GBP000s
Non-current assets
Intangible assets 437 8,826 9,263
Property, plant and equipment 3,732 - 3,732
Investment in joint ventures 20 - 20
------------------------------- ------------ --------------- ------------
Total non-current assets 4,189 8,826 13,015
------------------------------- ------------ --------------- ------------
Current assets
Inventories 5,543 - 5,543
Trade and other receivables 7,869 - 7,869
Cash and cash equivalents 3,371 - 3,371
Total current assets 16,783 - 16,783
------------------------------- ------------ --------------- ------------
Total assets 20,972 8,826 29,798
------------------------------- ------------ --------------- ------------
Non-current liabilities
Long-term borrowings 1,182 - 1,182
Post-employment benefits 1,322 - 1,322
Lease liabilities 895 - 895
Deferred tax liability - 2,558 2,558
Total non-current liabilities 3,399 2,558 5,957
------------------------------- ------------ --------------- ------------
Current liabilities
Current borrowings 2,513 - 2,513
Lease liabilities 255 - 255
Trade and other payables 5,403 - 5,403
------------------------------- ------------ --------------- ------------
Total current liabilities 8,171 - 8,171
------------------------------- ------------ --------------- ------------
Total liabilities 11,570 2,558 14,128
------------------------------- ------------ --------------- ------------
Net assets acquired 9,402 6,268 15,670
------------------------------- ------------ --------------- ------------
The fair value of the intangible assets were calculated based on
a discounted cash flow model, based on the expected future income
they will generate. The discount rate applied was the Group's
Weighted Average Cost of Capital, and a growth rate of 2% was
assumed in perpetuity, based on the target inflation rate of the
European Central Bank. A deferred tax liability has arisen on the
fair value adjustments to intangible assets at the Italian
corporate tax rate.
The fair value of acquired receivables shown in the table above
and gross contractual amounts differs by a loss allowance of
GBP95,000.
Acquisition costs included within 'Administration expenses -
exceptional items' in the consolidated statement of comprehensive
income amounted to GBP2.6m. These have been designated as a
'separate transaction' per IFRS 3 and therefore not included as
part of the purchase consideration.
The acquired business contributed revenues of GBP4.1m and an
adjusted total comprehensive income of GBP0.2m to the Group for the
period from 26 October 2020 to 31 December 2020. If LAICA had been
acquired at the beginning of the reporting period, its contribution
to revenue and profit for the year of the Group would have been
GBP21.6m and GBP1.6m respectively.
The goodwill of GBP9.5m, calculated as the purchase
consideration of GBP24.4m less the fair value of the net assets
acquired of GBP15.7m less non-controlling interests of GBP0.8m is
attributable to intangible assets that do not qualify for separate
recognition, such as the cumulative skills and knowledge of the
members of staff who became employees of the Group at the date of
acquisition, together with the synergies expected to be generated
by the Group following the acquisition, particularly within the
Water and Small Appliances category. None of the goodwill is
expected to be deductible for tax purposes.
The following acquisitions were made in the year ending 31
December 2019:
Acquisition of specified assets from HaloSource
On 7 March 2019, the Group completed the acquisition of
specified assets from HaloSource Corporation ("HaloSource"),
following approval by HaloSource shareholders at a general meeting
held on 26 February 2019. The Group entered into an asset purchase
agreement with HaloSource, pursuant to which it has acquired
specified assets relating to HaloSource's HaloPure division and its
Astrea product, for total consideration of US$1.33m (GBP1.01m)
payable in cash.
HaloSource has now been fully integrated into Strix systems and
operations.
15. INVENTORIES
2020 2019
GBP000s GBP000s
------------------------------------- -------- --------
Raw materials and consumables 9,154 5,071
Finished goods and goods in transit 6,070 4,426
------------------------------------- -------- --------
15,224 9,497
------------------------------------- -------- --------
The cost of inventories recognised as an expense and included in
cost of sales amounted to GBP39,052,000 (2019: GBP35,037,000). The
provision for impaired inventories is GBP2,513,000 (2019:
GBP302,000). There were no reversals of previous inventory
write-downs.
16. TRADE AND OTHER RECEIVABLES
2020 2019
GBP000s GBP000s
-------------------------------------- -------- --------
Amounts falling due within one year:
Trade receivables 11,565 4,286
Trade receivables past due 1,790 502
Loss allowance (159) (50)
Trade receivables - net 13,196 4,738
-------- --------
Prepayments 1,108 1,042
Advance purchase of commodities 2,788 2,174
Other receivables 3,580 1,379
20,672 9,333
-------- --------
Trade and other receivables carrying values are considered to be
equivalent to their fair values.
The amount of trade receivables impaired at 31 December 2020 is
equal to the loss allowance provision (2019: same).
The advance purchase of commodities relates to a payment in
advance to secure the purchase of key commodities at an agreed
price to mitigate the commodity price risk.
Other receivables includes government grants due of GBP433,000
(2019: GBP392,000). There were no unfulfilled conditions in
relation to these grants at the year end, although if the Group
ceases to operate or leaves the Isle of Man within 10 years from
the date of the last grant payment, funds may be reclaimed.
The Group's trade and other receivables are denominated in the
following currencies:
2020 2019
GBP000s GBP000s
------------------ -------- --------
Pound Sterling 5,110 3,430
Chinese Yuan 4,356 2,952
US Dollar 1,863 2,464
Euro 8,210 344
Hong Kong Dollar 114 123
Taiwan Dollar 1,019 -
Other - 20
20,672 9,333
-------- --------
Movements on the Group's provision for impairment of trade
receivables and the inputs and estimation technique used to
calculate expected credit losses have not been disclosed on the
basis the amounts are not material. The provision at 31 December
2020 was GBP159,000 (2019: GBP50,000).
17. CASH AND CASH EQUIVALENTS
The carrying amounts of the cash and cash equivalents are
denominated in the following currencies:
2020 2019
GBP000s GBP000s
------------------ ---------------- --------
Pound Sterling 4,594 4,712
Chinese Yuan 3,851 1,409
US Dollar 3,228 7,091
Hong Kong Dollar 108 247
Euro 2,058 199
Taiwan Dollar 1,607 -
------------------ ---------------- --------
15,446 13,658
------------------ ---------------- --------
17. CASH AND CASH EQUIVALENTS (continued)
Cash and cash equivalents includes GBP401,000 (2019: GBP380,000)
of cash deposits held as a guarantee to China SuiDong Customs
office.
18. TRADE AND OTHER PAYABLES
2020 2019
GBP000s GBP000s
------------------------------------ -------- --------
Trade payables 10,499 6,779
Current income tax liabilities 3,048 1,929
Social security and other taxes 316 98
Other liabilities 8,242 5,620
Payments in advance from customers 2,955 1,286
Accrued expenses 3,620 3,990
Consideration payable 1,519 -
------------------------------------ -------- --------
30,199 19,702
------------------------------------ -------- --------
The fair value of financial liabilities approximates their
carrying value due to short maturities.
Other liabilities includes deferred government grants of
GBP709,000 (2019: GBP333,000) There were no unfulfilled conditions
in relation to these grants at the year end.
Consideration payable are amounts due in relation to the
acquisition of LAICA S.p.A (note 14). This amount was settled on
the 8 March 2021.
The carrying amounts of the Group's trade and other payables are
denominated in the following currencies:
2020 2019
GBP000s GBP000s
------------------ -------- --------
Pound Sterling 8,414 6,025
Chinese Yuan 12,493 10,216
US Dollar 1,800 2,669
Hong Kong Dollar 6,460 364
Euro 383 427
Taiwan Dollar 649 -
Other - 1
------------------ -------- --------
30,199 19,702
------------------ -------- --------
19. BORROWINGS
2020 2019
GBP000s GBP000s
------------------------------ -------- --------
Total current borrowings 2,220 -
------------------------------ -------- --------
Total non-current borrowings 50,426 40,000
------------------------------ -------- --------
All of the current bank loans comprise of small individual short
term arrangements for financing purchases and optimising cash flows
within the Italian subsidiary and were entered into by LAICA S.p.A.
prior to acquisition by the Group.
Current and non-current borrowings are shown net of loan
arrangement fees of GBP175,000 (2019: GBPnil) and GBP700,000 (2019:
GBPnil), respectively.
19. BORROWINGS (continued)
Term and debt repayment schedule for long term borrowings
Currency Interest Maturity 2020
rate date Carrying
value
GBP000s
LIBOR
+1.50% to
Revolving credit facility GBP +2.85% 27-May-25 50,000
--------------------------- ---------- ------------- ----------- ----------
EURIBOR
+1.10% to
Unicredit facility EUR +3.60% 28-Jun-24 317
--------------------------- ---------- ------------- ----------- ----------
EURIBOR
+1.10% to
Banco BPM EUR +3.60% 30-Nov-23 536
--------------------------- ---------- ------------- ----------- ----------
Bank Sinopac Co. Ltd TWD 1.57% fixed 29-May-27 273
--------------------------- ---------- ------------- ----------- ----------
51,126
==========
On 27 July 2017, the Company entered into an agreement with The
Royal Bank of Scotland Plc (as agent), and the Royal Bank of
Scotland International Limited and HSBC Bank Plc (as original
lenders) in respect of a revolving credit facility of
GBP70,000,000, of which GBP40,000,000 was drawn down as at 31
December 2019. During 2020, the Company refinanced this by entering
into an agreement with The Royal Bank of Scotland Plc (as agent),
along with the Bank of China (UK) Limited and the Bank of Ireland
in respect of a revolving credit facility of GBP80,000,000, with
materially the same terms and covenants as the existing
facility.
On 27 May 2020, the first facility available with Royal Bank of
Scotland Plc through the addition of the Bank of China (UK) Limited
increased to GBP60,000,000, and has continued to increase by a
further GBP20,000,000 on 1 October 2020 by applying for a further
facility with Bank of Ireland through the same. As at 31 December
2020, the total facilities available are GBP80,000,000 (2019:
GBP49,000,000).
The initial drawdown of GBP50,000,000 allowed for the
refinancing of the existing revolving credit facility as well as
being used to fund the acquisition of LAICA S.p.A. (note 14).
Additional amounts may be drawn under the agreement for financing
working capital and for general corporate purposes of the
Group.
All amounts become immediately repayable and undrawn amounts
cease to be available for drawdown in the event of a third party
gaining control of the Company. The Company and its material
subsidiaries have entered into the agreement as guarantors,
guaranteeing the obligations of the borrowers under the agreement
(2019: same).
Transactions costs amounting to GBP875,000 incurred as part of
the debt financing with the new facility entered into during the
year have been capitalised in the current year and will be
amortised over the period of the 5 year facility.
The various agreements 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 2020, the Group has not breached any of
the financial covenants contained within the agreements - see note
22(d) for further details. (2019: same)
Interest applied to the revolving credit facility is calculated
as the sum of the margin and LIBOR. 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%
At 31 December 2020, the margin applied was 2.00% (2019:
1.50%).
19. BORROWINGS (continued)
The fair values of the borrowings are not materially different
from their carrying amounts, since the interest payable on those
borrowings is either close to current market rates or the
borrowings are of a short-term nature.
20. COMMITMENTS
(a) Capital commitments
2020 2019
GBP000s GBP000s
----------------------------------------------------- -------- --------
Contracted for but not provided in the consolidated
financial statements - Property, plant and
equipment 4,307 12,559
----------------------------------------------------- -------- --------
Construction of new factory
The above commitments include capital expenditure of
GBP2,810,000 (2019: GBP10,472,000) relating to the construction of
a new factory in Zengcheng district, China. Strix (China) Limited
entered into a contract with Shanghai Installation Engineering
Group Co. on 2 September 2019 for CNY 128,000,000
(GBP14,450,000).
21. CONTINGENT ASSETS AND CONTINGENT LIABILITIES
The Group has a number of ongoing legal intellectual property
cases, including legal actions initiated by the Group, as well as
invalidation challenges brought by the defendants. A number of
these cases are still in the process of going through the due legal
process in the countries in which the matters have been raised. As
a result, no contingent assets have been recognised as receivable
at 31 December 2020 (2019: same), as any receipts are dependent on
the final outcome of the ongoing legal processes in each case.
There are no contingent liabilities at 31 December 2020 (2019:
same).
22 . FINANCIAL RISK MANAGEMENT
The Group's activities expose it to a variety of financial
risks: market risk (including currency risk, interest rate risk and
commodity price risk), credit risk, liquidity risk and capital
management risk.
Risk management is carried out by the Directors. The Group uses
financial instruments where required to provide flexibility
regarding its working capital requirements and to enable it to
manage specific financial risks to which it is exposed.
Transactions are only undertaken if they relate to actual
underlying exposures and hence cannot be viewed as speculative.
(a) Market risk
(i) Foreign exchange risk
The Group operates predominantly in the UK and China and is
therefore exposed to foreign exchange risk. Foreign exchange risk
arises on sales and purchases made in foreign currencies and on
recognised assets and liabilities and net investments in foreign
operations.
The Group monitors its exposure to currency fluctuations on an
ongoing basis. The Group uses foreign currency bank accounts to
reduce its exposure to foreign currency translation risk, and the
Group is naturally hedged against foreign exchange risk as it both
generates revenues and incurs costs in the major currencies with
which it deals. The major currencies the Group transacts in
are:
-- British Pounds
-- United States Dollar
-- Chinese Yuan
-- Hong Kong Dollar
-- Euro
-- Taiwan Dollar
Exposure by currency is analysed in notes 16, 17 and 18.
22. FINANCIAL RISK MANAGEMENT (continued)
(ii) Interest rate risk
The Group is exposed to interest rate risk on its long term
borrowings, being the revolving credit facility and other
borrowings disclosed in note 19. The interest rates on the
revolving credit facility are variable, based on LIBOR and certain
other conditions dependent on the financial condition of the Group,
which exposes the Group to cash flow interest rate risk which is
partially offset by cash held at variable rates. Other borrowings
are made up of both fixed rate loans and variable loans based on
EURIBOR. This exposure is not considered by the Directors to be
significant.
(iii) Price risk
The Group is exposed to price risk, principally in relation to
commodity prices of raw materials. The Group enters into forward
commodity contracts or makes payments in advance in order to
mitigate the impact of price movements on its gross margin. The
Group has not designated any of these contracts as hedging
instruments in either 2020 or 2019. At 31 December 2020 and 2019,
payments were made in advance to buy certain commodities at fixed
prices, as disclosed in note 16.
(iv) Sensitivity analysis
-- Foreign exchange risk: The Group is primarily exposed to
exchange rate fluctuations between GBP and USD, CNY, HKD, EUR and
TWD. Assuming a reasonably possible change in FX rates of +10%
(2019: +10%), the impact on profit would be a decrease of
GBP805,000 (2019: a decrease of GBP361,000), and the impact on
equity would be an increase of GBP1,232,000 (2019: an increase of
GBP2,230,000). A -10% change (2019: -10%) in FX rates would cause
an increase in profit of GBP1,832,000 (2019: an increase in profit
of GBP442,000) and a GBP1,505,000 decrease in equity (2019:
GBP2,726,000 decrease in equity). This has been calculated by
taking the profit generated by each currency and recalculating a
comparable figure on a constant currency basis, and by
retranslating the amounts in the consolidated balance sheet to
calculate the effect on equity.
-- Interest rate risk: The Group is exposed to interest rate
fluctuations on its non-current borrowings, as disclosed in note
19. Assuming a reasonably possible change in the LIBOR/EURIBOR rate
of +/-0.5% (2019: +/-0.5%), the impact on profit would be an
increase/decrease of GBP234,000 (2019: GBP204,000), and the impact
on equity would be an increase/decrease of GBP37,000 (2019:
GBP125,000). This has been calculated by recalculating the loan
interest using the revised rate to calculate the impact on profit,
and recalculating the year end loan interest balance payable using
the same rate.
-- Commodity price risk: The Group is exposed to commodity price
fluctuations, primarily in relation to copper and silver. Assuming
a reasonably possible change in commodity prices of +/-23% for
silver (2019: +/-8.2%) and +/-37% for copper (2019: +/-4.4%) based
on volatility analysis for the past year, the impact on profit
would be an increase/decrease of GBP3,353,000 (2019: GBP1,043,000).
The Group does not hold significant quantities of copper and silver
inventory, therefore the impact on equity would be the same as the
profit or loss impact disclosed (2019: same). This has been
calculated by taking the average purchase price of these
commodities during the year in purchase currency and recalculating
the cost of the purchases with the price sensitivity applied.
(b) Credit risk
The Group has no external concentrations of credit risk. The
Group has policies in place to ensure that sales of goods are made
to clients with an appropriate credit history. The Group uses
letters of credit and advance payments to minimise credit risk.
Management believe there is no further credit risk provision
required in excess of normal provision for doubtful receivables, as
disclosed in note 16. The amount of trade and other receivables
written off during the year amounted to less than 0.04% of revenue
(2019: less than 0.05% of revenue).
22. FINANCIAL RISK MANAGEMENT (continued)
Cash and cash equivalents are held with reputable institutions.
All material cash amounts are deposited with financial institutions
whose credit rating is at least B based on credit ratings according
to Standard & Poor's. The following table shows the external
credit ratings of the institutions with whom the Group has cash
deposits:
2020 2019
GBP000s GBP000s
----- -------- --------
AA - 636
A 5,497 2,169
BBB 9,909 10,824
BB - -
B 14 -
n/a 26 29
----- -------- --------
15,446 13,658
----- -------- --------
(c) Liquidity risk
The Group maintained significant cash balances throughout the
period and hence suffers minimal liquidity risk. Cash flow
forecasting is performed for the Group by the finance function,
which monitors rolling forecasts of the Group's liquidity
requirements to ensure it has sufficient cash to meet operational
needs and so that the Group minimises the risk of breaching
borrowing limits or covenants on any of its borrowing facilities.
The Group has put into place revolving credit facilities to provide
access to cash for various purposes, and headroom of GBP30,000,000
(2019: GBP9,000,000) remains available on this facility at 31
December 2020.
The Group's non-derivative financial liabilities include trade
and other payables (less payment received in advance) substantially
all have a contractual maturity date of less than 3 months. The
Group's borrowings are represented by several credit facilities
detailed in note 19, including current borrowings due for repayment
in 2021 of GBP2,395,000 (2019: GBPnil), and the remainder falling
due between two and seven years. The contingent consideration
payable in relation to the acquisition of LAICA S.p.A as disclosed
in note 14, will only become payable in 2022 after 2021 performance
criteria have been assessed.
(d) Capital risk management
The Group manages its capital to ensure its ability to continue
as a going concern and to maintain an optimal capital structure to
reduce the cost of capital. The aim of the Group is to maintain
sufficient funds to enable it to make suitable capital investments
whilst minimising recourse to bankers and/or shareholders. In order
to maintain or adjust capital, the Group may adjust the amount of
cash distributed to shareholders, return capital to shareholders,
issue new shares or raise debt through its access to the AIM
market.
Capital is monitored by the Group on a monthly basis by the
finance function. This includes the monitoring of the Group's
gearing ratios and monitoring the terms of the financial covenants
related to the revolving credit facilities as disclosed in note 19.
These ratios are formally reported on a quarterly basis. The
financial covenants were complied with throughout the period. At 31
December 2020 these ratios were as follows:
-- Interest cover ratio: 33.4x (2019: 26.7x) - minimum per facility terms is 4.0x; and
-- Leverage ratio: 1.1x (2019: 0.7x) - maximum per facility terms is 2.5x
(e) Fair value hierarchy
This section explains the judgements and estimates made in
determining the fair values of the financial instruments that are
recognised and measured at fair value in the financial statements.
To provide an indication about the reliability of the inputs used
in determining fair value, the group has classified its financial
instruments into the three levels prescribed under the accounting
standards. An explanation of each level is as follows:
Level 1: The fair value of financial instruments traded in
active markets (such as publicly traded derivatives, and equity
securities) is based on quoted market prices at the end of the
reporting period. The quoted market price used for financial assets
held by the group is the current bid price. These instruments are
included in level 1.
Level 2: The fair value of financial instruments that are not
traded in an active market (for example, over-the-counter
derivatives) is determined using valuation techniques which
maximise the use of observable market data and rely as little as
possible on entity-specific estimates. If all significant inputs
required to fair value an instrument are observable, the instrument
is included in level 2.
Level 3: If one or more of the significant inputs is not based
on observable market data, the instrument is included in level 3.
This is the case for unlisted equity securities.
The resulting fair value estimate for contingent consideration
payable recognised during the year, where the fair values have been
determined based on probability estimates of meeting threshold
financial targets for the financial years ending 31 December 2021
and 2022 and discounted using a rate of 12.7%, has been classified
as a level 3. There have been no other movements into or out of any
levels during the year.
Probability
weighted inputs
--------- --------- -------------- -----------------------
Description 2020 2019 Relationship of
2020 2019 Unobservable unobservable inputs
GBP000s GBP000s inputs to fair value
---------------- --------- --------- -------------- ---------------- ----- -----------------------
A change in the
discount rate
Risk-adjusted by 100 bps would
Contingent discount increase/decrease
consideration 5,380 - rate 12.7% n/a the FV by GBP69,000
Probability GBPnil n/a If actual EBITDA
weighted - GBP6,425,000 is 10% higher
cash flows the FV would increase
by GBP1,030,000
or if it is 10%
lower it would
decrease GBP1,615,000
23. SHARE BASED PAYMENTS
Long term incentive plan terms
As part of the admission to trading on AIM in August 2017, the
Group granted a number of share options to employees of the Group.
All of the shares granted are subject to service conditions, being
continued employment with the Group until the end of the vesting
period. The shares granted to the executive Directors and senior
staff also include certain performance conditions which must be
met, based on predetermined earnings per share, dividend pay-out,
and share price targets for the three financial years 2017 to 2019.
Further awards have been made since August 2017 under the same
scheme on similar terms.
During 2019, the Group amended the terms of the Isle of Man
share options to conditional share awards.
Participation in the plan is at the discretion of the Board and
no individual has a contractual right to participate in the plan or
to receive any guaranteed benefits. Where the employee is entitled
to share options, these remain exercisable until the ten year
anniversary of the award date. Where the employee is entitled to
conditional share awards, these are exercised on the vesting
date.
The dividends that would be paid on a share in the period
between grant and vesting reduce the fair value of the award if, in
not owning the underlying shares, a participant does not receive
the dividend income on these shares during the vesting period.
All of the options and conditional share awards are granted
under the plan for nil consideration and carry no voting rights. A
summary of the options and conditional share awards is shown in the
table below:
2020 2019
Number of Number of
Shares Shares
--------------------------------------- ------------ -----------
At 1 January 11,173,522 10,295,525
Granted during the year 1,230,358 1,189,813
Exercised during the year (8,754,059) -
Forfeited during the year (59,438) (311,816)
As at 31 December 3,590,383 11,173,522
---------------------------------------- ------------ -----------
Vested and exercisable at 31 December 124,793 -
---------------------------------------- ------------ -----------
The Group has recognised a total expense of GBP1,869,000 (2019:
GBP5,944,000) in respect of equity-settled share based payment
transactions in the year ended 31 December 2020.
For each of the tranches, the first day of the exercise period
is the vesting date and the last day of the exercise period is the
expiry date, as listed in the valuation model input table below.
The weighted average contractual life of options and conditional
share awards outstanding at 31 December 2020 was 8.5 years (2019:
6.7 years).
Valuation model inputs
The key inputs to the Black-Scholes-Merton model for the
purposes of estimating the fair values of the share options
outstanding at the end of the year are as follows:
Weighted Share options Share options
Share price average probability outstanding outstanding
on grant of meeting at at
date performance 31 December 31 December
Grant date (p) Expiry date criteria 2020 2019
15 August
15 August 2017 133.38 2027 100.00% 124,793 7,862,873
12 February 12 February
2018 138.00 2028 100.00% 19,500 35,336
01 November 01 November
2018 146.80 2028 51.16% 748,853 755,344
26 November 26 November
2018 136.00 2028 100.00% 10,760 10,760
04 March 2019 155.00 04 March 2029 100.00% 200,215 215,651
20 May 2019 157.80 20 May 2029 54.00% 525,602 544,140
21 August
21 August 2019 161.80 2029 100.00% 7,288 7,288
06 April 2020 170.00 06 April 2030 100.0% 339,567 -
01 May 2020 183.40 01 May 2030 50.0% 502,495 -
31 December
06 May 2020 181.00 2029 100.0% 36,364 -
---------------- ------------ -------------- --------------------- -------------- --------------
Total Share
Options 2,515,437 9,431,392
---------------- ------------ -------------- --------------------- -------------- --------------
The key inputs to the Black-Scholes-Merton model for the
purposes of estimating the fair values of the conditional share
awards outstanding at the end of the year are as follows:
Conditional Conditional
Weighted share awards share awards
average probability outstanding outstanding
Share price of meeting at at
on grant performance 31 December 31 December
Grant date date (p) Vesting date criteria 2020 2019
15 August 03 January
2017 133.38 2020 100.00% - 985,143
12 February 03 January
2018 138.00 2020 100.00% 14,000 29,000
12 February 01 January
2018 138.00 2021 100.00% 60,500 60,500
01 November 01 January
2018 146.80 2021 43.15% 348,233 348,233
20 May 2019 157.80 01 April 2022 54.00% 304,254 304,254
19 August
2019 158.00 01 April 2022 100.00% 4,250 15,000
24 February
2020 179.80 24/04/2022 100.0% 15,500 -
06 April 2020 170.00 06/04/2022 100.0% 101,381 -
01 May 2020 183.40 31/12/2022 50.0% 198,347 -
06 May 2020 181.00 31/12/2022 100.0% 28,481 -
------------ --------------------- -------------- --------------
Total conditional share awards 1,074,946 1,742,130
--------------------------------------------- --------------------- -------------- --------------
Total share options and conditional share awards 3,590,383 11,173,522
-------------------------------------------------------------------- -------------- --------------
The reduction in the fair value of the awards as a consequence
of not being entitled to dividends reduced the charge for the
options granted during the year by GBP47,000 (2019: GBP30,000) and
the expected charge over the life of the options by a total of
GBP420,000 (2019: GBP427,000).
The other factors in the Black-Scholes-Merton model do not
affect the calculation and have not been disclosed, as the share
options were issued for nil consideration and do not have an
exercise price. The weighted average fair value of the options
outstanding at the period end was GBP1.4120 (2019: GBP1.3180).
The movement within the share based payment reserve during the
period is as follows:
2020 2019
GBP000s GBP000s
Share based payments transactions note 5(a) 1,869 5,944
Other share based payments - 215
Share based payments transferred to other (13,019) -
reserves upon exercise/vesting
--------------------------------------------- --------- ---------
Total share based payment transactions (11,150) 6,159
--------------------------------------------- --------- ---------
Zeus warrant
As part of the admission to trading on AIM in August 2017, the
Group granted Zeus Capital Limited a warrant for 3,800,000 ordinary
shares at an exercise price of GBP1.00. The warrant was not reliant
on any service conditions and was exercisable between 8 August 2019
and 8 August 2027. This warrant was exercised by Zeus on 27
November 2020.
Valuation model inputs
The key inputs to the Black-Scholes model for the purposes of
estimating the fair value of the warrant include an admission share
price of GBP1.00, a risk free rate equivalent to the price of a 2
year United Kingdom Gilt, a 2 year vesting period, and volatility
based on the share price of a selection of peer companies for the 2
years prior to admission equating to 10.74%.
Other movements
Other transactions recognised directly in equity include the
settlement of dividend entitlements previously accrued as part of
the LTIP programme, a release of Zeus warrant share options held in
the prior year that have been exercised and amounts released from
forfeited LTIP shares.
24. SHARE CAPITAL AND SHARE PREMIUM
Number
of shares Par value Total
(000s) GBP000s GBP000s
----------------------------------- ----------- ---------- --------
Allotted and fully paid: ordinary
shares of 1p each
Balance at 1 January 2020 190,000 1,900 1,900
Shares issues during the year 15,746 157 157
Balance at 31 December 2020 205,746 2,057 2,057
----------------------------------- ----------- ---------- --------
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 GBP1,
issued to Darbara Limited. This share was transferred to Strix
Group Limited prior to admission to trading on AIM, and was
repurchased and cancelled by the Company as part of the
pre-admission Group reorganisation.
On 8 August 2017, the Company issued 190,000,000 ordinary shares
of GBP0.01 each.
During the year the Company issued shares for a total value of
GBP11,230,000, which included 3,192,236 shares at nominal value of
GBP31,922 issued as part of the total consideration paid for the
acquisition of LAICA S.p.A. on 27 October 2020 (note 14), 3,800,000
shares at a nominal value of GBP38,000 issued to Zeus Capital
Limited on exercising their warrant (note 23), and the remainder
relate to employee share based payments (note 23). Accordingly,
GBP11,073,000 was recognised as share premium.
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at meetings of the Company. All shares rank pari passu in all
respects including voting rights and dividend entitlement.
See note 23 for further information regarding share based
payments which may impact the share capital in future periods.
25. DIVIDS
The following amounts were recognised as distributions in the
year:
2020 2019
GBP000s GBP000s
Interim 2020 dividend of 2.6p per
share (2019: 2.6p) 5,167 4,940
Final 2019 dividend of 5.1p per
share (2018: 4.7p) 10,143 8,930
Total dividends recognised in the
year 15,310 13,870
------------------------------------ -------- --------
In addition to the above dividends, since year end the Directors
have proposed the payment of a final dividend of 5.25p per share
(2019: 5.1p). The aggregate amount of the proposed final dividend
expected to be paid on 2 June 2021 out of retained earnings at 31
December 2020, but not recognised as a liability at year end, is
shown in the table below. The payment of this dividend will not
have any tax consequences for the Group.
2020 2019
GBP000s GBP000s
Final 2020 dividend of 5.25p per share
(2019: 5.1p) 10,802 9,725
Total dividends proposed but not recognised
in the year, and estimated to be recognised
in the following year. 10,802 9,725
----------------------------------------------- -------- --------
26. LEASES
a) Amounts recognised in the consolidated balance sheet
The consolidated balance sheet shows the following amounts
relating to leases:
2020 2019
GBP000s GBP000s
--------------------------------------- -------- --------
Right-of-use assets
Offices & warehouses 3,928 4,251
Total right-of-use assets 3,928 4,251
-------- --------
Current future lease liabilities (due
within 12 months) 1,254 1,508
Non-current future lease liabilities
(due in more than 12 months) 2,846 2,960
Total future lease liabilities 4,100 4,468
---------------------------------------- -------- --------
Additions to the right-of-use assets during the 2020 financial
year were GBP1,150,000 (2019: GBP2,338,000).
The movement in lease liabilities is as follows:
2020 2019
GBP000s GBP000s
--------------------------------------- -------- --------
Balance as at 1 January 4,468 3,613
Additions 1,150 2,338
Repayments (1,455) (1,301)
Interest expense (included in finance
cost) 103 110
Sub-lease income (160) (121)
Foreign exchange gains (6) (171)
Balance as at 31 December 4,100 4,468
---------------------------------------- -------- --------
b) Amounts recognised in the consolidated statement of
comprehensive income
The statement of consolidated comprehensive income shows the
following amounts relating to leases:
2020 2019
GBP000s GBP000s
--------------------------------------- -------- --------
Depreciation of right-of-use assets (1,470) (1,323)
Interest expense (included in finance
cost) (103) (110)
Foreign exchange gains 6 171
Total cost relating to leases (1,567) (1,262)
---------------------------------------- -------- --------
27. CASH FLOW STATEMENT NOTES
a) Cash generated from operations
2020 2019
Note GBP000s GBP000s
----------------------------------------- ----- --------- --------
Cash flows from operating activities
Operating profit 26,635 24,209
Adjustments for:
Depreciation of property, plant and
equipment 12 3,042 2,903
Depreciation of right-of-use assets 12 1,470 1,323
Amortisation of intangible assets 11 1,477 1,256
Share of profits from joint ventures (61) -
Impairment of intangible assets 11 - 42
Loss on disposal of property, plant
and equipment 12 12 5
Government grants relating to capital
expenditure - (40)
Pension contributions made 5(c) - (89)
Share based payment transactions 23 687 5,944
Net exchange differences 505 156
----------------------------------------- ----- --------- --------
33,767 35,709
Changes in working capital:
(Increase)/decrease in inventories (138) 1,318
Increase in trade and other receivables (4,294) (1,750)
Increase in trade and other payables 2,785 68
----------------------------------------- ----- --------- --------
Cash generated from operations 32,120 35,345
----------------------------------------- ----- --------- --------
b) Movement in net debt
Non-cash movements
At Cash Currency Other At
1 January flows movements movements 31 December
2020 2020
GBP000s GBP000s GBP000s GBP000s GBP000s
----------------------------- ----------- --------- ----------- ----------- -------------
Borrowings (40,000) (9,854) 28 (3,695) (53,521)
Loan arrangement fees - 798 - 77 875
Lease liabilities (4,468) 1,455 6 (1,093) (4,100)
Total liabilities from
financing activities (44,468) (7,601) 34 (4,711) (56,746)
----------------------------- ----------- --------- ----------- ----------- -------------
Cash and cash equivalents 13,658 1,916 (128) - 15,446
----------------------------- ----------- --------- ----------- ----------- -------------
Net debt (30,810) (5,685) (94) (4,711) (41,300)
----------------------------- ----------- --------- ----------- ----------- -------------
Included in the non-cash movements are balances that were
acquired as part of the LAICA S.p.A. acquisition.
28. ULTIMATE BENEFICIAL OWNER
There is not considered to be any ultimate beneficial owner, as
the Company is listed on AIM. No single shareholder beneficially
owns more than 25% of the Company's share capital.
29. RELATED PARTY TRANSACTIONS
(a) Identity of related parties
Related parties include all of the companies within the Group,
however, these transactions and balances are eliminated on
consolidation within the consolidated financial statements and are
not disclosed, except for related party balances held with Joint
Ventures which are not eliminated.
The Group also operates a defined contribution pension scheme
which is considered a related party.
(b) Related party balances
Trading balances
Balance due from Balance due to
2020 2019 2020 2019
GBP000s GBP000s GBP000s GBP000s
Related party
The Strix Limited Retirement
Fund - - - (66)
------------------------------ ---------- ---------- -------- --------
Foshan Yilai Life Electric
Appliances Co. Ltd 94 - -
------------------------------ ---------- --------------------- --------
(c) Related party transactions
The following transactions with related parties occurred during
the year:
2020 2019
Name of related party GBP000s GBP000s
Transactions with other related parties
Revenue earned from Foshan Yilai Life Electric 72 -
Appliances Co. Ltd
Contributions paid to The Strix Limited Retirement
Fund (note 5(c)(i)) (611) (735)
---------------------------------------------------- -------- --------
Further information is given on the related party balances and
transactions below:
-- Key management compensation is disclosed in note 5(b).
-- Information about the pension schemes operated by the Group
is disclosed in note 5(c), and transactions with the pension
schemes operated by the Group relate to contributions made to those
schemes on behalf of Group employees.
-- Information on dividends paid to shareholders is given in note 25.
30. POST BALANCE SHEET EVENTS
Other than the deferred consideration payment made on 8 March
2021 in relation to the acquisition of LAICA S.p.A. disclosed in
note 14, the Group does not have any material events after the
reporting period to disclose.
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END
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March 24, 2021 03:00 ET (07:00 GMT)
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