Source - LSE Regulatory
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 results1


2020

2019

Change


£m

£m

%5





Revenue

95.3

96.9

-1.6%

Revenue - constant currency basis2

95.6

96.9

-1.3%

EBITDA3

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 debt4

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 £95.3m, 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 £38.1m (2019: £36.9m), 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 £37.2m (2019: £26.3m) to fund the LAICA acquisition, continued investment in compelling growth opportunities as well as the new manufacturing operations in China. This represents a net 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 £29.5m, circa 2% growth, in adjusted profit after tax for the full year versus the previous financial year (2019: £28.9m).

 

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 £38.1m (2019: £36.9m), 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 £95.3m, a decline of 1.6% versus the same period in prior year (2019: £96.9m) 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: £28.9m).

 

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 £37.2m, having successfully implemented a range of efficiency measures and strategic initiatives. This represents a net 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 results1

Reported results


2020

2019

Change

2020

2019

Change


£m

£m

%5

£m

£m

%5








Revenue

95.3

96.9

-1.6%

95.3

96.9

-1.6%

Revenue - constant currency basis2

95.6

96.9

-1.3%

95.6

96.9

-1.3%

EBITDA3

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 debt4

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 £95.3m despite the disruption of the pandemic worldwide. LAICA's addition of two months' revenue since completion in October was £4.1m. 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 £0.2m decline. This incorporates a gross gain of £0.9m 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 £38.1m from £36.9m, 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 £37.6m. 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: £6.0m; 2019: £5.5m) and hence a lower increase of 1.8% to £32.1m (2019: £31.5m) was delivered in the reported period.  LAICA's depreciation and amortisation was £75k for the two months and its operating profit of £0.4m was included. 

 

Adjusted profit before tax increased to £30.9m with a 2.4% growth (2019: £30.2m) despite the softening market conditions. LAICA's contribution was £0.3m. Net finance costs decreased by £0.2m to £1.2m with a reduction in loans prior to the acquisition of LAICA. The Group's reported profit before tax was £25.5m (2019: £22.9m).

 

Adjusted profit after tax increased to £29.5m (2019: £28.9m), which included LAICA's contribution of £0.2m, 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 £24.1m at 12% growth (2019: £21.5m).  

 

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 £17.2m in 2020, compared to £15.4m in 2019. This includes £9.1m of new factory construction (2019: £6.0m), plant, machinery and tooling £3.9m (2019: £3.4m), and LAICA's addition of £3.7m. 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 £14.6m (excluding goodwill) in 2020, compared to £3.2m in 2019. This includes £2.8m (2019: £2.4m) of capitalised development costs relating to our R&D investment, £2.4m (2019: £0.3m) of software due to our new ERP and MES system, and £0.4m (2019: £0.5m) of intellectual property rights.  LAICA's acquisition added three more intangible valuations; Customers relationships £2.4m, Brand name £6.6m, Goodwill £9.5m.

 

Share based payments

The total charge incurred in the consolidated statement of comprehensive income in 2020 for share based payments was £1.9m (2019: £5.9m). 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 £0.5m (2019: loss of £0.2m). 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 £37.2m (2019: £25.5m). Capital additions include £9.1m for the new factory under construction in Guangzhou (2019: £5.7m), £3.9m of plant machinery and tooling (2019: £3.4m), and a £3.7m increase due to the acquisition of LAICA.  Depreciation increased to £4.5m (2019: £4.2m), mainly linked to the increased plant machinery and tooling (£2.2m) and right of use assets (£1.5m) (2019: £2.1m and £1.3m respectively). Net intangible assets (comprising capitalised development costs, goodwill, software and intellectual property rights) increased by £22.6m (2019: £2.3m) driven by a £18.8m increase due to the acquisition of LAICA, £2.2m increase in investment in ERP system and £1.5m increase in capitalised development costs in line with the Group's strategic growth objectives.

 

Current assets increased to £51.3m compared to £32.5m in 2019 primarily due to LAICA's acquisition of current assets valued at £16.8m.  Inventory increased by £5.7m which was largely due to the addition of LAICA of £4.5m. Non-current assets increased by £34.4m from £32.6m, where LAICA's addition was £13.0m, with the remainder mainly attributed to new factory construction (£9.1m), increased automation facilities (£3.9m), and goodwill from the acquisition of LAICA (£9.5m).

 

Current liabilities increased to £33.7m (2019: £21.2m) primarily due to the addition of LAICA (£9.2m) that is made up of trade payables, deferred consideration and short term borrowings.

 

Non-current liabilities increased to £62.6m (2019: £43.0m), primarily related to the LAICA's acquisition; LAICA's contingent consideration (£5.4m) which is payable on the achievement of performance conditions in 2021 and 2022, deferred tax liability arising from acquisition accounting (£2.6m), LAICA's defined benefit plan (£1.4m) and bank loans (£1.1m). A further £10.0m was drawn down from the revolving line facility to finance the LAICA acquisition which brought the total financing amount to £50.0m.

 

Cash flow and net debt

 

The net increase in cash and cash equivalents over the year was £1.9m (2019: £0.6m). This was primarily due to the proceeds from Zeus' exercise of warrants of £3.8m offset by higher dividend payment of £1.4m. 

 

Net cash generated from operating activities was down £3.2m in 2020 to £31.2m (2019: £34.4m) with Net working capital outflows of £1.7m, predominately due to the addition of LAICA. Net cash used in investing activities has increased £7.8m (2019: £8.9m) to £24.2m 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 £26.3m in 2019 to £37.2m 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 £41.3m (2019: £30.8m).

 

The Group still has in place a revolving credit facility of £80.0m (2019: £49.0m) of which £50.0m (2019: £40.0m) 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

£000s

£000s

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


£000s

£000s

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 capital and share premium

Share based payment reserve

Retained (deficit) / earnings

Total Equity attributable to owners

Non-controlling interests

Total Equity


£000s

£000s

£000s

£000s

£000s

£000s

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

£000s

£000s

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 interests


 (63)

-

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 £15.4m;

·    the availability of further funding should this be required (including the headroom of £30.0m 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

(£000s)

Kettle controls

Water 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


£000s

£000s



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 £13,683,000 and £11,618,000 (2019: £20,816,000 and £11,064,000).

 

5.    EMPLOYEES AND DIRECTORS

(a) Employee benefit expenses


2020

2019


£000s

£000s

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


£000s

£000s

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 £611,000 (2019: £646,000).

(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 £78,000 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:


£'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 £457,000 (2019: £nil) 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


£000s

£000s

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 £4,117,000 (2019: £4,439,000), and £2,808,000 (2019: £2,358,000) 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 £630,000 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


£000s

£000s

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


£000s

£000s

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


£000s

£000s

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 

£000s

£000s

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 £1.1m following a benchmarking assessment by the Chinese tax authorities relating to contract processing businesses in the years 2009 to 2014. The potential additional liabilities for 2015 to 2018 of £0.9m (2019: £1.2m), 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 £2,558,000 (2019: £nil) 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


£000s

£000s



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 (£000s)



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

£000s

£000s

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 costs

Software

Intellectual Property

Customer relationships

Brand name

Goodwill

Total


£000s

£000s

£000s

£000s

£000s

£000s

£000s

At 1 January








Cost

9,837

922

488

-

-

384

11,631

Accumulated amortisation and impairment

(4,006)

(540)

(17)

-

-

-  

(4,563)

Net book value

5,831

382

471

-

-

384

7,068









Period ended 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 (£1,410,000), distribution costs £nil and administrative expenses (£67,000) in the consolidated statement of comprehensive income.

£861,000 (2019: £nil) 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 costs

Software

Intellectual Property

Goodwill

Total


£000s

£000s

£000s

£000s

£000s

At 1 January






Cost

12,886

579

-

-

13,465

Accumulated amortisation and impairment

(8,324)

(337)

-

-

(8,661)

Net book value

4,562

242

-

-

4,804







Period ended 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 (£1,153,000), distribution costs £nil, and administrative expenses (£103,000) 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

Plant & machinery

Fixtures, fittings & equipment

Motor vehicles

Land & Buildings

Right-of-use assets
(note 26)

Assets under construction

Total


£000s

£000s

£000s

£000s

£000s

£000s

£000s

£000s

At 1 January









Cost

21,924

4,126

130

13,298

1,996

5,386

8,569

55,429

Accumulated depreciation

(14,444)

(2,935)

(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 (£3,601,000), distribution costs (£137,000) and administrative expenses (£774,000) in the consolidated statement of comprehensive income.

During the year, 861,000 (2019: £nil) 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 £190,000 (2019: £54,000) have been capitalised to land and buildings in the year.

 


2019

Plant & machinery

Fixtures, fittings & equipment

Motor vehicles

Production tools

Land & Buildings

Right-of-use assets
(note 26)

Assets under construction

Total


£000s

£000s

£000s

£000s

£000s

£000s

£000s

£000s

At 1 January









Cost

20,624

3,673

141

13,484

-

-

1,889

39,811

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 (£3,453,000), distribution costs (£355,000), and administrative expenses (£418,000) 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.

Name of entity

Nature of business

Country of incorporation

% of ordinary shares held by the Group

Nature of shareholding




%


Sula Limited

Holding company

IOM

100

Subsidiary

Strix Limited

Manufacture and sale of products

IOM

100

Subsidiary

Strix Guangzhou Limited

Manufacture and sale of products

China

100

Subsidiary

Strix (U.K.) Limited

Group's sale and distribution centre

UK

100

Subsidiary

Strix Hong Kong Limited

Sale and distribution of products

Hong Kong

100

Subsidiary

Strix (China) Limited

Construction of manufacturing facility       

China

100

Subsidiary

HaloSource Water Purification Technology (Shanghai) Co. Limited

Manufacture and sales of products

China

100

Subsidiary

Strix (USA), Inc.

Research and development, sales, and distribution of products

USA

100

Subsidiary

Strix Italy S.R.L.

Holding company

Italy

100

Subsidiary

LAICA S.p.A.

Manufacture and sales of products

Italy

100

Subsidiary

LAICA Iberia Distribution S.L.

Sale and distribution of products

Spain

100

Subsidiary

LAICA International Corp.

Sale and distribution of products

Taiwan

67

Subsidiary

Taiwan LAICA Corp.

Sale and distribution of products

Taiwan

67

Subsidiary

Foshan Yilai Life Electric Appliances Co. Limited.

Sale and distribution of products

China

45

Joint venture

LAICA Brand House Limited

Holding and licensing of trademarks

Hong Kong

45

Joint venture

 

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 £4,618,000 (2019: £2,300,000).

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 £11.7m (€13.0m), of which £10.1m was paid upfront in cash and the remaining £1.6m was settled 8 March 2021 (note 18), and the issue of 3,192,236 Strix Group plc ordinary shares of £0.01 each with a total fair value of £7.3m (€8.0m).

A further contingent consideration of up to £6.4m (€7.1m) 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 £5.4m 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 £4.4m (€4.9m) 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


£000s

£000s

£000s

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 £95,000.

Acquisition costs included within 'Administration expenses - exceptional items' in the consolidated statement of comprehensive income amounted to £2.6m. 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 £4.1m and an adjusted total comprehensive income of £0.2m 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 £21.6m and £1.6m respectively.

The goodwill of £9.5m, calculated as the purchase consideration of £24.4m less the fair value of the net assets acquired of £15.7m less non-controlling interests of £0.8m 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 (£1.01m) payable in cash.

HaloSource has now been fully integrated into Strix systems and operations.

 

15. INVENTORIES


2020

2019


£000s

£000s

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 £39,052,000 (2019: £35,037,000). The provision for impaired inventories is £2,513,000 (2019: £302,000). There were no reversals of previous inventory write-downs.

 

 

 

 

16. TRADE AND OTHER RECEIVABLES



2020

2019



£000s

£000s

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 £433,000 (2019: £392,000). 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



£000s

£000s

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 £159,000 (2019: £50,000).

17. CASH AND CASH EQUIVALENTS

The carrying amounts of the cash and cash equivalents are denominated in the following currencies:


2020

2019


£000s

£000s

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 £401,000 (2019: £380,000) of cash deposits held as a guarantee to China SuiDong Customs office.

18. TRADE AND OTHER PAYABLES


2020

2019


£000s

£000s

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 £709,000 (2019: £333,000) 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


£000s

£000s

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


£000s

£000s

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 £175,000 (2019: £nil) and £700,000 (2019: £nil), respectively.

 

 

19. BORROWINGS (continued)

Term and debt repayment schedule for long term borrowings


Currency

Interest rate

Maturity date

2020
Carrying value





£000s

Revolving credit facility

GBP

LIBOR
+1.50% to +2.85%

27-May-25

50,000

Unicredit facility

EUR

EURIBOR
+1.10% to +3.60%

28-Jun-24

317

Banco BPM

EUR

EURIBOR
+1.10% to +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 £70,000,000, of which £40,000,000 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 £80,000,000, 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 £60,000,000, and has continued to increase by a further £20,000,000 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 £80,000,000 (2019: £49,000,000).

The initial drawdown of £50,000,000 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 £875,000 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


£000s

£000s

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 £2,810,000 (2019: £10,472,000) 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 (£14,450,000).

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 £805,000 (2019: a decrease of £361,000), and the impact on equity would be an increase of £1,232,000 (2019: an increase of £2,230,000). A -10% change (2019: -10%) in FX rates would cause an increase in profit of £1,832,000 (2019: an increase in profit of £442,000) and a £1,505,000 decrease in equity (2019: £2,726,000 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 £234,000 (2019: £204,000), and the impact on equity would be an increase/decrease of £37,000 (2019: £125,000). 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 £3,353,000 (2019: £1,043,000). 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


£000s

£000s

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 £30,000,000 (2019: £9,000,000) 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 £2,395,000 (2019: £nil), 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.


2020

£000s

2019

£000s

Unobservable inputs

Probability weighted inputs

Relationship of unobservable inputs to fair value

 Description

2020

2019

Contingent consideration

5,380

-

Risk-adjusted discount rate

12.7%

n/a

A change in the discount rate by 100 bps would increase/decrease the FV by £69,000

Probability weighted cash flows

£nil - £6,425,000

n/a

If actual EBITDA is 10% higher the FV would increase by £1,030,000 or if it is 10% lower it would decrease £1,615,000

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 Shares

Number of 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 £1,869,000 (2019: £5,944,000) 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:

Grant date

Share price on grant date
(p)

Expiry date

Weighted average probability of meeting performance criteria

Share options outstanding at
31 December 2020

Share options outstanding at
31 December 2019

15 August 2017

133.38

15 August 2027

100.00%

 124,793

7,862,873

12 February 2018

138.00

12 February 2028

100.00%

 19,500

35,336

01 November 2018

146.80

01 November 2028

51.16%

 748,853

755,344

26 November 2018

136.00

26 November 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 2019

161.80

21 August 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

-

06 May 2020

181.00

31 December 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:

Grant date

Share price on grant date (p)

Vesting date

Weighted average probability of meeting performance criteria

Conditional share awards outstanding at
31 December 2020

Conditional share awards outstanding at
31 December 2019

15 August 2017

133.38

03 January 2020

100.00%

-

985,143

12 February 2018

138.00

03 January 2020

100.00%

14,000

29,000

12 February 2018

138.00

01 January 2021

100.00%

60,500

60,500

01 November 2018

146.80

01 January 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 £47,000 (2019: £30,000) and the expected charge over the life of the options by a total of £420,000 (2019: £427,000).

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 £1.4120 (2019: £1.3180).

The movement within the share based payment reserve during the period is as follows:

 


2020
£000s

2019
£000s

Share based payments transactions note 5(a)

1,869

5,944

Other share based payments

-

215

Share based payments transferred to other reserves upon exercise/vesting

(13,019)

-

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 £1.00. 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 £1.00, 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)

£000s

£000s

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 £1, 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 £0.01 each.

 

During the year the Company issued shares for a total value of £11,230,000, which included 3,192,236 shares at nominal value of £31,922 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 £38,000 issued to Zeus Capital Limited on exercising their warrant (note 23), and the remainder relate to employee share based payments (note 23). Accordingly, £11,073,000 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. DIVIDENDS

The following amounts were recognised as distributions in the year:



2020

2019



£000s

£000s

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



£000s

£000s

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



£000s

£000s

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 £1,150,000 (2019: £2,338,000).

 

The movement in lease liabilities is as follows:

 



2020

2019



£000s

£000s

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



£000s

£000s

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

£000s

£000s

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

1 January 2020

Cash flows

Currency movements

Other movements

At

31 December 2020


 £000s

 £000s

 £000s

 £000s

 £000s

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


£000s

£000s


£000s

£000s

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

£000s

£000s

Transactions with other related parties



Revenue earned from Foshan Yilai Life Electric Appliances Co. Ltd

72

-

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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