TIDMKETL
RNS Number : 9001R
Strix Group PLC
27 September 2017
27 September 2017
Strix Group Plc
("Strix" or the "Company")
Interim results for the 6 months ended 30 June 2017
Strix (AIM: KETL), the AIM listed global leader in the design,
manufacture and supply of kettle safety controls and other
components and devices, announces its unaudited interim results for
the six months ended 30 June 2017.
These results cover a period when the Company was not listed on
AIM and a period prior to certain changes in the capital structure
that were implemented pursuant to a corporate reorganisation in
connection with the Company's admission to AIM. These results are
presented on the same basis as set out in the Company's Admission
Document, as detailed in notes 1 and 2 to the interim financial
statements.
Highlights
-- A solid performance, in line with Board expectations
-- Revenues of GBP42.2m (H1 2016: GBP39.6m), increase of 6.7%
-- Adjusted EBITDA ([1]) of GBP14.2m (H1 2016: GBP13.4m), increase
of 6.1%
-- Profit before tax of GBP10.3m (H1 2016: GBP9.4m), increase
of 9.6%
-- Cash generated from operations GBP15.6m (H1 2016: GBP13.8m),
increase of 12.4%
-- Launch of U9 series controls providing cost competitive,
best in class safety controls
-- Installation of automated production line for U9 series allowing
a 15% increase in throughput
-- Successful admission to AIM on 8 August 2017
-- Interim maiden dividend of 1p will be paid on 30 November
2017
1 Adjusted EBITDA, which is defined as profit before finance
costs, tax, royalty charges, depreciation, amortisation, and
exceptional items, is a non-GAAP metric used by management and is
not an IFRS disclosure
Mark Bartlett, Chief Executive Officer, said:
"We have had a positive six months of trading, leading up to the
successful admission to AIM, with both volume and revenues up c.7%
on the same period in the prior year. The Group continues to make
solid progress on its strategic initiatives launching the new U9
range of controls across all market segments.
"Export sales have been particularly strong with a growth of
c.10% against the prior year. Our patented electronic controls (EK
Series) continued to secure increased market share with volumes
running c.90% above prior year.
"Our steadfast focus on safety initiatives, particularly in the
regulated markets, provided a positive impact with several
non-Strix products being withdrawn from retailers whilst at the
same time we were able to secure high volume specifications with 3
major European retailers.
"We continue to build on our extensive customer relationships
across the value chain whilst further developing our key
technologies to secure our long term growth objectives.
"The current prospect visibility, coupled with our continued
focus on operational excellence, provides confidence in securing
our full year outlook."
The information contained within this announcement is deemed by
the Company to constitute inside information stipulated under the
Market Abuse Regulation (EU) No. 596/2014. Upon the publication of
this announcement via the Regulatory Information Service, this
inside information is now considered to be in the public
domain.
For further enquiries, please contact:
Strix Group Plc
Mark Bartlett (CEO) 01624 829
Raudres Wong (CFO) 829
Zeus Capital Limited (Nominated
Advisor)
Nick Cowles / Jamie Peel / Jordan
Warburton (Corporate Finance)
Dominic King (Corporate Broking) 020 3829 5000
IFC Advisory Limited (Financial
PR & IR)
Graham Herring / Tim Metcalfe /
Heather Armstrong / Miles Nolan 020 3053 8671
About Strix Group plc
Isle of Man based Strix, is a global leader in the design,
manufacture and supply of kettle safety controls and other
components and devices involving water heating and temperature
control, steam management and water filtration.
Strix's core product range comprises a variety of safety
controls for small domestic appliances, primarily kettles. Kettle
safety controls require precision engineering and intricate
knowledge of material properties in order to repeatedly function
correctly. Strix has built up market leading capability and
know-how in this field since being founded in 1982.
Chief Executive's Review
The first 6 months of 2017 have seen a solid performance of the
core business across all segments resulting in a c.7% volume and
revenue growth against the prior year.
The Company's revenues were GBP42.2m (H1 2016: GBP39.6m) an
increase of 6.7% on prior year and adjusted EBITDA was GBP14.2m (H1
2016: GBP13.4m) up 6.1% on prior year. Profit before tax was
GBP10.3m (H1 2016: GBP9.4m), an increase of 9.6%.
The Export business has shown particular strength, both in the
regulated and less regulated sectors. Sales are up 10%, supporting
somewhat slower than anticipated sales in the China domestic
market, which has experienced an estimated 10% decline over the
prior year following a boost in 2016, partially attributed to a
health scare with low quality stainless steel kettles.
Given the Company's H1 2017 performance and the Board's
confidence in the continued strength of cash generation, the Board
has declared an interim maiden dividend of 1p, payable on 30
November 2017 to shareholders on the register as at 10 November
2017.
Our continued focus on new product development saw the
introduction of the U9 series providing competitive, high
specification products across all market segments and a robust
platform to secure our longer term growth objectives within the
core kettle markets.
Export Kettle control sales:
The Export market (regulated and less regulated combined)
experienced an estimated growth of 10% during H1 2017.
Sales of the low cost controls (Product Z) targeting emerging
markets were strong and secured c. 200% growth over the prior year,
building a solid base for the introduction of the U92 appliances
under design.
The North American market continued to show positive growth at
c.14% with our UL certified controls out performing the market as
we continue to focus on this key opportunity within the regulated
sector.
The electronic control segment, incorporating our patented 5
pole control, also showed positive growth, running c.90% above
prior year as consumers seek additional features and benefits
within their kettle appliances.
China Domestic sales:
The overall China domestic market is estimated to have declined
by c.10% following the strong sales in 2016, partially attributed
to the health scare with low quality stainless steel kettles.
Strix's market share has remained stable at c.50%, despite
continued pressure from copyists.
As with the Export market, significant growth has been
experienced in the electronic control segment with the Company
seeing c. 100% growth over prior year.
New Product Development (NPD):
Successful approval of the U90, U91 and U92 kettle control
products during H1 2017 secured the launch of "best in class"
products across all segments. More than 20 kettle appliances have
been confirmed to date with negotiations ongoing for the remainder
of the year.
In addition to our standard kettle controls, H1 2017 also
benefited from the launch of several new products into key markets
which included the "Turbo Toaster", the Breville Hot cup (part of
the water on demand segment) and the Aqua Optima filter kettle.
We will continue to leverage on our core competencies to focus
our highly skilled engineering resource on additional products for
the water on demand segments, whilst further enhancing the U9
series.
Operations:
Production targets were met at both operation facilities with a
production efficiency improvement of 6% achieved through the
implementation of automation projects and sustained focus on
continuous improvement.
During H1 2017, the new automated line was installed and
commissioned for the U9 series allowing c.15% improvement in
throughput. Further automated lines will be implemented during H2
for the current products and their associated connectors, securing
improvement in both throughput and quality inspection.
We continue to drive lean and PPV (Purchase Price Variance)
initiatives, coupled with design and efficiency improvements, to
minimise the impact of pricing pressures experienced on both
plastic and corrugated packing materials that have been impacted by
a change in Chinese government policies.
Aqua Optima:
Aqua Optima experienced a slight reduction in revenues on prior
year (4%) associated with an adverse product mix. These shortfalls
were partially mitigated by a strong performance on Evolve sales
which are forecast to strengthen through H2 2017 as distribution
improves further.
Aqua Optima also successfully negotiated a number of private
label contracts with key retailers securing incremental
distribution in over 900 stores in UK and Central Europe.
We continue to work with our Chinese partner, a major SDA OEM,
where agreement has been secured to launch Aqua Optima across China
during 2018.
Outlook:
The Board is confident with the future outlook and trading is in
line with full year and Board expectations.
The core kettle control market remains positive, particularly
the Export segment. The growth identified within the electronic
control segment, coupled with the strong performance in the USA and
regulated markets provide additional confidence over the short to
medium term.
The successful launch of the U9 series during the first half of
the year, in addition to the strong performance of our low cost
controls in the less regulated markets, will ensure we have an
appropriate product range to target all segments within the kettle
market providing competitively positioned, best in class
products.
The continued implementation of automation within our
operations, including our standard product, coupled with continued
focus on lean manufacturing initiatives will also ensure a
competitive cost base and increased efficiencies.
The Aqua Optima team is in negotiation with several key UK
retailers that are expected to secure H2 2017 revenues whilst the
agreement with our partner in China will launch Aqua Optima in the
largest global growth market.
Mark Bartlett
Chief Executive
27 September 2017
Financial Review
H1 2017 H1 2016 Increase/(Decrease)
GBPm GBPm
-------- --------
GBPm(2) %(2)
-------- -------- ------------ --------
Revenue 42.2 39.6 2.7 6.7%
Gross profit 15.7 14.4 1.3 9.1%
Distribution
costs (3.2) (2.9) 0.3 8.6%
Administrative
costs (2.4) (2.1) 0.3 14.7%
Operating
Profit 10.3 9.4 0.9 9.6%
Adjusted EBITDA(1) 14.2 13.4 0.8 6.1%
Profit Before
Tax 10.3 9.4 0.9 9.6%
Cashflow from
Operations 15.6 13.8 1.7 12.4%
Note 1: Adjusted EBITDA, which is defined as profit before
finance costs, tax, royalty charges, depreciation, amortisation,
and exceptional items, is a non-GAAP metric used by management and
is not an IFRS disclosure
Note 2: Figures are calculated from the full numbers as
presented in the condensed combined financial statements
Results Overview
The first six months volumes of component controls and Aqua
Optima filters increased c.7% (H1 2016: 31.8m units) in comparison
to the same period last year. Revenue grew 6.7% to GBP42.2m (H1
2016: GBP39.6m) representing solid growth in the export business in
both regulated and less regulated markets. Gross profit increased
by 9.1% to GBP15.7m (H1 2016: GBP14.4m) with increased sales in
higher margins components; with a gross profit % increase to 37.2%
(H1 2016: 36.4%).
The business generated an Adjusted EBITDA of GBP14.2m, an
increase of 6.1% (H1 2016: GBP13.4m). With IPO-related expenses
included, EBITDA is reported at GBP13.2m, not materially different
to the previous year, when royalties to former group-company
related parties in 2016 of GBP0.7m that will not be repeated in
2017 are excluded (H1 2016: GBP12.5m). Adjusted EBITDA margin is
broadly in line with prior year at 33.6% (H1 2016: 33.8%).
Depreciation and amortisation at GBP2.9m was broadly unchanged
from H1 2016. Operating profit was up by 9.6% over prior year to
GBP10.3m (H1 2016: GBP9.4m), which is almost the same percentage
increase as before the royalties and exceptional costs included in
the respective years.
Profit before tax was GBP10.3m (H1 2016: GBP9.4m). There is no
corporation tax payable on the Company's non-China generated
profits as the Isle of Man corporation tax rate is 0%. Profit for
the period attributable to equity shareholders is reported at
GBP10.1m representing growth of 9.3% over the previous period (H1
2016: GBP9.2m).
The Company has declared a maiden interim dividend of 1p which
will be paid on 30 November 2017.
Costs
Cost of sales increased by 5.4% to GBP26.5m (H1 2016: 25.1m)
primarily due to increased sales volume. Distribution costs
increased by 8.6% to GBP3.2m (H1 2016: GBP2.9m) mainly due to an
increase in investments in tooling subsidies to support conversion
in new specifications. Administrative expenses before exceptional
costs decreased by 28.6% to GBP1.5m (H1 2016: GBP2.1m), which was
mainly attributable to royalties to former group-company related
parties not being repeated in 2017. Exceptional costs were GBP897k
higher than 2016 due to IPO related expenses.
Cash flow
Cash generated from operations of GBP15.6m, an increase of
GBP1.7m or 12.4% over the previous period (H1 2016: GBP13.8m). This
represents an EBITDA to cash conversion ratio of c. 118% which
continues to illustrate the Company's strong cash generation
capability.
Balance Sheet
The balance sheet comparison as presented is 30 June 2017
comparing to 31 December 2016. A Pro-forma balance sheet is
included in section 4 - Post balance sheet events, to illustrate
the significant movements due to corporate re-organisation post
Admission.
Property, plant and equipment increased to GBP8.9m (2016:
GBP8.1m). Capital additions were GBP2.0m in H1 2017 compared to
GBP2.8m in 2016 with increased emphasis on automations and initial
investment in the new product lines in 2017. Depreciation of
GBP1.6m was in line with expectations (2016: GBP2.0m). Net
intangible assets (comprising capitalised development costs)
decreased in line with expectations, to GBP5.6m (2016: GBP6.2m) as
a result of projects with shorter amortisation periods.
Current assets excluding former Group related parties balances
increased to GBP28.1m (2016: GBP25.2m) as a result of cash
increasing from GBP11.0m to GBP13.5m. Trade and other receivables
reduced to GBP5.3m at 30 June 2017 from GBP5.6m at 31 December
2016.
Current liabilities excluding former group related parties
balances increased from GBP15.2m at 2016 to GBP17.6m at H1 2017 as
a result of higher trade payables due to higher trading
activities.
Dividend
We remain committed to enhancing shareholder value and our
previously communicated dividend policy. The Board is pleased to
declare an interim dividend of 1p per ordinary share. This interim
dividend will be paid on 30 November 2017 to Shareholders on the
Register at the close of business on 10 November 2017. The ordinary
shares will become ex-dividend on 9 November 2017. We remain
committed to paying a total dividend which will equate to a 7%
yield (based on the IPO placing price of 100p per ordinary share)
pro rata for the 5 months following Admission for the financial
year ending 31 December 2017.
Raudres Wong
Chief Financial Officer
27 September 2017
Condensed combined income statement
for the half year ended 30 June 2017 (unaudited)
(unaudited)
(unaudited) Half
Half year year
ended ended
30 June 30 June
2017 2016
GBP'000 GBP'000
-------------------------------------- ----------- -----------
Revenue 42,216 39,551
--------------------------------------- ----------- -----------
Cost of sales - before exceptional
items (26,475) (25,107)
Cost of sales - exceptional
items (23) (35)
--------------------------------------- ----------- -----------
Cost of sales (26,498) (25,142)
--------------------------------------- ----------- -----------
Gross profit 15,718 14,409
Distribution costs (3,168) (2,916)
--------------------------------------- ----------- -----------
Administrative expenses - before
exceptional items (1,490) (2,088)
Administrative expenses - exceptional
items (931) (22)
--------------------------------------- ----------- -----------
Administrative expenses (2,421) (2,110)
Other operating income 158 -
--------------------------------------- ----------- -----------
Operating profit 10,287 9,383
Analysed as:
-------------------------------------- ----------- -----------
-Adjusted EBITDA(1) 14,188 13,378
-Royalty charges - (820)
-Amortisation (1,397) (1,165)
-Depreciation (1,550) (1,953)
-Exceptional items (954) (57)
--------------------------------------- ----------- -----------
Operating profit 10,287 9,383
Net finance income/(costs) (1) 1
Profit before taxation 10,286 9,384
Income tax expense (207) (160)
--------------------------------------- ----------- -----------
Profit for the period attributable
to equity shareholders 10,079 9,224
--------------------------------------- ----------- -----------
Note 1: Adjusted EBITDA, which is defined as profit before
finance costs, tax, royalty charges, depreciation, amortisation,
and exceptional items, is a non-GAAP metric used by management and
is not an IFRS disclosure
All results derive from continuing operations.
Condensed combined statement of comprehensive income
for the half year ended 30 June 2017 (unaudited)
(unaudited) (unaudited)
Half year Half
ended year
30 June ended
2017 30 June
GBP'000 2016
GBP'000
----------------------------------- ----------- -----------
Profit for the period attributable
to equity shareholders 10,079 9,224
Total comprehensive income for
the period 10,079 9,224
------------------------------------ ----------- -----------
Condensed combined balance sheet
as at 30 June 2017 (unaudited)
30 June 31 December
2017 2016
GBP'000 GBP'000
--------------------------------- --------- -------------
Non-current assets
Intangible assets 5,636 6,224
Property, plant and equipment 8,912 8,075
Total non-current assets 14,548 14,299
---------------------------------- --------- -------------
Current assets
Inventories 9,184 8,560
Trade and other receivables 5,327 5,648
Receivables from related parties 380,292 370,950
Cash and cash equivalents 13,547 10,959
Total current assets 408,350 396,117
---------------------------------- --------- -------------
Total assets 422,898 410,416
---------------------------------- --------- -------------
Total invested capital 259,373 249,294
Non-current liabilities
Borrowings 1,000 1,000
Post-employment benefits 229 249
Total non-current liabilities 1,229 1,249
---------------------------------- --------- -------------
Current liabilities
Trade and other payables 16,883 14,288
Payables to related parties 144,700 144,700
Current income taxes payable 713 843
Derivative financial instruments - 42
Total current liabilities 162,296 159,873
---------------------------------- --------- -------------
Total liabilities 163,525 161,122
---------------------------------- --------- -------------
Total liabilities and equity 422,898 410,416
---------------------------------- --------- -------------
Condensed combined statement of changes in invested capital
as at 30 June 2017 (unaudited)
Total
invested
capital
GBP'000
------------------------------- ---------
Balance at 1 January 2016 227,219
--------------------------------- ---------
Profit for the period 9,224
Total comprehensive income for
the period 9,224
--------------------------------- ---------
Balance at 30 June 2016 236,443
Balance at 1 January 2017 249,294
--------------------------------- ---------
Profit for the period 10,079
Total comprehensive income for
the period 10,079
--------------------------------- ---------
Balance at 30 June 2017 259,373
--------------------------------- ---------
Condensed combined cash flow statement
for the half year ended 30 June 2017 (unaudited)
Half Half
year year
ended ended
30 June 30 June
2017 2016
GBP'000 GBP'000
---------------------------------------- -------- --------
Cash flows from operating activities
Profit before taxation 10,286 9,384
Adjustments for:
Depreciation 1,550 1,953
Amortisation of intangible fixed
assets 1,397 1,165
Pension cost contributions in
excess of charge (20) (20)
Movement in derivative financial
instruments (42) (6)
Profit on disposal of fixed assets (1) (2)
Net finance costs/(income) 1 (1)
---------------------------------------- -------- --------
Operating cash flows before movements
in working capital 13,171 12,473
Movements in working capital:
(Increase)/decrease in inventories (624) 728
Decrease in trade and other receivables 321 2,012
Increase/(decrease) in trade and
other payables 2,696 (1,370)
---------------------------------------- -------- --------
Net cash generated from operations 15,564 13,843
Income tax paid (337) (160)
---------------------------------------- -------- --------
Net cash generated from operating
activities 15,227 13,683
---------------------------------------- -------- --------
Cash flows from investing activities
Cash transfer to group companies (9,342) (11,554)
Purchase of intangible assets (810) (637)
Purchase of property, plant and
equipment (2,488) (1,010)
Proceeds on sale of property,
plant and equipment 1 2
Interest received - 1
Net cash used in investing activities (12,639) (13,198)
---------------------------------------- -------- --------
Cash flows from financing activities
Payments with related parties - 1,755
Net cash generated from financing
activities - 1,755
---------------------------------------- -------- --------
Net increase in cash and cash
equivalents 2,588 2,240
Cash and cash equivalents at beginning
of period 10,959 10,175
---------------------------------------- -------- --------
Cash and cash equivalents at end
of period 13,547 12,415
---------------------------------------- -------- --------
Notes to the condensed combined interim financial statements
for the half year ended 30 June 2017 (unaudited)
1. General information
STRIX Group Plc ("the Company") was incorporated and registered
in the Isle of Man on 12 July 2017 as a company limited by shares
under the Isle of Man Companies Act 2006 with the name Steam Plc
and with the registered number 014693V. The Company changed its
name to STRIX Group Plc on 24 July 2017. The address of its
registered office is Forrest House, Ronaldsway, Isle of Man, IM9
2RG.
The Company's shares were admitted to trading on AIM, a market
operated by the London Stock Exchange on 8 August 2017. These
condensed combined interim financial statements ('interim financial
statements') are the Company's first subsequent to its admission to
AIM and were approved for issue on 26 September 2017. These interim
financial statements are unaudited.
Given that the Company was incorporated after the balance sheet
date of these interim financial statements, the Company has
prepared and presented half-year condensed combined financial
statements for the "Operating Group" at 30 June 2017. This basis of
preparation is consistent with what the Company presented in its
Admission Document dated 27 July 2017, which incorporates the
financial information of each of the Operating Group's subsidiaries
that had been previously reported on a standalone basis. Further
detail regarding the basis of preparation is set out in note 2.
The Operating Group is a collection of subsidiaries owned at 30
June 2017 by the former Parent Company of the Operating Group,
being Strix Investments Limited. The Operating Group does not
constitute a separate legal group, however all the entities
comprising the Operating Group were under common management and
common control throughout the periods presented in these interim
financial statements.
The entities that comprise the Operating Group are incorporated
and domiciled in the UK, China, Hong Kong, Isle of Man, and
Bermuda. The principal activities of the Operating Group are the
design, manufacture and sale of thermostatic controls and cordless
interfaces, trading under the name Strix. The principal activities
of the subsidiaries included in the Operating Group financial
information are as follows:
Subsidiary Nature of business
---------------- ------------------------------
Sula Limited Holding company
Strix Limited Manufacture and sale of
products
Strix Guangzhou Manufacture and sale of
Ltd products
Strix Far East Sale of certain of the
Ltd group's appliances
Strix (U.K.) Group's sale and distribution
Limited centre
Strix Hong Kong Sale and distribution of
Ltd products
Strix Finance Financing group activities
(U.K.) Ltd
Strix Finance Financing group activities
(IOM) Ltd (liquidated 27 February
2017)
2. Basis of preparation and accounting policies
The Operating Group does not constitute a separate legal group.
The Company has prepared condensed combined interim financial
statements on a basis that is consistent with the Historical
Financial Information that was prepared for the purposes of its
Admission Document dated 27 July 2017, in that it combines the
results, assets and liabilities of each of the companies
constituting the Operating Group (see note 1) by applying the
principles underlying the consolidation procedures of IFRS 10
'Consolidated Financial Statements' ("IFRS 10") for each of the
half year periods ended 30 June 2016 and 30 June 2017 and as at 30
June 2017 and 31 December 2016. On such basis, the condensed
combined interim financial statements sets out the Operating
Group's balance sheets as of 30 June 2017 and 31 December 2016 and
combined results of the Operating Group's operations and cash flows
for the half years ended 30 June 2016 and 2017.
The condensed combined interim financial statements have been
prepared in accordance with this basis of preparation, IAS 34
Interim Financial reporting as adopted by the EU, and with those
parts of the Isle of Man Companies Acts as applicable to companies
reporting under IFRS. They do not include information required for
a complete set of financial statements prepared in accordance with
IFRSs as adopted by the EU. However, selected explanatory notes are
included to explain events and transactions that are significant to
an understanding of the changes in the financial position and
performance of the Operating Group subsequent to 31 December 2016
the balance sheet date of the most recent period presented in the
Historical Financial Information within the Company's Admission
Document, which can be found on the Company's website.
This basis of preparation describes how the condensed combined
interim financial statements have been prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union and the IFRS Interpretation Committee
interpretations (together "IFRS"). These condensed combined interim
financial statements should be read in conjunction with the
Historical Financial Information for the three years ended 31
December 2016 which have been prepared in accordance with the basis
of preparation set out in note 2 to the Historical Financial
Information within the Company's Admission Document.
IFRS does not provide for the preparation of condensed combined
interim financial statements and, accordingly, in preparing the
condensed combined interim financial statements certain accounting
conventions commonly used for the preparation of historical
financial information for inclusion in investment circulars as
described in the Annexure to SIR 2000 "Standards for Investment
Reporting applicable to public reporting engagements on historical
financial information" issued by the UK Auditing Practices Board
have been applied to the preparation of these financial
statements.
- The condensed combined interim financial statements has been
prepared by aggregating the financial results, assets and
liabilities of each of the companies constituting the Operating
Group and by applying the principles underlying the consolidation
procedures of IFRS 10 for the half year periods ended 30 June 2016
and 2017 and as at 30 June 2017 and 31 December 2016.
- The Operating Group has not in the past constituted a separate
legal group and therefore it is not meaningful to show share
capital or an analysis of reserves for this combined Operating
Group. As such, the net assets of Operating Group are represented
by the cumulative investment of the Parent Company in the Operating
Group (shown as "Invested Capital").
- As the financial information has been prepared on a combined
basis, it is not possible to measure earnings per share.
Accordingly, the requirement of IAS 33 'Earnings per Share' to
disclose earnings per share has not been complied with.
The condensed combined interim financial statements of the
Operating Group does not necessarily reflect what the results of
operations, financial position, or cash flows would have been had
the Operating Group been a separate entity or the future results of
the Operating Group as it exists subsequent to 30 June 2017.
Going concern
These condensed combined interim financial statements have been
prepared on the going concern basis.
After making appropriate enquiries, the Directors have a
reasonable expectation that the Company and the Operating Group
have adequate resources to continue in operational existence for
the foreseeable future and for at least one year from the date of
issue of these condensed combined interim financial statements. As
a result the Directors continue to adopt the going concern basis in
preparing the condensed combined interim financial statements.
Standards, amendments and interpretations which are not
effective or early adopted:
At the date of authorisation of the condensed combined interim
financial statements, the following new standards and
interpretations which have not been applied in this financial
information were in issue but not yet effective (and in some cases,
had not yet been adopted by the EU):
-- IFRS 15 - Revenue from Contracts with Customers (effective 1
January 2018)
-- IFRS 9 - Financial instruments (effective 1 January 2018)
-- IFRS 16 - Leases (effective 1 January 2019)
The adoption of IFRS 15 and IFRS 9 is not expected to have a
material impact on the financial information of the Company in the
period of initial application when the relevant standards come into
effect. The Directors are still assessing the impact of IFRS 16 but
do not believe it will have a material impact on the financial
information of the Company.
The principal accounting policies that have been applied to the
condensed combined interim financial statements are set out below.
These policies have been consistently applied to all years
presented unless otherwise stated.
Basis of combination
Subsidiaries
Subsidiaries are entities controlled by the Operating Group.
Control exists when the Operating Group has the power, directly or
indirectly, to govern the financial and operating policies of an
entity so as to obtain benefits from its activities. In assessing
control, potential voting rights that presently are exercisable or
convertible are taken into account. Control is generally
accompanied by a shareholding of more than one half of the voting
rights.
Transactions eliminated on consolidation
Intragroup balances, and any gains and losses or income and
expenses arising from intragroup transactions, are eliminated in
preparing the condensed combined interim financial statements.
Foreign currency translation
Functional and presentational currency
Items included in the financial information of each of the
Operating Group's entities are measured using the currency of the
primary economic environment in which the entity operates ("the
functional currency"). The functional currency of the Company, and
all entities within the Operating Group, is pounds sterling. This
is also the Operating Group's presentational currency.
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income
statement within 'cost of sales'.
Group companies
As all of the entities within the Operating Group have a
sterling functional currency, there are no cumulative exchange
differences on combination of the results and balances of foreign
operations.
Property, plant and equipment
Owned assets
Items of property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses. Cost includes the
original purchase price of the asset and the costs attributable to
bringing the
asset to its working condition for its intended use. When parts
of an item of property, plant and equipment have different useful
lives, those components are accounted for as separate items of
property, plant and equipment.
Subsequent costs are included in the asset's carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow to the Operating Group and the cost of the item can be
measured reliably.
Gains and losses on disposals are determined by comparing the
proceeds with the carrying amount and are recognised in the income
statement.
Leased assets
Leases under which the Operating Group assumes substantially all
the risks and rewards of ownership of an asset are classified as
finance leases. Property, plant and equipment acquired under
finance leases is recorded at fair value or, if lower, the present
value of minimum lease payments at inception of the lease, less
depreciation and any impairment.
Each lease payment is allocated between the liability and
finance charges. The corresponding rental obligations, net of
finance charges, are included in the other long-term payables. The
interest element of the finance cost is charged to the income
statement over the lease period so as to produce a constant
periodic rate of interest on the remaining balance of the liability
for each period. The property, plant and equipment under finance
leases is depreciated over the shorter of the useful life of the
asset and lease term. The costs associated with operating leases
are taken to the income statement on an accruals basis over the
period of the lease.
Where the Company or Operating Group enters into a lease which
entails taking substantially all the risks and rewards of ownership
of an asset, the lease is treated as a "finance lease".
Depreciation
Depreciation is charged to the income statement on a
straight-line basis over the estimated useful lives of each part of
an item of property, plant and equipment. The property, plant and
equipment acquired under finance leases is depreciated over the
shorter of the useful life of the asset and the lease term. The
estimated useful lives are as follows:
3-10 years
* Plant & machinery
3 years
* Fixtures, fittings & equipment
3-5 years
* Motor vehicles
1-5 years
* Production tools
The residual values and useful lives are reviewed, and adjusted
if appropriate, at each balance sheet date.
Capital assets under construction
The Operating Group manufactures some of its production tools
and equipment. The costs of construction are included within a
separate category within property, plant and equipment until the
tools and equipment are ready for use at which point the costs are
transferred to the relevant asset category and depreciated. Any
items that are scrapped are written off to the income statement
within cost of sales.
Intangible assets
Development costs
Internal costs that are incurred during the development of
significant and separately identifiable new products and
manufacturing techniques for use in the business are capitalised
when the following criteria are met:
-- It is technically feasible to complete
the product development so that it will
be available for use;
-- Management intends to complete the product
development and use or sell it;
-- It can be demonstrated how the product
development will develop probable future
economic benefits;
-- Adequate technical, financial, and other
resources to complete the development
and to use or sell the product are available;
and
-- Expenditure attributable to the product
during its development can be reliably
measured.
Capitalised development costs include employee, travel and
patent application costs. Internal costs that are capitalised are
limited to incremental costs specific to the project.
Other development expenditures that do not meet these criteria
are recognised as an expense as incurred.
Amortisation
Amortisation is charged to the income statement within cost of
sales on a straight-line basis over the estimated useful lives of
intangible assets of 2-5 years.
Patents
The costs of renewing and maintaining patents are expensed in
the income statement as they are incurred, unless they qualify for
capitalisation as development expenditure.
Impairment of non-financial assets
Assets not subject to amortisation are tested annually for
impairment. Assets that are subject to amortisation are reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss
is recognised for the amount by which the asset's carrying amount
exceeds its recoverable amount. The recoverable amount is the
higher of an asset's fair value less costs to sell and value in
use.
For the purposes of assessing impairment, assets are grouped at
the lowest levels for which there are separately identifiable cash
flows (cash-generating units). Non-financial assets other than
goodwill that suffered an impairment are reviewed for possible
reversal of the impairment at each reporting date. Development
costs are reviewed on a regular basis and projects where the
technical feasibility, or the other factors noted in the
'Intangibles - Development costs' section above can no longer be
supported, are written off to the income statement immediately.
Financial assets
Classification
The Operating Group classifies its financial assets as loans and
receivables. Management determines the classification of its
financial assets at initial recognition.
Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that arise principally through the
provision of services to customers. They are initially recognised
at fair value, and are subsequently stated at amortised cost using
the effective interest method. They are included in current assets,
except for maturities greater than 12 months after the end of the
reporting period. Loans and receivables comprise mainly cash and
cash equivalents and trade and other receivables, including amounts
owed by related entities. Trade and other receivables relate mainly
to the sale of products to trade customers.
Impairment of financial assets
Impairment provisions are recognised when there is objective
evidence (such as significant financial difficulties on the part of
the counterparty or default or significant delay in payment) that
the Operating Group will be unable to collect all of the amounts
due under the terms receivable, the amount of such a provision
being the difference between the net carrying amount and the
present value of the future expected cash flows associated with the
impaired receivable.
For trade receivables, which are reported net, such provisions
are recorded in a separate provision account with the loss being
recognised within cost of sales and administrative expenses in the
income statement. On confirmation that the trade receivable will
not be collectable, the gross carrying value of the asset is
written off against the associated provision.
Financial liabilities
The Operating Group initially recognises its financial
liabilities at fair value net of transaction costs where applicable
and subsequently they are measured at amortised cost using the
effective interest method. Financial liabilities comprise trade and
other payables, amounts owed to group undertakings, other
liabilities and accruals and deferred income and are initially
recognised at transaction price, unless the arrangement constitutes
a financing transaction, where the debt instrument is measured at
the present value of the future payments discounted at a market
rate of interest.
Trade and other payables are obligations to pay for goods or
services that have been acquired in the ordinary course of business
from suppliers. Trade payables are classified as current
liabilities if payment is due within one year or less. If not, they
are presented as non-current liabilities. Other liabilities include
payments in advance from customers and rebates.
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently carried at
amortised cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognised in the
income statement over the period of the borrowings using the
effective interest method.
Fees paid on the establishment of loan facilities are recognised
as transaction costs of the loan to the extent that it is probable
that some or all of the facility will be drawn down. In this case,
the fee is deferred until the draw-down occurs. To the extent there
is no evidence that it is probable that some or all of the facility
will be drawn down, the fee is capitalised as a pre-payment for
liquidity services and amortised over the period of the facility to
which it relates. Preference shares, which are mandatorily
redeemable on a specific date, are classified as liabilities.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits with an original maturity of three months or less.
Derivative financial instruments
The Operating Group enters into forward commodity contracts to
minimise the market price exposure that arises at the point the
commodity purchase is transacted. The Operating Group does not
apply hedge accounting and re-measurements of the derivative
financial instruments are recognised in the income statement. The
use of financial derivatives is governed by the Operating Group's
treasury policies, as approved by the Board. The Operating Group
does not use derivative financial instruments for speculative
purposes. All derivative financial instruments are initially
measured at fair value on the contract date and are re-measured at
fair value at subsequent reporting dates.
Employee benefits
The Operating Group provides a range of benefits to employees,
including annual bonus arrangements, paid holiday entitlements and
defined benefit and contribution pension plans.
Short-term benefits
Short-term benefits, including holiday pay and similar
non-monetary benefits, are recognised as an expense in the period
in which the service is rendered.
Pensions
A subsidiary company operates both a defined contribution scheme
and a defined benefit scheme for the benefit of its employees. A
defined contribution plan is a pension plan under which the
Operating Group pays fixed contributions into a separate entity.
The Operating Group has no legal or constructive obligations to pay
further contributions if the fund does not hold sufficient assets
to pay all employees the benefits relating to employee service in
the current and prior periods. The Operating Group has no further
payment obligations once the contributions have been paid. The
contributions are recognised as employee benefit expense when they
are due.
The liability recognised in the balance sheet in respect of the
defined benefit scheme is the present value of the defined benefit
obligation at the balance sheet date less the fair value of the
scheme assets, together with adjustments for unrecognised actuarial
gains or losses and past service costs. The defined benefit
obligation is calculated annually by independent actuaries using
the Projected Unit Credit Method. The present value of the defined
benefit obligation is determined by discounting the estimated
future cash outflows using interest rates of high quality corporate
bonds that are denominated in the currency in which the benefits
will be paid and that have terms to maturity approximating to the
terms of the related pension liability.
The net pension finance cost is determined by applying the
discount rate, used to measure the defined benefit pension
obligation at the beginning of the accounting period, to the net
pension obligation at the beginning of the accounting period taking
into account any changes in the net pension obligation during the
period as a result of cash contributions and benefit payments.
Pension scheme expenses are charged to the income statement within
administrative expenses.
Actuarial gains and losses are recognised immediately in the
statement of comprehensive income. Net defined benefit pension
scheme deficits before tax relief are presented separately on the
face of the balance sheet within non-current liabilities. Where
material, any attributable deferred income tax asset is included
within the deferred income tax asset in the balance sheet and is
subject to the recognition criteria as set out in the accounting
policy on deferred income tax.
Inventories
Inventories consist of raw materials and finished goods which
are valued at the lower of cost and net realisable value. Cost
comprises that expenditure which has been incurred in the normal
course of business in bringing the products to their present
location and condition, and include all related production and
engineering overheads valued at cost. At the end of each reporting
period, inventories are assessed for impairment. If an item of
inventory is impaired, the identified inventory is reduced to its
selling price less costs to complete and an impairment charge is
recognised in the income statement.
Revenue
Revenue is measured at the fair value of the consideration
received or receivable, and represents amounts receivable for goods
supplied, stated net of discounts, returns and rebates allowed by
the Operating Group and value added taxes. The Operating Group
recognises revenue when the amount of revenue can be reliably
measured; when it is probable that future economic benefits will
flow to the entity; which is generally on despatch. The Operating
Group bases its estimate of return on historical results, taking
into consideration the type of customer, the type of transaction
and the specifics of each arrangement. All revenue is derived from
the principal activities of the Operating Group.
Revenue also includes royalty and licensing income which is
recognised in the period it becomes due.
Cost of sales
Cost of sales comprise costs arising in connection with the
manufacture of thermostatic controls and cordless interfaces. Cost
is based on the cost of purchases on a first in first out basis and
includes all direct costs and an appropriate portion of fixed and
variable overheads where they are directly attributable to bringing
the inventories into their present location and condition. This
also includes an allocation of non-production overheads, costs of
designing products for specific customers and amortisation of
capitalised development costs.
Exceptional items
Items that are material in size, unusual or infrequent in nature
are included within operating profit and disclosed separately as
exceptional items in the income statement. The separate reporting
of exceptional items helps provide an indication of the Operating
Group's underlying performance, and include capital transaction,
reorganisation and IPO related costs.
EBITDA and Adjusted EBITDA
Earnings before Interest, Taxation, Depreciation and
Amortisation (EBITDA) and Adjusted EBITDA are non-GAAP measures
used by management to assess the operating performance of the
Operating Group. EBITDA is defined as profit before finance costs,
tax, depreciation and amortisation. Exceptional items and royalty
charges are excluded from EBITDA to calculate adjusted EBITDA.
The Directors primarily use the Adjusted EBITDA measure when
making decisions about the Operating Group's activities. As these
are non-GAAP measures, EBITDA and Adjusted EBITDA measures used by
other entities may not be calculated in the same way and hence are
not directly comparable.
Research and development
Research expenditure is written off to the income statement
within cost of sales in the year in which it is incurred.
Development expenditure is written off in the same way unless the
directors are satisfied as to the technical, commercial and
financial viability of the individual projects. In this situation,
the expenditure is classified on the balance sheet as an intangible
asset and amortised over its useful economic life.
Net finance costs
Finance costs
Finance costs comprise interest charges on pension
liabilities.
Finance income
Finance income comprises bank interest receivable on funds
invested.
Income tax
Income tax for the years presented comprises current and
deferred tax. Income tax is recognised in profit or loss except to
the extent that it relates to items recognised directly in equity,
in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantially enacted at
the balance sheet date, and any adjustment to tax payable in
respect of previous years.
Deferred tax is provided using the balance sheet liability
method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes.
Additional income taxes that arise from the distribution of
dividends are recognised at the same time as the liability to pay
the related dividend.
Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting to the Board of directors which has been
identified as the chief operating decision maker. The Board of
directors consists of the Executive Directors and the Non-Executive
directors. The Operating Group's activities consist solely of the
design, manufacture and sale of thermostatic controls and cordless
interfaces, primarily to the Chinese market. It is managed as one
entity and management have consequently determined that there is
only one operating segment.
Government grants
Subsidiary companies receive grants from the Isle of Man and
Chinese governments towards revenue expenditure. The grants are
dependent on the subsidiary company having fulfilled certain
operating, investment and profitability criteria in the financial
year. The grants are credited directly to the income statement and
presented within "other operating income" when all appropriate
conditions are satisfied.
Related party transactions
The Operating Group discloses transactions with related parties
which are not wholly owned within the same group.
3. Critical accounting judgements and estimates
The preparation of the Operating Group's condensed combined
interim financial statements under IFRS requires the Directors to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities. Estimates and judgements are continually evaluated and
are based on historical experience and other factors including
expectations of future events that are believed to be reasonable
under the circumstances. Actual results may differ from these
estimates.
The Directors consider that the following estimates and
judgements are likely to have the most significant effect on the
amounts recognised in the condensed combined interim financial
statements.
Critical judgements in applying the entity's accounting
policies
Going concern
The Directors have prepared the condensed combined interim
financial statements on a going concern basis. In making this
judgment the Directors have considered the Company's and the
Operating Group's financial position, current intentions,
profitability of operations and access to financial resources and
analysed the impact of the situation in the financial markets on
the operations of the Operating Group.
Functional currency
The Directors consider the factors set out in paragraphs 9, 10
and 11 of IAS 21, "The effects of changes in foreign currency" to
determine the appropriate functional currency of its overseas
operations. These factors include the currency that mainly
influences sales prices, labour, material and other costs, the
competitive market serviced, financing cash flows and the degree of
autonomy granted to the subsidiaries. The Directors have applied
judgement in determining the most appropriate functional currency
for all entities to be sterling. This may change as the Operating
Group's operations and markets change in the future.
Capitalisation of development costs
The Directors consider the factors set out in paragraph
'Intangibles - Development costs' above with regard to the timing
the capitalisation of the development costs incurred. This requires
judgement in determining when the different stages of development
have been met.
Critical accounting estimates
Impairment of capitalised development costs
The Operating Group considers whether capitalised development
costs are impaired. Where an indication of impairment is identified
the estimation or recoverable value requires estimation of the
future cash flows and the continued commercial viability of the
capitalised project.
4. Post balance sheet date events
Incorporation of Company and changes in share capital
As explained in note 1, subsequent to 30 June 2017 the Company
was incorporated and registered in the Isle of Man to be the new
parent company to the Operating Group. The Company was incorporated
on 12 July 2017 and changed its name to Strix Group Plc on 24 July
2017.
Under the Isle of Man Companies Act 2006, the Company is not
required to have an authorised share capital. The issued capital of
the Company on incorporation was one A ordinary share of GBP1,
issued to Darbara Limited. This share was transferred to Strix
Group Limited prior to the Company's Admission to AIM, and
subsequently repurchased and cancelled by the Company as part of
the Pre Admission Reorganisation.
Pursuant to a resolution of the Board passed on 27 July 2017, it
was resolved that, conditional upon Admission, 190,000,000 new
Ordinary Shares be issued and allotted in connection with the
Placing. Following Admission on 8 August 2017, the Company's share
capital was GBP1.9m.
Pre-Admission Reorganisation
A number of changes in the structure of the Operating Group were
effected as part of a Pre Admission Reorganisation of the Operating
Group. As part of that Pre-Admission Reorganization, the following
resolutions were passed and agreements were entered into:
a) Strix Limited and Strix Group Limited entered into a sale and
purchase agreement pursuant to which Strix Group Limited
contributed the entire issued share capital of Strix Far East
Limited to Strix Limited, for no consideration. Strix Limited and
Strix Group Limited entered into a sale and purchase agreement
pursuant to which Strix Group Limited agreed to sell all of the
preference shares in the issued capital of Strix (U.K.) Limited to
Strix Limited for GBP1. In addition, a resolution was approved to
convert all of the preference shares in Strix (U.K.) Limited into
ordinary shares.
b) The Company and Strix Group Limited entered into a sale and
purchase agreement pursuant to which Strix Group Limited agreed to
transfer the entire issued share capital of Sula Limited to the
Company in consideration for the issue to Strix Group Limited of
one A ordinary share in the capital of the Company at a premium
equal to the aggregate fair market value of the Operating
Group.
c) On 27 July 2017 the directors of the Company passed a
resolution to, conditional upon Admission, reduce the Company's
share capital which took effect upon Admission on 8 August
2017.
d) The Company and Strix Group Limited entered into a share
buyback agreement, conditional on Admission, pursuant to which the
Company agreed to repurchase and cancel all of the A ordinary
shares in the capital of the Company held by Strix Group Limited
(being the initial A ordinary share issued on incorporation of the
Company and subsequently transferred to Strix Group Limited, prior
to Admission together with the A ordinary share issued to Strix
Group Limited in (b) above in consideration of the payment to Strix
Group Limited of an amount equal to the net proceeds of the Placing
and an agreed level of surplus cash in the Operating Group.
e) A number of intercompany balances between the Operating Group
and related entities were either settled by way of dividend or
written off.
Share incentive plans
On 8 August 2017 the Strix Group Plc Long Term Incentive Plan
(the "LTIP") was adopted by the Board and on the same date, the
Board granted options of 5,700,000 Ordinary Shares of 1p each in
the Company to the CEO and CFO. On 15 August 2017, the Board
further granted options of 3,431,505 Ordinary Shares of 1p each to
the senior executives and general staff of the Company.
Revolving Credit Facility Agreement
On 27 July 2017, members of the Operating Group entered into a
revolving credit facilities agreement with certain banks in respect
of a revolving credit facility of GBP70,000,000. Interest is
payable on amounts drawn down at the rate of 2.20 per cent. above
LIBOR. The term of the agreement is five years from the date of
the
agreement. As at 31 August 2017 the amount drawn down was GBP60,774,400.
Pro-forma Balance Sheet
In view of the significant movements in balances as a result of
the Admission, the Directors consider it appropriate to present a
pro-forma balance sheet to illustrate the impact:
Net
proceeds
of
the
Operating Placing Repurchase
Group receivable of the Unaudited
as at by existing Pro
30 June Pre-Admission the share Forma
2017 Reorganisation Company capital Refinancing Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(Note (Note (Note (Note (Note
(1) (Note (3) (4) (5) (5)
) (2) ) ) ) ) )
Assets
Non-current
assets
Intangible
assets 5,636 - - - - - 5,636
Property,
plant and
equipment 8,912 - - - - - 8,912
Total non-current
assets 14,548 - - - - - 14,548
---------- ---------------- ------------ ----------- -------- ---------- ----------
Current assets
Inventory 9,184 - - - - - 9,184
Trade and
other receivables 5,327 - - - - - 5,327
Receivables
from related
parties 380,292 (380,292) - - - - -
Cash and cash
equivalents 13,547 - 175,403 (198,846) 60,774 (48,000) 2,878
Total current
assets 408,350 (380,292) 175,403 (198,846) 60,774 (48,000) 17,389
---------- ---------------- ------------ ----------- -------- ---------- ----------
Total assets 422,898 (380,292) 175,403 (198,846) 60,774 (48,000) 31,937
========== ================ ============ =========== ======== ========== ==========
Liabilities
Non-current
liabilities
Financial
liabilities
- borrowings 1,000 (1,000) - - 60,774 - 60,774
Post-employment
benefits 229 - - - - - 229
Total non-current
liabilities 1,229 (1,000) - - 60,774 - 61,003
---------- ---------------- ------------ ----------- -------- ---------- ----------
Current liabilities
Trade and
other payables 16,883 - - - - - 16,883
Payables due
to related
parties 144,700 (144,700) - - - - -
Income taxes
payable 713 - - - - - 713
Derivative
financial
instruments - - - - - - -
Total current
liabilities 162,296 (144,700) - - - - 17,596
---------- ---------------- ------------ ----------- -------- ---------- ----------
Total liabilities 163,525 (145,700) - - 60,774 - 78,599
========== ================ ============ =========== ======== ========== ==========
Invested
capital/(deficit) 259,373 (234,592) 175,403 (198,846) - (48,000) (46,662)
========== ================ ============ =========== ======== ========== ==========
Notes
(1) This is the balance sheet as at 30 June 2017 as reported in
this interim financial statements.
(2) This column reflects the following adjustments relating to
the Pre Admission Reorganisation:
(a) the release of the receivables from related entities of
GBP380,292k and the forgiveness of payables to related entities of
GBP144,700k;
(b) Preference shares held by Strix Group Limited were
transferred to the Operating Group for a nominal GBP1;
(c) Strix Far East Limited was legally transferred to the
Operating Group for nil consideration. The financial results and
position of Strix Far East is included within the interim financial
statements as explained in Note 2; and
(d) the Company was incorporated on 12 July 2017 and became the
parent and ultimate holding company of the Operating Group through
the issue of 1 A Ordinary Share to Strix Group Limited in exchange
for the entire issued share capital of Sula Limited. This insertion
of the Company will constitute a group reorganisation and will be
accounted for using merger accounting principles in the financial
statements in the year to 31 December 2017.
(3) This column reflects the net proceeds of GBP175,403k in
relation to the Placing received by the Company after fees and
expenses of approximately GBP14,597k.
(4) This column reflects the repurchase and subsequent
cancellation of the 1 A Ordinary Share of the Company together with
the payment of excess cash to related parties. This amount is
equivalent to the net proceeds from the Placing receivable by the
Company of GBP175,403k together with excess cash transferred to
related parties of approximately GBP23,443k. By receiving only the
net proceeds of the Placing, the equity and loan note holders have
in effect borne the costs associated with the Placing and Admission
of approximately GBP14,597k.
(5) These columns reflect the refinancing that happened on 27
July 2017 in connection with the Placing and the drawdown of
GBP60,774k of the New Debt Facilities (including fees) which will
be classified within non-current liabilities and the subsequent
payment to related parties of GBP48,000k.
5. Interim report
An electronic version of this report is available from the
London stock exchange, or may be obtained from the Company's
website at www.strixplc.com.
6. Principal risks and uncertainties
The Company and the Operating Group operate a structured risk
management process, which identifies and evaluates risks and
uncertainties and reviews mitigation activity. Risks are
categorised as strategic, financial, operational, reputational or
compliance in nature. The following risks and uncertainties could
impact performance. Mitigating actions are in place which are
monitored regularly by the Board.
Strategic
The Operating Group relies on key customers
The Operating Group has a number of key customer relationships,
being some of the largest OEMs in the global market. The top 10
customers contributed c.66 per cent. of the Operating Group's
revenues in the financial year ended 31 December 2016, with the
largest customer making up c.19 per cent. of the Operating Group's
revenues. The loss of any of these key customer relationships could
have a material adverse effect on the Operating Group's business,
financial condition and results of operations.
Reliance on key suppliers
The Operating Group relies upon certain key suppliers, although
dual source arrangements are in place across the supplier base. As
a result, if alternative supply sources could not fulfil the
required demand, the Operating Group is exposed to a number of
risks, including the risk of supply disruption, the risk of key
suppliers increasing prices and the risk of a key supplier
suffering a quality issue which impacts upon the quality of the
Operating Group's products. All of these risks, which apply across
the marketplace, could have a negative impact on the Operating
Group's business and, if required, the engagement of alternative
suppliers may increase the Operating Group's cost base.
Competitors and market pressures
The Operating Group operates in competitive and price sensitive
markets, and a number of low cost competitors exist that may
attempt to increase their market share by undercutting Strix on
pricing, launching new brands amongst other tactics. If a
significant shift in market pricing occurs and the Operating Group
is not able to mitigate this by reducing costs accordingly, the
Operating Group's revenues and profitability may be negatively
affected. The markets in which the Operating Group operate in may
become more price sensitive.
Financial
Raw material and commodity prices and general cost inflation
Whilst the Operating Group manages its input costs as far as
possible, a significant change in the cost of certain raw
materials, particularly silver and copper, if sustained for a
prolonged period, could affect the Operating Group's profit margins
and ultimate profitability.
Any change in the costs of operating the Operating Group could
impact on the Operating Group's profitability. Such cost increases
could be incurred from increments in supplier costs (including,
amongst other things, raw materials and energy costs, particularly
electricity costs), employment costs or wage inflation, or
increases in costs to be incurred due to regulatory change.
Although such costs are accounted for, where these can be
estimated, in future budgets for the Operating Group, not all cost
increases are capable of being estimated adequately in advance.
Foreign exchange risk
The Operating Group's payments and receipts are predominantly in
Sterling and US Dollars and a depreciation in the dollar against
Sterling would adversely impact margins earned.
In addition, under the current regulations on foreign exchange
control in the PRC, foreign investment enterprises are allowed to
distribute their profits or dividends in foreign currencies to
foreign investors through designated foreign exchange banks without
the prior approval of the State Administration for Foreign Exchange
of China. However, the exchange of the Yuan Renminbi ("RMB") into
foreign currencies for capital items such as direct investment,
loans and security investment, is subject to strict controls and
requires the approval of the State Administration for Foreign
Exchange of China. The distribution of the Operating Group's
profits and dividends may be adversely affected if the Chinese
Government imposes greater restriction on the ability of the RMB to
be exchanged into foreign currencies. If there are any changes to
the current regulations, there can be no assurance that the
Operating Group will be able to obtain sufficient foreign exchange
to pay dividends or satisfy other foreign exchange requirements in
the future.
Operational
Manufacturing facilities
The Operating Group currently manufactures the majority of its
products at its main manufacturing facility in Guangzhou, China. If
for any reason, including product mix changes, a capacity
constraint is created, or should the operations at this site become
disrupted for whatever reason (or reasons), and/or the Operating
Group is unable to find a suitable manufacturing site, the
Operating Group's ability to meet the demands of its customers
could be affected. Any of the above could negatively impact the
Operating Group's relationships with its customers.
Reputational
Reputation with customer base
The Operating Group's reputation for, and delivery of high
quality products with high standards of safety, is key to a number
of direct and indirect customers in choosing to specify Strix
products. Should Strix suffer product quality or safety issues,
leading to a negative impact on its reputation with customers,
future performance could be significantly impaired.
Compliance
Contractual arrangements
The arrangements that the Operating Group has entered into with
certain of its customers, distributors and sales partners, as well
as certain of its service providers have been, on occasion,
potentially inadequately documented. There can be no assurance that
the Operating Group will not in the future face challenges or
disputes in relation to the contractual or other arrangements with
third parties with whom limited written contractual arrangements
have been entered into.
Intellectual Property
The Operating Group relies on a combination of patents, design
registrations, design rights, trademarks, trade secrets, copyright,
and other contractual agreements and technical measures to protect
its proprietary intellectual property rights. The Operating Group's
success will in part depend on its ability to establish, protect
and enforce proprietary rights relating to the development,
manufacture, use or sale of its existing and proposed products.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LFMLTMBJTBPR
(END) Dow Jones Newswires
September 27, 2017 02:01 ET (06:01 GMT)
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