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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Strix Group Plc | LSE:KETL | London | Ordinary Share | IM00BF0FMG91 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.20 | -0.27% | 73.40 | 73.20 | 73.70 | 75.00 | 73.10 | 73.60 | 142,387 | 13:32:50 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Manufacturing Industries,nec | 106.92M | 16.79M | 0.0768 | 9.52 | 159.88M |
From Apr 2019 to Apr 2024
TIDMKETL
RNS Number : 5046T
Strix Group PLC
21 March 2019
21 March 2019
Strix Group Plc
("Strix", the "Group" or the "Company")
Results for the year ended 31 December 2018
Strix Group Plc (AIM: KETL), the global leader in the design, manufacture and supply of kettle safety controls and other complementary water temperature management components, is pleased to announce its audited results for the year ended 31 December 2018.
Financial summary
Hot Features
Premium
Adjusted results(1)
------------------------
2018 2017 Change
------ ------ --------
GBPm GBPm %(4)
Revenue 93.8 91.3 +2.7%
Revenue - constant currency
basis(2) 95.3 91.3 +4.5%
EBITDA(3) 36.4 35.1 +3.5%
Gross profit 38.9 37.2 +4.6%
Operating profit 30.9 29.1 +6.2%
Profit before tax 29.2 28.3 +3.2%
Profit after tax 28.3 27.5 +2.7%
Net debt 27.5 45.9 +40.1%
Net cash generated from operating
activities 35.0 33.8 +3.4%
Basic earnings per share 14.9p 14.5p +2.8%
Final dividend per share 4.7p 1.9p +147.4%
1. Adjusted results exclude exceptional items, which include share based payment transactions. Adjusted results are non-GAAP metrics used by management and are not an IFRS disclosure. A table which shows both Adjusted and Reported results is included in the Chief Financial Officer's review.
2. Revenue - constant currency basis, which is defined as 2018 revenue restated at the exchange rates prevailing in 2017, 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. Figures are calculated from the full numbers as presented in the consolidated financial statements.
2018 in summary
Financial highlights
-- Solid performance during 2018 including a 7.9% growth in sales
volumes and 2.7% in net sales, rising to 4.5% on a constant
currency basis, in line with expectations.
-- Careful cost management has allowed us to report a gross profit
margin of 41.5% (2017: 40.7%).
-- Net debt reduced to GBP27.5m, a 40.1% reduction since December
2017 (GBP45.9m).
-- OCF / EBITDA cash conversion ratio of 89.4% (2017: 88.0%).
-- Proposed final dividend of 4.7p, with total dividends of 7.0p
for the full year.
Operational highlights
-- 2.7m U9 series products sold to date following the successful
launch in 2017.
-- A further eight successful Intellectual Property protection
initiatives undertaken, the highest number of cases concluded
in any one year.
-- Further growth in Aqua Optima has led to a volume share of
c.25% of the UK market for own-brand and trade-brand combined.
-- Continued focus on manufacturing and production quality led
to an 11% improvement in ppm.
Strategic highlights
-- Maintained market share of c.38% of the global kettle controls
market despite geo-political events.
-- Appointment of a Chief Commercial Officer from 1 April 2019
and further strengthening of the R&D and senior management
teams.
-- After the period end, completed acquisition of specified assets
from HaloSource Corporation for consideration of US$1.33m in
March 2019 to expand the water filtration division.
-- Investment agreement signed with the local government for the
relocation of our manufacturing operation in China to support
future growth.
Mark Bartlett, CEO of Strix Group Plc, commented:
"We are pleased to report a solid year of trading for Strix in 2018. We continued to make encouraging progress with our strategic priorities which enabled us to maintain our global market share of around 38% amidst a challenging geo-political climate.
Aqua Optima has continued to show strong growth and we secured a market share within the UK of 25%. We also launched the Aqua Optima Water Filter Recycling Initiative, which allows consumers of Aqua Optima filtration systems to recycle their products from home or at hundreds of TerraCycle collecting locations across the UK.
We saw positive progress on the U9 series of controls and since its launch in 2017 we have sold nearly 3 million units. With this in mind, we have entered 2019 with the most diversified product portfolio Strix has had to date, providing access to all global markets.
Intellectual property protection remains a key focus of the business to ensure defence of our technology and products in order to maintain the value of our brand. In 2018, we concluded the highest number of cases in any one year and we continue to monitor the market for copyists and ensure that consumers, our customers and our brand are protected.
We have continued to focus on manufacturing and production quality which has led to an 11% improvement in ppm, and we are continuing to invest in automation to further improve production efficiency and quality.
The Board are delighted to announce a proposed final dividend of 4.7p, equating to a total dividend of 7.0p per share for 2018. We look forward to the year ahead and remain confident about our full year outlook for 2019."
+44 (0) 1624 829829
For further enquiries, please contact:
Strix Group Plc
Mark Bartlett, CEO
Raudres Wong, CFO
Zeus Capital Limited (Nominated Advisor
and Joint Broker) +44 (0) 20 3829 5000
Nick Cowles / Jamie Peel / Jordan Warburton (Corporate Finance)
Canaccord Genuity Limited (Joint Broker) +44 (0) 20 7523 8000
Chris Connors
IFC Advisory Limited (Financial PR
and IR) +44 (0) 20 3934 6630
Graham Herring / Tim Metcalfe / Heather
Armstrong
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 Alternative Investment Market of the London Stock Exchange (AIM: KETL).
Chairman's statement
Introduction
It is my pleasure to report another year of solid performance, particularly in light of challenging global market conditions. The Group has continued to innovate, as well as continuing to develop and manufacture safe, reliable and high quality products for which it is renowned across the world.
The Group has delivered another year of growth and profitability as a result of its global presence and stable business model, despite the effects of Brexit, US/China trade tensions and other geo-political factors. In addition, net debt since IPO has decreased to GBP27.5m (2017: GBP45.9m) due to strong cash generation. We also took business and Intellectual Property actions in 2018 to maintain our position as the global leader in our core markets, whilst positioning Strix for continued growth into the future.
In September 2018, we sadly experienced the death of Edwin (Eddie) Davies CBE, who joined Strix in 1984 and later became the majority owner and Chairman of Strix. Much of what the Group has achieved today was built upon the contributions made by Eddie during his time at Strix and many of our colleagues have fond memories of working with Eddie during his time here.
Market performance
The Group has once again demonstrated growth in our key metrics despite a very turbulent year in the global economic market. Although the impact of currency rates caused by Brexit and other global challenges has softened our reported growth in net sales, underlying volume growth has been consistent with our expectations.
Our share of the global kettle safety control market has been maintained at c.38%. This is the effect of growth in the Less Regulated market and no change in the regulated market, offset by a slight softening of share in China.
Financial performance
Revenue for the year reached GBP93.8m, a 2.7% growth on 2017 (4.5% growth on a constant currency basis) and I am pleased to report a growth in reported gross profit to GBP38.9m (2017: GBP37.2m). Our gross profit margin increased 0.8% to 41.5%, as a result of the continued focus on efficiency, process improvement, and cost management. Adjusted EBITDA was GBP36.4m, an increase of 3.5% on 2017. Cash generation remains strong, with GBP35.0m net cash generated from operating activities, compared with GBP33.8m in 2017.
Dividend policy
The Board is proposing a final dividend of 4.7p per share following the 2.3p interim dividend paid in October 2018. This will bring the full year dividend to 7.0p, as projected at the time of admission to trading on AIM. The final dividend will be paid on 3 June 2019 to shareholders on the register at 10 May 2019 and the shares will trade ex-dividend from 9 May 2019. The Board has previously communicated its dividend policy, which is to increase the dividend in line with future underlying earnings, from a base of 7.7p for the 2019 financial year.
Annual General Meeting
The Group will host its Annual General Meeting on 23 May 2019 at 09:00 at our registered office at Forrest House on the Isle of Man, to which I welcome all of our shareholders.
Gary Lamb
Chairman
Chief Executive Officer's statement
Introduction
The Group has made further progress on its strategic plans during the year, whilst maintaining its market leading share of c.38% of the global kettle controls market. Sales volumes increased by 7.9% which demonstrates the continued demand for our products across the world.
Positive financial performance
The Group has delivered another year of revenue growth and a reduction in net debt ahead of market expectations. The Group's cash flow performance remains strong, with increasing cash generated from operating activities of 3.4% which both supports our dividend policy and provides us with the financial resources to undertake strategic projects to drive future growth and profitability.
Our financial performance remains positive with revenue increasing by 2.7% (4.5% on a constant currency basis) and reported gross profit by 4.7%, which delivered an improved gross profit margin of 41.5% (2017: 40.7%). Adjusted EBITDA increased by 3.5% and adjusted profit before tax by 3.2%.
Reported metrics (including exceptional costs) were lower primarily due to the share-based payment charges of GBP4.9m incurred for a full year compared to 2017 where the charges were GBP2.0m as they were pro-rated from the date of IPO.
Global market share maintained
The Group continues to hold a strong global market share of c.38% with all segments showing a relatively stable position. It is estimated that the global market grew c.7% to c.196m appliances with global penetration of c.37% allowing for continued growth. The overall Regulated market volume growth was estimated at c.4% to c.53m appliances. The key driver behind Regulated market growth was North America, which posted growth in excess of 10%, and the UK market which experienced a strong Q4 performance in preparation for disruption expected due to Brexit. Strix maintained its market share at c.61% in the Regulated market.
In the Less Regulated market, growth in 2018 is estimated to have been c.10% to c.97m appliances compared to a CAGR of only 7% since 2014. The key geographies where growth was experienced were South East Asia and Africa, which both experienced growth in excess of 15%. Strix's share increased to c.20% during 2018, and in 2019 Strix will launch a new lower cost control to further increase market penetration.
In China, following the c.6% decline experienced in 2017 this market is estimated to have recovered in 2018 and grown by c.5% to 46m appliances. The Chinese domestic market continues to see an increase in higher priced electronic multi-cooker appliances to which Strix has responded by initiating a number of successful IP actions. In 2018, Strix's share reduced slightly as a result of reduced share at one of China's leading brands. Sales initiatives have been undertaken in H2 2018 including a new lower cost range which has seen specifications regained. As a result of these initiatives, Strix sales in the China market are expected to recover in 2019.
HaloSource acquisition
The acquisition of the Astrea product from HaloSource in March 2019 will provide us with access to world-class R&D knowledge and skills within the water filtration sector. This advanced technology is the result of several years of dedicated R&D work and we are excited by the prospect of delivering this technology to market to deliver safe drinking water to consumers across the globe. We have also acquired office space in Seattle which will support our growth aspirations in the USA which, together with China, is a key market for this technology.
The acquisition of certain assets of HaloSource's HaloPure division will also complement our existing Aqua Optima product range and assist us in expanding the distribution of water filtration products into China, which represents a large market to support further growth in the Aqua Optima brand outside of the UK. We believe that operational synergies will be achieved in China, particularly through effective utilisation of the new manufacturing facility which is scheduled to complete in the summer of 2021.
This is anticipated to result in a net profit and loss investment of approximately GBP2.0m for 2019, with the acquisition expected to be earnings enhancing in the financial year to 31 December 2021. Further guidance will be provided after a suitable period of ownership by the Group.
Aqua Optima
Aqua Optima continued its progress from the strong H1 results delivered to the market in September. For the full year, revenues grew from GBP7.4m to GBP9.3m, an increase of 25.9% on 2017 driven by 30.6% volume growth. Aqua Optima's overall UK market share (including trade-brand products) is now c.25%, which is in line with management expectations. Further product launches are due to occur in 2019, particularly in China, which together with the complementary technology acquired in the HaloSource and Astrea acquisition will position Aqua Optima to take advantage of future growth both in the UK and in new markets.
New manufacturing facility in China
The senior management team has undertaken a project for the relocation of our manufacturing facility in China. As a consequence of this strategic review, in February 2019 we signed a contract to purchase a plot of land in the Zengcheng District of Guangzhou, China, close to our existing facility. We believe this new facility will provide the platform for us to deliver our strategy and allow us to provide profitable, sustainable growth and value to our shareholders in a cost effective way, funded from the Group's existing borrowing facilities and free cash.
The acquisition of the plot of land is underway and is expected to take a further 2 to 3 months before this process can be completed in order to comply with local regulations. The design of the facility is being developed by our appointed design institute, with the design due to be finalised in summer 2019. Construction is expected to start at the end of 2019 and to be completed by January 2021, with the move to the new facility in summer 2021. The plot can support a maximum facility size of 34,000 m(2) compared to our current facility of 13,200 m(2).
Having completed the strategic review, the Board has concluded that the optimal strategic and financial outcome is to purchase both the land and the factory, rather than renting. As a result, based on the current design proposal and material prices, the total cash outflow for the relocation is expected to be c.GBP20m.
Product development
Having launched the successful U9 series of controls in 2017, our focus in the current year has been on products that will support our market share aspirations, which are to achieve market share in the Less Regulated markets of greater than 35%, maintain our Regulated market share in excess of 60% and re-build our China market share to greater than 50%.
To achieve this we have developed a new low-cost control under our sub-brand VnQ to support our market share growth in the Less Regulated market, which we estimate at c.97m appliances per year. A new electronic kettle control has also been developed to grow our share in multi-cookers in the China market. In addition, we have also developed the Aqua Optima Chiller which is primarily aimed at Regulated markets.
To support our growth aspirations we are working on a number of products within the emerging 'Hot water on demand' category. This includes opportunities in coffee machines as well as innovative themes on water dispensing and kettle appliances utilising our Duality and Instant Flow technologies.
We continue to use our strong relationships with key OEMs, brands and retailers, coupled with consumer research, to increase the focus on innovative products for the future.
Automation and product efficiency
Lean and continuous improvement initiatives have continued to be a key focus for Strix and as a result we have secured a further 11% reduction to our quality ppm (parts per million) rate, achieving another record low level for the Group. During 2018, 508 million parts were manufactured at our factory in Ramsey by a team of only 37 people. The ISO certifications for our Isle of Man sites were also renewed recently based on the work performed in 2018, where we achieved the highest possible ranking of 'Benchmark'.
We have continued to invest in production automation with further automated lines being specified and installed during 2018, with investment planned for 2019 to automate an additional 3 lines (out of 18 in total). This will allow us to increase our production volume, quality control and reliability whilst managing to control costs, in particular rising wage costs in China. The relocation of our manufacturing facilities in China will assist us in maximising the economic benefit of our investment in automation.
Defence of intellectual property
We remain focused on promoting safety awareness and undertaking associated actions to protect the markets in which we operate from unsafe and poor quality products. Actions have been undertaken in 2018 including product recalls, IP enforcement raids, unfair competition claims, patent infringement claims and copyright claims in countries including China, the Netherlands, the United Kingdom, Germany and France. This has resulted in the cessation of sale of these products, agreements to fit Strix controls and connectors in the future, and a number of undisclosed sums being paid to Strix as part of the agreed settlements. We expect to continue this activity in 2019 as we continue to defend our intellectual property rights.
Senior management team
We have also appointed a Chief Commercial Officer who will start at Strix on 1 April 2019. This appointment will further strengthen the senior management team and this addition will bring significant experience of commercialising and marketing new products as we embark on this next phase of growth, particularly with our water filtration and temperature management products.
Trading and Outlook
The Board continues to work with the executive and management teams to deliver on our strategy to create value for our shareholders. The Group's performance in 2018, in spite of turbulent economic events, demonstrates the strength of the core business model which underpins Strix.
In 2019 we will continue to focus on our strategic objectives. A number of key strategic projects are being undertaken in 2019, including the relocation of our manufacturing facilities in China and the recent acquisition of HaloSource's HaloPure division and its Astrea product. We believe that these key strategic projects will position us for longer-term growth and will be funded from existing resources. The HaloSource acquisition which was completed on 7 March 2019 will provide us with key technology and research and development skills in the water filtration market. We will use this to support growth in Aqua Optima and this also provides us with an important foothold in the key USA market, where we see significant potential for future growth both in kettle safety controls and water filtration.
The supply of key commodities have been secured into 2019 through the continuation of our forward-buying policies or by negotiation of fixed price contracts. This reduces our exposure to commodity price fluctuations and provides us with certainty on the price of key commodities.
As the majority of transactions are conducted between our corporate office in the Isle of Man and our OEM customers in China, any potential impact from Brexit initiatives is limited. In addition, our consumer base is geographically diverse and we remain confident that our position in the global market limits any dependency on a specific territory. We also trade in a number of different currencies and as a result our exposure in any one single currency is monitored and managed. Whilst there are a number of headwinds which could make 2019 challenging including continued US/China trade tensions and the impact of Brexit, the Board believe they have taken appropriate preparatory steps to mitigate the risk presented by these challenges and as such, we remain confident about the Group's future outlook.
We will continue to maintain our market-leading share of kettle safety controls, and to grow our revenue streams in Aqua Optima and Other Technologies to diversify our revenue base. Whilst this will require continued investment in automation, infrastructure, people and facilities, we believe that the benefits of these investments will drive the creation of increased value for our shareholders. As a consequence, we remain confident about our full year outlook for 2019.
I would like to take this opportunity to thank all our employees across the globe for their commitment and hard work during another busy year for the Group and I look forward to their support and encouragement for the year ahead.
Mark Bartlett
Chief Executive Officer
Chief Financial Officer's review
Adjusted results(1) Reported results
------------------------ ------------------------
2018 2017 Change 2018 2017 Change
------ ------ ------ ------ --------
GBPm GBPm %(4) GBPm GBPm %(4)
Revenue 93.8 91.3 +2.7% 93.8 91.3 +2.7%
Revenue - constant currency basis(2) 95.3 91.3 +4.5% 95.3 91.3 +4.5%
EBITDA(3) 36.4 35.1 +3.5% 31.3 32.2 -3.0%
Gross profit 38.9 37.2 +4.6% 38.9 37.2 +4.7%
Operating profit 30.9 29.1 +6.2% 25.8 26.2 -1.5%
Profit before tax 29.2 28.3 +3.2% 24.1 25.4 -5.1%
Profit after tax 28.3 27.5 +2.7% 23.2 24.6 -5.9%
Net debt 27.5 45.9 +40.1% 27.5 45.9 +40.1%
Net cash generated from operating activities 35.0 33.8 +3.4% 35.0 33.8 +3.4%
Basic earnings per share 14.9p 14.5p +2.8% 12.2p 13.0p -6.2%
Final dividend per share 4.7p 1.9p +147.4% 4.7p 1.9p +147.4%
1. Adjusted results exclude exceptional items, which include share based payment transactions. Adjusted results are non-GAAP metrics used by management and are not an IFRS disclosure.
2. Revenue - constant currency basis, which is defined as 2018 revenue restated at the exchange rates prevailing in 2017, 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. Figures are calculated from the full numbers as presented in the consolidated financial statements.
Financial Performance
Revenue for 2018 has risen by 2.7% to GBP93.8m as a result of strong volume growth of 7.9%, partly offset by the strengthening of sterling against the dollar. As a consequence, revenue growth on a constant currency basis was higher at 4.5%. The lower sterling value of dollar denominated sales has been offset within gross profit by the lower sterling value of dollar costs and as a consequence, together with continued measures to reduce manufacturing costs, gross profit increased by GBP1.7m (4.7%). Gross profit margin also increased from 40.7% to 41.5%, as a result of efficiencies and cost savings.
Adjusted EBITDA increased to GBP36.4m from GBP35.1m, representing a 3.5% or GBP1.3m increase, in line with market expectations. Adjusted EBITDA is defined as profit before depreciation, amortisation, finance costs, finance income, taxation, and exceptional items including share based payments.
Administration costs (excluding exceptional costs) were GBP3.1m in 2018 against GBP2.7m in 2017. The increase is primarily due to the expansion of certain group support functions following Strix's admission to trading on AIM which has resulted in higher staff and legal and professional costs.
Adjusted operating profit showed an increase of 6.2% to GBP30.9m (2017: GBP29.1m) due to lower amortisation being reported (2018: GBP2.3m; 2017: GBP3.0m) and lower distribution costs. The decrease in distribution costs is mainly related to depreciation of customer tooling assets which ended during 2017, which has reduced the cost in 2018 by GBP0.6m. The Group's reported operating profit was GBP25.8m (2017: GBP26.2m) which represents a decrease of 1.5%, primarily due to incurring a full year of share-based payment charges in 2018 (2018: GBP4.9m; 2017: GBP2.0m) and higher administration costs, offset by an improved gross profit and lower distribution costs.
Adjusted profit before tax increased to GBP29.2m (2017: GBP28.3m). Interest of GBP0.6m was reported in 2017 for the 5 months period post IPO, whereas in 2018 a full year of interest has been reported, totalling GBP1.3m. On a like-for-like basis including a full year's interest charge in 2017, adjusted profit before tax growth would have been 7.4%. Other loan-related fees and charges have been incurred of GBP0.3m in 2018 (2017: GBP0.1m). The Group's reported profit before tax was GBP24.1m (2017: GBP25.4m).
Adjusted profit after tax increased to GBP28.3m (2017: GBP27.5m), an increase of 2.7%, as a result of a slightly increased tax charge representing an effective tax rate of 3.9% (2017
based payments was GBP4.9m (2017: GBP2.0m). The 2017 charge was applied on a pro-rata basis from the date of admission to trading on AIM. The charge will reduce to a normal level from 2020, once the tranche of IPO share options have vested. Some additional share awards were also granted during 2018 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 broadly naturally hedged against movements in USD and RMB as it both generates revenues and incurs costs in these currencies. The impact of foreign exchange in 2018 is a gain of GBP0.1m (2017: loss of GBP0.2m) despite significant currency fluctuations in 2018, which is equivalent to only 0.1% (2017: 0.2%) of revenue.
Taxation
The effective tax rate for the year is equivalent to 3.9% (2017: 3.1%) of the Group's profit before tax. In order to mitigate the risk of higher tax charges in the future, the contract processing basis has ceased from 1 January 2019 and the Group now applies a different basis of taxation which is expected to incur an effective tax rate of between 4% and 5% in 2019. In the medium term we do not expect the rate of tax to exceed 6%, and in the near term we expect the effective tax rate to stay within the 4% to 5% range.
Balance Sheet
Property, plant and equipment increased to GBP11.1m (2017: GBP9.4m). Capital additions (excluding assets under construction) were GBP4.8m (2017: GBP3.9m), primarily in relation to plant and machinery and production tools to support our sales growth objectives. Depreciation of GBP3.2m was consistent with prior year (2017: GBP3.0m) and expectations as the majority of the new additions were added during H2. Net intangible assets (comprising capitalised development costs and software) decreased by GBP0.4m (2017: GBP1.2m) which was in line with management expectations as some larger intangible assets reached the end of their useful lives.
Current assets increased to GBP31.3m compared to GBP26.5m in 2017 primarily due to a GBP3.4m increase in cash and cash equivalents to fund future projects. In addition, inventory increased by GBP1.4m both to meet future demand and to mitigate the potential impact of Brexit, by increasing our buffer stock held particularly of longer lead time items. Trade and other receivables were broadly unchanged at GBP7.3m (2017: GBP7.2m).
Current liabilities increased to GBP18.4m (2017: GBP17.3m) due to a GBP0.5m higher income tax liability as the future potential liabilities are accrued but unpaid, and a higher other liabilities amount. This primarily relates to a higher rebate payable due to the timing of payments and a higher capital creditors balance as a result of the property, plant and equipment additions in H2 2018.
Whilst the consolidated accounts show a retained deficit, significant reserves exist on the balance sheet of the dividend paying entity, Strix Group Plc.
Cash flow and net debt
The increase in cash and cash equivalents over the year was GBP3.4m (2017: decrease of GBP0.8m). This was primarily a result of the additional cash outflows incurred in 2017 as part of the admission to trading on AIM and the payments made to the former group company related parties as part of the exit by the Group's previous ownership which did not recur in 2018. This was partially offset by higher interest payments (as a result of having the revolving credit facility in place for the full year), higher dividend payments of GBP8.0m versus GBP1.9m in 2017, and repayments of the revolving credit facility totalling GBP15.0m (2017: GBP4.8m). Net cash generated from operating activities were up GBP1.1m in 2018 to GBP35.0m (2017: GBP33.8m) with net cash used in investing activities up GBP1.5m to GBP7.5m (2017: GBP6.0m) due to increased investment in both tangible and intangible assets.
Net debt has decreased from GBP45.9m in 2017 to GBP27.5m as a result of the repayments made during the year. We expect net debt and leverage to continue to reduce, driven by the Group's strong underlying cash generation. The speed of reduction may reduce in 2019 due to the factory move project which will be funded from existing resources.
The Group still has in place a revolving credit facility of GBP53.0m (2017: GBP70.0m) of which GBP41.0m (2017: GBP56.0m) remains drawn on the facility as at 31 December 2018. The Net debt to adjusted EBITDA ratio at 31 December 2018 was 0.8x (2017: 1.3x).
Raudres Wong
Chief Financial Officer
Consolidated statement of comprehensive income
for the year ended 31 December 2018
2018 2017
Note GBP000s GBP000s
--------------------------------------------- ------- --------- ---------
Revenue 7 93,769 91,263
--------------------------------------------- ------- --------- ---------
Cost of sales - before exceptional
items (54,851) (54,071)
Cost of sales - exceptional items 6 - (23)
--------------------------------------------- ------- --------- ---------
Cost of sales (54,851) (54,094)
Gross profit 38,918 37,169
Distribution costs (5,344) (5,790)
--------------------------------------------- ------- --------- ---------
Administrative expenses - before
exceptional items (3,083) (2,682)
Administrative expenses - exceptional
items 6 (5,072) (2,862)
Administrative expenses (8,155) (5,544)
Other operating income 370 342
--------------------------------------------- ------- --------- ---------
Operating profit 25,789 26,177
Analysed as:
--------------------------------------------- ------- --------- ---------
Adjusted EBITDA(1) 36,351 35,117
Amortisation 11 (2,292) (3,032)
Depreciation 12 (3,198) (3,023)
Other exceptional items 6 (5,072) (2,885)
--------------------------------------------- ------- --------- ---------
Operating profit 25,789 26,177
Finance costs 8 (1,672) (764)
Finance income 17 6
--------------------------------------------- ------- --------- ---------
Profit before taxation 24,134 25,419
Income tax expense 9 (947) (787)
--------------------------------------------- ------- --------- ---------
Profit for the year 23,187 24,632
--------------------------------------------- ------- --------- ---------
Other comprehensive income/(expense)
Items that will never be reclassified
to profit or loss:
Re-measurement of pension scheme
obligations 5(c) 19 (8)
--------------------------------------------- ------- --------- ---------
Total comprehensive income for the
year 23,206 24,624
--------------------------------------------- ------- --------- ---------
Earnings per share (pence)
Basic 10 12.2 13.0
Diluted 10 11.6 12.7
--------------------------------------------- ------- --------- ---------
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 2018
2018 2017
ASSETS Note GBP000s GBP000s
-------------------------------- ----- --------- ---------
Non-current assets
Intangible assets 11 4,804 5,179
Property, plant and equipment 12 11,093 9,378
Total non-current assets 15,897 14,557
-------------------------------- ----- --------- ---------
Current assets
Inventories 14 10,518 9,165
Trade and other receivables 15 7,254 7,195
Cash and cash equivalents 16 13,521 10,111
-------------------------------- ----- --------- ---------
Total current assets 31,293 26,471
-------------------------------- ----- --------- ---------
Total assets 47,190 41,028
-------------------------------- ----- --------- ---------
EQUITY AND LIABILITIES
-------------------------------- ----- --------- ---------
Equity
Share capital 23 1,900 1,900
Share based payment reserve 22 6,904 2,042
Retained deficit (21,180) (36,406)
Total deficit (12,376) (32,464)
Current liabilities
Trade and other payables 17 16,824 16,164
Current income tax liabilities 17 1,575 1,103
Total current liabilities 18,399 17,267
-------------------------------- ----- --------- ---------
Non-current liabilities
Borrowings 18 41,000 56,000
Post-employment benefits 5(c) 167 225
-------------------------------- ----- --------- ---------
Total non-current liabilities 41,167 56,225
-------------------------------- ----- --------- ---------
Total liabilities 59,566 73,492
-------------------------------- ----- --------- ---------
Total equity and liabilities 47,190 41,028
-------------------------------- ----- --------- ---------
Consolidated statement of changes in equity
for the year ended 31 December 2018
Share Share Other Retained Total
capital based reserves (deficit)/ (deficit)/
payment earnings equity
reserve
GBP000s GBP000s GBP000s GBP000s GBP000s
-------------------------------------- --------- --------- ---------- ------------ ------------
Balance at 1 January 2017 2 - 1,793 248,499 250,294
-------------------------------------- --------- --------- ---------- ------------ ------------
Profit for the year - - - 24,632 24,632
Other comprehensive expense - - - (8) (8)
Total comprehensive income
for the year - - - 24,624 24,624
-------------------------------------- --------- --------- ---------- ------------ ------------
Transactions with owners recognised directly
in equity:
Dividends paid (note 24) - - - (1,900) (1,900)
Share based payment transactions
(note 22) - 2,042 - - 2,042
Group reorganisation (note
28) - - 190,000 (673,707) (483,707)
Issue of shares (note 23) 1,900 - 188,100 (13,817) 176,183
Capital reduction (note
28) (2) - (379,893) 379,895 -
-------------------------------------- --------- --------- ---------- ------------ ------------
Total transactions with
owners recognised directly
in equity 1,898 2,042 (1,793) (309,529) (307,382)
-------------------------------------- --------- --------- ---------- ------------ ------------
Balance at 31 December 2017 1,900 2,042 - (36,406) (32,464)
-------------------------------------- --------- --------- ---------- ------------ ------------
Balance at 1 January 2018 1,900 2,042 - (36,406) (32,464)
-------------------------------------- --------- --------- ---------- ------------ ------------
Profit for the year - - - 23,187 23,187
Other comprehensive income - - - 19 19
Total comprehensive income
for the year - - - 23,206 23,206
-------------------------------------- --------- --------- ---------- ------------ ------------
Transactions with owners recognised directly
in equity:
Dividends paid (note 24) - - - (7,980) (7,980)
Share based payment transactions
(note 22) - 4,862 - - 4,862
Total transactions with
owners recognised directly
in equity - 4,862 - (7,980) (3,118)
-------------------------------------- --------- --------- ---------- ------------ ------------
Balance at 31 December 2018 1,900 6,904 - (21,180) (12,376)
-------------------------------------- --------- --------- ---------- ------------ ------------
Consolidated cash flow statement
for the year ended 31 December 2018
2018 2017
Note GBP000s GBP000s
----------------------------------------- ------- --------- ----------
Cash flows from operating activities
Cash generated from operations 25 35,431 34,348
Tax paid (475) (527)
----------------------------------------- ------- --------- ----------
Net cash generated from operating
activities 34,956 33,821
----------------------------------------- ------- --------- ----------
Cash flows from investing activities
Purchase of property, plant and
equipment (5,703) (4,013)
Capitalised development costs 11 (1,849) (1,688)
Purchase of software 11 (68) (291)
Proceeds on sale of property, plant
and equipment 135 10
Finance income 17 6
Net cash used in investing activities (7,468) (5,976)
----------------------------------------- ------- --------- ----------
Cash flows from financing activities
Transactions with former group company
related parties 27, 28 - (257,457)
Proceeds of borrowings 18 - 60,774
Repayments of borrowings 18 (15,000) (4,774)
Net proceeds from issuance of shares 28 - 176,183
Transaction costs related to borrowings 18 - (822)
Dividends paid 24 (7,980) (1,900)
Finance costs paid (1,305) (464)
Net cash used in financing activities (24,285) (28,460)
----------------------------------------- ------- --------- ----------
Net increase/(decrease) in cash
and cash equivalents 3,203 (615)
Cash and cash equivalents at the
beginning of the year 10,111 10,959
Effects of foreign exchange on cash
and cash equivalents 207 (233)
----------------------------------------- ------- --------- ----------
Cash and cash equivalents at the
end of the year 25 13,521 10,111
----------------------------------------- ------- --------- ----------
Notes to the consolidated financial statements
for the year ended 31 December 2018
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 Group 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 Group financial statements have been prepared on the going concern basis and on the historical cost convention.
The preparation of Group financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 3.
Group reorganisation
The Group financial statements for the comparative year were prepared under the capital reorganisation accounting principles because the transaction under which the Company became the holding company of Sula Limited ('Sula' and the 'Sula Group') was a group reorganisation with no change in the ultimate ownership of the Sula Group. All the shareholdings in Sula were exchanged via a share-for-share transfer on 8 August 2017. The Company did not actively trade at that time.
There is currently no specific guidance on accounting for group reorganisations such as the transaction which took place in 2017 under IFRSs. In the absence of specific guidance, entities should select an appropriate accounting policy and IFRS permits the consideration of pronouncements of other standard-setting bodies. The Directors took the view that the most appropriate way to account for this in line with IFRS was to deem the share-for-share exchange with Sula Group as a group reorganisation for 2017. The result of the application of the group reorganisation was to present the comparative financial statements as if the Company had always owned the Sula Group. The group reorganisation is explained in more detail in note 28.
The group reorganisation, which was scoped out of IFRS 3, was therefore accounted for using capital reorganisation accounting principles resulting in the following effects:
(a) the net assets were combined using existing book values, with adjustments made as necessary to ensure that the same accounting policies were applied to the calculation of the net assets of the entities which were part of the group reorganisation;
(b) no amount was recognised as consideration for goodwill or negative goodwill;
(c) the consolidated statement of comprehensive income included the profits or losses of each company for the entire period, regardless of the date of the reorganisation; and
(d) the retained earnings reserve included the cumulative results of each company, regardless of the date of the reorganisation.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Group and all of its subsidiary undertakings. The financial statements of all Group companies are adjusted, where necessary, to ensure the use of consistent accounting policies. Acquisitions are accounted for under the acquisition method from the date control passed to the Group. On acquisition, the assets and liabilities of a subsidiary are 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.
Subsidiary undertakings which were part of the group reorganisation are treated as if they have always been a member of the Group. Any difference between the nominal value of the shares acquired by the Company and those issued by the Company to acquire them is taken to retained earnings.
Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group is exposed to or has the rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Transactions eliminated on consolidation
Intra-group balances, and any gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the Group financial statements.
Going concern
These Group financial statements have been prepared on the going concern basis.
The Directors acknowledge that the Group is in a net liability position, as a consequence of the group reorganisation and admission to AIM which occurred during 2017, and the distribution made to the former shareholders. As a consequence, the Directors have made additional 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 Company
and the Group;
-- budgets and cash flow forecasts for the period to December
2021;
-- the current financial position of the Group, including
its cash and cash equivalents balances of GBP13.5m;
-- the availability of further funding should this be required
(including the headroom of GBP12.0m 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; and
-- the fact that the Group operates within a sector that is
experiencing relatively stable demand for its products.
Based on these considerations, the Directors have concluded that there is a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. As a result, the Directors continue to adopt the going concern basis of accounting in preparing the annual financial statements.
New standards, amendments and interpretations
No new standards, amendments or interpretations, effective for the first time for the financial year beginning on or after 1 January 2018, have had a material impact on the Group.
IFRS 9 'Financial instruments'
IFRS 9 was effective for Strix Group Plc from 1 January 2018. It is applicable to financial assets and financial liabilities and covers the classification, measurement, impairment and de-recognition of financial assets and liabilities together with a new hedge accounting model. Given the nature of the Group's operations, IFRS 9 has not had a material impact.
IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 was effective for Strix Group Plc from 1 January 2018. IFRS 15 sets out the requirements for recognising revenue and costs from contracts with customers and includes extensive disclosure requirements. The standard requires entities to apportion revenue earned from contracts to individual promises, or performance obligations, on a relatively stand-alone selling price basis, based on a five-step model.
Having completed a review, a small portion of contracts, making up less than 1% of Group revenue, were re-documented and re-issued in order to continue to apply our historic accounting treatment under IFRS 15. There were no material impacts of applying IFRS 15.
Standards, amendments and interpretations which are not effective or early adopted
At the date of approval of the Group financial statements, the only new standard and interpretations which is relevant to the Group but has not been applied in these financial statements is IFRS 16 - Leases.
IFRS 16 'Leases'
IFRS 16 was published in January 2016 and is effective for Strix Group Plc from 1 January 2019, replacing IAS 17 'Leases'. The Group has not early-adopted the standard and so transition to IFRS 16 has taken place on 1 January 2019. Results in the 2019 financial year will be IFRS 16 compliant, with the first Annual report published in accordance with IFRS 16 being the 31 December 2019 report. The standard requires lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less, or the underlying asset is of low value.
The Group has chosen to adopt the modified retrospective approach on transition. The impact on the Group's financial results as at 1 January 2019 is:
-- Total assets have increased by GBP3.4m, as leased assets
which are currently accounted for off balance sheet (i.e.
classified as operating leases under IAS 17) will be
recognised as a "right-of-use" asset on the balance sheet,
which represents the right to use the underlying leased
asset. The Group only has leases which are above the
low value threshold relating to land and buildings in
relation to the sites in the Isle of Man, United Kingdom,
Hong Kong and China
-- Debt has increased by GBP3.7m, as liabilities relating
to existing operating leases have been recognised which
represents the obligation to make future lease payments.
The increase in total debt has impacted on the Group's
gearing ratios, although for the purposes of the revolving
credit facility disclosed in note 18, the ratio is not
affected as the agreement specifies that changes in accounting
standards should be ignored.
-- An adjustment to equity of GBP0.3m on transition has
been recognised, decreasing the opening retained earnings
balance on 1 January 2019.
-- Operating lease expenditure has been reclassified and
split between depreciation and finance costs. As a consequence
of this, reported EBITDA will increase in 2019 versus
the IAS 17 equivalent result by c.GBP1.0m. To offset
this, depreciation will increase by c.GBP0.9m and finance
costs will increase by c.GBP0.1m to leave a neutral profit
after tax result.
Foreign currency translation
Functional and presentational currency
Items included in the financial information of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The functional currency of the Company, and all entities within the Group with the exception of Strix Hong Kong, is Sterling. This is also the Group's presentational currency. The functional currency of Strix Hong Kong is the Hong Kong Dollar.
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 consolidated statement of comprehensive income within cost of sales.
Group companies
The results and financial position of Strix Hong Kong are translated into the presentation currency as follows:
-- assets and liabilities for each balance sheet presented
are translated at the closing rate at the date of that
balance sheet, or 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
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 2 - 5 years
equipment
-- Motor vehicles 3 - 5 years
-- Production tools 1 - 5 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.
Fixtures, fittings and other equipment includes computer hardware.
The assets' residual values and useful lives are reviewed at the end of each reporting period.
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 capitalised development costs and computer software. 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 patent application costs. Internal costs that are capitalised are limited to incremental costs specific to the project.
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.
The costs of renewing and maintaining patents are expensed in the consolidated statement of comprehensive income as they are incurred, unless they qualify for capitalisation as development costs. 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 2 - 5 years
costs
-- Technology and software 2 - 10 years
Amortisation is charged to the consolidated statement of comprehensive income on a straight-line basis over the estimated useful lives above.
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.
Impairment
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
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.
Leases
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases. Payments made under operating leases are charged to the consolidated statement of comprehensive income on a straight-line basis over the life of the lease. Costs incurred relating to operating leases are disclosed in note 6.
Leases under which the Group assumes substantially all the risks and rewards of ownership of an asset are classified as finance leases. The Group does not have any material finance leases. From 1 January 2019, the Group will apply IFRS 16.
Financial assets and financial liabilities
The Group has elected not to restate comparative information as a consequence of the application of IFRS 9 as the amounts involved are immaterial. As a result, the comparative information provided continues to be accounted for in accordance with the Group's previous accounting policy, which is set out below, together with the accounting policies applied from 1 January 2018.
Financial assets - applied until 31 December 2017
Classification
The 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 cash and cash equivalents and trade and other receivables (excluding prepayments). 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 Group will be unable to collect all of the amounts due under the terms receivable. The amount of any such provision is the difference between the net carrying amount and the present value of the future expected cash flows (excluding future credit losses that have not been incurred) associated with the impaired receivable, discounted at the financial asset's original effective interest rate.
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 in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the credit rating of a debtor), the reversal of the previous impairment loss is recognised in the consolidated statement of comprehensive income.
Financial assets - applied from 1 January 2018
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
From 1 January 2018, 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
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.
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.
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
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 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 annually 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 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 (options) 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 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 22.
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 estimated 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. Accumulated experience is used to estimate and provide for discounts and rebates using the expected value method, 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.
The performance obligation is the delivery of goods to customers, and revenue is recognised on despatch 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 patters 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 other customers payment is normally due at most 45 days from the date of sale.
Some assets are recognised from the costs to obtain contracts with customers, but the total costs in the year are less than 0.25% of revenue (2017: 0.25%) therefore further disclosures have not been made.
Due to the simple nature of the Group's revenue no significant judgments have been made in the application of IFRS 15, aside from the amount of sales rebates the Group expects to incur. These judgements are explained in note 3.
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.
Share capital
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.
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 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.
The 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.
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. EBITDA is defined as earnings before finance costs, tax, depreciation and amortisation. 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 Group 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 which has a Hong Kong 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.
Rebates
Allowances for rebates are recognised based on recent historical experience and management's best estimates. Actual cash outflows may differ from these estimates, for example, if volumes sold in order to claim a volume rebate are not met. Rebates during the year were approximately 4.2% of gross turnover (2017: 3.8%).
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. It is managed as one entity and management have consequently determined that there is only one operating segment.
Products and services
Revenue is generated by the Group on the sale of thermostatic controls, cordless interfaces, and other products such as water jugs and filters. Whilst under IFRS 8 there is only one segment, the information used to prepare the consolidated financial statements is disaggregated into three product families, being 'Kettle controls', 'Aqua Optima' and 'Other'. 'Other' relates to new technology products and other appliances which do not fit in either 'Kettle controls' or 'Aqua Optima'. An analysis of revenue by product family is provided in note 7.
Geographical
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.
2018 2017
GBP000s GBP000s
Country of domicile
Intangible assets 4,629 4,877
Property, plant and equipment 2,002 1,796
Total country of domicile non-current
assets 6,631 6,673
------- ---------
Foreign countries
Intangible assets 175 302
Property, plant and equipment 9,091 7,582
------- ---------
Total foreign non-current assets 9,266 7,884
------- ---------
Total non-current assets 15,897 14,557
------- ---------
Of the 'foreign countries' balance above, GBP6,000 (2017: GBP20,000) of property, plant and equipment relates to non-current assets located in a foreign country other than China. The remaining 'foreign countries' non-current assets are located in China.
Major customers
In 2018 there were two major customers that individually accounted for at least 10% of total revenues (2017: two customers). The revenues relating to these customers in 2018 were GBP17,233,000 and GBP11,869,000 (2017: GBP16,223,000 and GBP10,907,000).
5. EMPLOYEES AND DIRECTORS
(a) Employee benefit expenses
2018 2017
GBP000s GBP000s
Wages and salaries 15,957 14,999
Defined contribution pension cost
(note 5(c)) 381 398
Non-exceptional employee benefit
expenses 16,338 15,397
Share based payment transactions
(note 22) 4,862 2,042
------- ---------
Total employee benefit expenses 21,200 17,439
======= =========
(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, from the date of admission to trading on AIM. Prior to admission to trading on AIM, key management was considered to be the Executive Committee, including the Directors.
2018 2017
GBP000s GBP000s
Salaries and other short-term employee
benefits 1,639 4,319
Post-employment benefits 172 164
Share based payment transactions 4,521 1,647
6,332 6,130
======= =========
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 GBP381,000 (2017: GBP398,000).
(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 accrual.
A full actuarial valuation of this scheme was completed as at 6 April 2016, which has been updated to 31 December 2018 by a qualified independent actuary. The valuation of the scheme used the projected unit method.
At 31 December 2018 the market value of the scheme assets was GBP226,000 (2017: GBP181,000) and the present value of the scheme liabilities were GBP393,000 (2017: GBP406,000). The net post-employment obligation at 31 December 2018 is GBP167,000 (2017: GBP225,000). The total charge recognised in the consolidated statement of comprehensive income was GBP5,000 (2017: GBP6,000).
The actuarial gain recognised in the consolidated statement of comprehensive income was GBP19,000 (2017: actuarial loss of GBP8,000). The Group expects to make total contributions of GBP40,000 in the year ending 31 December 2019.
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.
6. EXPENSES
(a) Expenses by nature
2018 2017
GBP000s GBP000s
Employee benefit expense 16,338 15,397
Depreciation charges 3,198 3,023
Amortisation and impairment charges 2,292 3,180
Operating lease payments 1,144 1,152
Exceptional items - reorganisation
costs - 23
- strategic projects 206 -
- exit costs 4 820
- share based payment transactions 4,862 2,042
Foreign exchange (gains)/losses (78) 201
Research and development expenditure totalled GBP3,820,000 (2017: GBP3,549,000), with GBP1,849,000 (2017: GBP1,688,000) of these costs being capitalised during the year.
(b) Exceptional items
The reorganisation costs are in relation to the transfer of operations to China and Hong Kong, and the expansion of the senior management unit within China and Hong Kong.
Strategic project costs relates to certain projects being undertaken to support the achievement of the Group's strategic plans.
The exit costs were incurred by the Group relating to a potential sale of the Group under the previous ownership structure.
The share based payment transactions relate to conditional share options issued to certain employees. Further details are provided in note 22.
During 2017 GBP13,817,000 of costs incurred in relation to the IPO were debited to equity in accordance with IAS 32. No costs were debited to equity in 2018.
(c) Auditor's remuneration
During the year the Group (including its subsidiaries) obtained the following services from the Company's auditor as detailed below:
2018 2017
GBP000s GBP000s
Fees payable to Company's auditor
and its associates for the audit of
Consolidated financial statements 114 109
Fees payable to Company's auditor
and its associates for other services:
* the audit of Company's subsidiaries 4 4
- audit assurance services - 205
- other assurance services 9 14
* non-audit services - 205
* tax compliance 9 9
136 546
======= =========
The audit assurance services in 2017 related wholly to work performed by PwC LLP UK as reporting accountants in connection with the admission of the Group's ordinary shares to AIM in August 2017. These costs were included within the Group's transaction costs associated with the listing, which were debited to equity.
The non-audit services in 2017 included work performed by PwC LLP UK in connection with the admission of the Group's ordinary shares to AIM in August 2017. These costs were included within the Group's transaction costs associated with the listing, which were debited to equity.
7. REVENUE
The following table shows a disaggregation of revenue into categories by product line:
2018 2017
---------------- ------ ------
Kettle controls 83,514 82,954
Aqua Optima* 9,263 7,357
Other* 992 952
---------------- ------ ------
Total revenue 93,769 91,263
---------------- ------ ------
* The Group has reclassified a certain product line previously reported under "Other" as part of "Aqua Optima" when compared to the revenue disaggregation table reported at H1 2018. This reclassification has also been applied to 2017 in the table above in order to follow a change to the internal reporting of this product line.
8. FINANCE COSTS
2018 2017
GBP000s GBP000s
Letter of credit charges 68 66
Pension scheme interest 1 6
Borrowing costs 1,603 692
------- ---------
Total finance costs 1,672 764
======= =========
9. TAXATION
Analysis of charge in year 2018 2017
GBP000s GBP000s
Current tax (overseas)
Current tax on overseas profits for
the year 960 793
Adjustments in respect of prior years
- overseas (13) (6)
------- ---------
Total tax charge 947 787
======= =========
Overseas tax relates primarily to tax payable by the Group's subsidiary in China. During 2016, the Group's Chinese subsidiary paid additional tax of GBP1.1m following a benchmarking assessment by the Chinese tax authorities relating to contract processing businesses in the years 2009 to 2014. The potential additional liabilities for 2015 to 2018 calculated on the same basis of GBP1.3m are included within the current tax liability balance in the consolidated balance sheet, in line with the basis of the tax enquiry.
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% (2017: 0%). The differences are explained below.
2018 2017
GBP000s GBP000s
Profit on ordinary activities before
tax 24,134 25,419
------- ---------
Profit on ordinary activities multiplied - -
by the rate of income tax in the Isle
of Man of 0% (2017: 0%)
Impact of higher overseas tax rate 960 793
Adjustments in respect of prior years
- overseas (13) (6)
Total taxation charge 947 787
======= =========
The Company is subject to Isle of Man income tax on profits at the rate of 0% (2017: 0%). Based on the Company's current activities, the Company is not expected to have any future Isle of Man tax liability.
10. EARNINGS PER SHARE
The calculation of basic and diluted earnings per share is based on the following data.
2018 2017
------------------------------------------------- ---------- ----------
Earnings (GBP000s)
Earnings for the purposes of basic and diluted
earnings per share 23,187 24,632
------------------------------------------------- ---------- ----------
Number of shares (000s)
Weighted average number of shares for the
purposes of basic earnings per share 190,000 190,000
Weighted average dilutive effect of conditional
share awards 9,326 3,587
------------------------------------------------- ---------- ----------
Weighted average number of shares for the
purposes of diluted earnings per share 199,326 193,587
------------------------------------------------- ---------- ----------
Earnings per ordinary share (pence)
Basic earnings per ordinary share 12.2 13.0
Diluted earnings per ordinary share 11.6 12.7
------------------------------------------------- ---------- ----------
Adjusted earnings per ordinary share (pence)
(1)
Basic adjusted earnings per ordinary share
(1) 14.9 14.5
Diluted adjusted earnings per ordinary share
(1) 14.2 14.2
------------------------------------------------- ---------- ----------
The calculation of basic and diluted adjusted earnings per share is based on the following data:
2018 2017
GBP000s GBP000s
---------------------------------- --------- ---------
Profit for the year 23,187 24,632
---------------------------------- --------- ---------
Add back:
Reorganisation costs - 23
Strategic project costs 206 -
Exit costs 4 820
Share based payment transactions 4,862 2,042
Adjusted earnings (1) 28,259 27,517
---------------------------------- --------- ---------
(1) Adjusted results exclude exceptional items, which include share based payment transactions. 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
2018 2017
--------------------------------- -----------------------
Development Software Total Development Software Total
costs costs
------------ --------- -------- ------------ --------- --------
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
At 1 January
Cost 12,716 511 13,227 13,254 220 13,474
Accumulated
amortisation
and impairment (7,877) (171) (8,048) (7,030) (64) (7,094)
----------------- ------------ --------- -------- ------------ --------- --------
Net book
value 4,839 340 5,179 6,224 156 6,380
================= ============ ========= ======== ============ ========= ========
Year ended 31 December
Additions 1,849 68 1,917 1,688 291 1,979
Amortisation
charges (2,126) (166) (2,292) (2,925) (107) (3,032)
Impairment
charges - - - (148) - (148)
----------------- ------------ --------- -------- ------------ --------- --------
Closing net
book value 4,562 242 4,804 4,839 340 5,179
----------------- ------------ --------- -------- ------------ --------- --------
At 31 December
Cost 12,886 579 13,465 12,716 511 13,227
Accumulated
amortisation
and impairment (8,324) (337) (8,661) (7,877) (171) (8,048)
----------------- ------------ --------- -------- ------------ --------- --------
Net book
value 4,562 242 4,804 4,839 340 5,179
================= ============ ========= ======== ============ ========= ========
Amortisation charges have been treated as an expense, and are allocated to cost of sales (2018: GBP2,189,000; 2017: GBP2,935,000), distribution costs (2018: GBP2,000; 2017: GBP2,000), and administrative expenses (2018: GBP101,000; 2017: GBP95,000) in the consolidated statement of comprehensive income. There were no reversals of prior year impairments during the year (2017: same). During the year, GBP1,679,000 (2017: GBP2,078,000) of assets with a net book value of zero were derecognised in line with the derecognition policy disclosed in note 2.
12. PROPERTY, PLANT AND EQUIPMENT
2018
-----------------------------------------------------------------------------------------
Plant & Fixtures, Motor vehicles Production Assets Total
machinery fittings tools under construction
& equipment
---------- -------------- -------------- ------------ ------------------- ----------
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
At 1 January
Cost 19,440 5,037 104 13,678 1,668 39,927
Accumulated depreciation (14,552) (4,078) (35) (11,884) - (30,549)
------------------------- ---------- -------------- -------------- ------------ ------------------- ----------
Net book value 4,888 959 69 1,794 1,668 9,378
========================= ========== ============== ============== ============ =================== ==========
Year ended 31
December
Additions - 684 60 - 4,290 5,034
Transfers 2,730 (53) (23) 1,415 (4,069) -
Disposals (115) - - (6) - (121) Depreciation charge (1,575) (511) (16) (1,096) - (3,198) Closing net book value 5,928 1,079 90 2,107 1,889 11,093 ------------------------- ---------- -------------- -------------- ------------ ------------------- ---------- At 31 December Cost 20,623 3,674 141 13,484 1,889 39,811 Accumulated depreciation (14,695) (2,595) (51) (11,377) - (28,718) ------------------------- ---------- -------------- -------------- ------------ ------------------- ---------- Net book value 5,928 1,079 90 2,107 1,889 11,093 ========================= ========== ============== ============== ============ =================== ==========
Depreciation charges are allocated to cost of sales (GBP2,490,000), distribution costs (GBP551,000), and administrative expenses (GBP157,000) in the consolidated statement of comprehensive income. During the year, GBP5,029,000 of assets with a net book value of zero were derecognised in line with the derecognition policy disclosed in note 2.
2017
-----------------------------------------------------------------------------------------
Plant & Fixtures, Motor vehicles Production Assets Total
machinery fittings tools under construction
& equipment
---------- -------------- -------------- ------------ ------------------- ----------
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
At 1 January
Cost 18,056 4,209 60 14,333 1,074 37,732
Accumulated depreciation (14,023) (3,802) (45) (11,943) - (29,813)
------------------------- ---------- -------------- -------------- ------------ ------------------- ----------
Net book value 4,033 407 15 2,390 1,074 7,919
========================= ========== ============== ============== ============ =================== ==========
Year ended 31
December
Additions - 993 72 - 3,423 4,488
Transfers 1,856 - - 973 (2,829) -
Disposals - - (6) - - (6)
Depreciation charge (1,001) (441) (12) (1,569) - (3,023)
Closing net book
value 4,888 959 69 1,794 1,668 9,378
------------------------- ---------- -------------- -------------- ------------ ------------------- ----------
At 31 December
Cost 19,440 5,037 104 13,678 1,668 39,927
Accumulated depreciation (14,552) (4,078) (35) (11,884) - (30,549)
------------------------- ---------- -------------- -------------- ------------ ------------------- ----------
Net book value 4,888 959 69 1,794 1,668 9,378
========================= ========== ============== ============== ============ =================== ==========
Depreciation charges are allocated to cost of sales (GBP1,662,000), distribution costs (GBP1,179,000), and administrative expenses (GBP182,000) in the consolidated statement of comprehensive income. During the year, GBP2,287,000 of assets with a net book value of zero were derecognised in line with the derecognition policy disclosed in note 2.
13. PRINCIPAL SUBSIDIARY UNDERTAKINGS OF THE GROUP
A list of all subsidiary undertakings controlled by the Group, which are all included in the consolidated financial statements, is set out below.
% of ordinary % of ordinary
shares shares
Country held by held by
Subsidiary Nature of business of incorporation the Company the Group
% %
Sula Limited Holding company IOM 100 100
Manufacture and sale
Strix Limited of products IOM - 100
Strix Guangzhou Manufacture and sale
Ltd of products China - 100
Strix (U.K.) Group's sale and distribution
Limited centre UK - 100
Strix Hong Kong Sale and distribution
Ltd of products Hong Kong - 100
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 GBP1,222,000 (2017: GBP932,000)
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. INVENTORIES
2018 2017
GBP000s GBP000s
Raw materials and consumables 5,993 4,791
Finished goods and goods in transit 4,525 4,374
10,518 9,165
======= =========
The cost of inventories recognised as an expense and included in cost of sales amounted to GBP33,895,000 (2017: GBP32,545,000). The charge for impaired inventories was GBP52,000 (2017: GBP198,000). There were no reversals of previous inventory write-downs.
15. TRADE AND OTHER RECEIVABLES
2018 2017
GBP000s GBP000s
Amounts falling due within one year:
Trade receivables 3,336 3,791
Trade receivables past due 131 84
Loss allowance (26) (17)
Trade receivables - net 3,441 3,858
Prepayments 987 1,192
Advance purchase of commodities 1,483 1,340
Other receivables 1,343 805
7,254 7,195
======= =========
Trade and other receivables are all current and any fair value difference is not material. The amount of trade receivables past due is not material, therefore an aging analysis has not been presented (2017: same). The amount of trade receivables impaired at 31 December 2018 is equal to the provision (2017: same). The amount of the provision for trade receivables as at 31 December 2018 was GBP26,000 (2017: GBP17,000).
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.
GBP822,000 of prepayments were capitalised in 2017 relating to transaction costs for the non-current borrowings put in place as part of the group reorganisation and admission to trading on AIM. At 31 December 2018, GBP587,000 (2017: GBP751,000) of these transaction costs are included within prepayments.
Other receivables includes government grants due of GBP355,000 (2017: GBP338,000). 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:
2018 2017
GBP000s GBP000s
British Pound 4,017 4,560
Chinese Yuan 1,721 1,536
United States Dollar 1,184 811
Euro 191 157
Hong Kong Dollar 122 109
Other 19 22
7,254 7,195
======= =========
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 2018 was GBP26,000 (2017: GBP17,000).
The creation and release of a provision for impaired receivables is allocated to cost of sales in the consolidated statement of comprehensive income. For the year ended 31 December 2018, the amount allocated to cost of sales was GBP9,000 (2017: GBP22,000). Amounts charged to the allowance account are written off when there is no expectation of recovering additional cash.
16. CASH AND CASH EQUIVALENTS
2018 2017
GBP000s GBP000s
Cash and cash equivalents
Cash at bank and in hand 13,521 10,111
======= =========
The carrying amounts of the Group's cash and cash equivalents are denominated in the following currencies:
2018 2017
GBP000s GBP000s
British Pound 6,709 6,127
Chinese Yuan 868 732
United States Dollar 5,217 2,954
Hong Kong Dollar 357 200
Euro 370 98
13,521 10,111
======= =======
17. TRADE AND OTHER PAYABLES
2018 2017
GBP000s GBP000s
Trade payables 4,881 5,026
Current income tax liabilities 1,575 1,103
Social security and other taxes 108 191
Other liabilities 5,737 4,854
Payments in advance from customers 1,961 1,863
Accrued expenses 4,137 4,230
18,399 17,267
======= =========
The fair value of financial liabilities approximates their carrying value due to short maturities.
The carrying amounts of the Group's trade and other payables are denominated in the following currencies:
2018 2017
GBP000s GBP000s
British Pound 6,726 5,622
Chinese Yuan 6,849 7,726
United States Dollar 4,167 3,133
Hong Kong Dollar 354 434
Euro 303 352
18,399 17,267
======= =======
18. BORROWINGS
2018 2017
GBP000s GBP000s
Non-current bank loans 41,000 56,000
======= =========
Term and debt repayment schedule
Interest Maturity 2018 carrying
Currency rate date value (GBP000s)
Revolving credit LIBOR + 27 July
facility GBP 1.50% - 2.50% 2022 41,000
On 27 July 2017, the Company entered into an agreement with The Royal Bank of Scotland Plc (as agent), and the Royal Bank of Scotland International Limited and HSBC Bank Plc (as original lenders) in respect of a revolving credit facility of GBP70,000,000.
The proceeds of the first drawdown of GBP60,774,000 were used to (among other things) repay previously existing banking facilities prior to the group reorganisation and admission to trading on AIM, to pay fees, costs and expenses in relation to the process and to fund the distribution paid to former group company related parties. 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 subsidiaries, Strix Limited, Sula Limited, have entered into the agreement as guarantors, guaranteeing the obligations of the borrowers under the agreement.
Transaction costs incurred as part of the debt financing amounting to GBP822,000 were capitalised in 2017 and are being amortised over the period of the facility (see note 15).
The agreement contains representations and warranties which are usual for an agreement of this nature. The agreement also provides for the payment of a commitment fee, agency fee and arrangement fee, contains certain undertakings, guarantees and covenants (including financial covenants) and provides for certain events of default. During 2018, the Group has not breached any of the financial covenants contained within the agreement - see note 21(d) for further details.
On 30 June 2018, the total facility available reduced by GBP5,000,000, and has continued to reduce by a further GBP2,000,000 every 6 months thereafter. The Group voluntarily cancelled GBP10,000,000 of the facility on 19 June 2018. As at 31 December 2018 the total facility available is GBP53,000,000 (2017: GBP70,000,000).
Interest applied to the loan is calculated as the sum of the margin and LIBOR (or EURIBOR for any loan denominated in Euros). The margin is a calculated based on the Group's leverage as follows:
Leverage Annualised margin
%
------------------------------- ------------------
Greater than or equal to 2.0x 2.5%
Less than 2.0x but greater
than or equal to 1.5x 2.2%
Less than 1.5x but greater
than or equal to 1.0x 2.0%
Less than 1.0x 1.5%
At 31 December 2018 the margin applied was 1.5% (2017: 2.0%).
The Group's only other interest-bearing borrowing is a finance lease liability which is not considered material for separate disclosure.
19. COMMITMENTS
(a) Capital commitments
2018 2017
GBP000s GBP000s
Contracted for but not provided in the consolidated financial statements - Property, plant
and equipment 1,005 1,010
========= =======
(b) Operating lease commitments
The Group leases various offices, warehouses and factories under non-cancellable operating lease agreements. The lease terms are between 1 and 10 years and have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are generally renegotiated at the prevailing market rate.
The lease expenditure charged to the consolidated statement of comprehensive income during the year is disclosed in note 6. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:
2018 2017
GBP000s GBP000s
Within 1 year 1,012 1,037
Later than 1 year and less than 5 years 2,104 1,870
After 5 years 806 1,031
--------- -------
3,922 3,938
========= =======
20. 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. The invalidation actions have all been successfully survived to date. The Directors believe that a favourable outcome on these cases is probable, having made appropriate legal consultations. However, 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 2018, 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 2018 (2017: same).
21. 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 and liquidity 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 -- Chinese Yuan -- United States Dollar -- Hong Kong Dollar -- Euro
Exposure by currency is analysed in notes 15, 16 and 17.
(ii) Interest rate risk
The Group is exposed to interest rate risk on its long term borrowings, being the revolving credit facility disclosed in note 18. The interest rate on the borrowings is 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. 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 2018 or 2017.
At 31 December 2018 and 2017, payments were made in advance to buy certain commodities at fixed prices, as disclosed in note 15.
(iv) Sensitivity analysis
-- Foreign exchange risk: The Group is primarily exposed to
exchange rate fluctuations between GBP and USD, RMB, HKD,
and EUR. Assuming a reasonably possible change in FX rates
of +10% (2017: +10%), the impact on profit would be a decrease
of GBP406,000 (2017: an increase of GBP117,000), and the
impact on equity would be a decrease of GBP555,000 (2017:
a decrease of GBP342,000). A -10% change (2017: -10%) in
FX rates would cause an increase in profit of GBP496,000
(2017: a decrease in profit of GBP143,000) and a GBP679,000
increase in equity (2017: GBP418,000 increase 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 18. Assuming a reasonably possible change in the
LIBOR rate of +/-0.5% (2017: +/-0.5%), the impact on profit
would be an increase/decrease of GBP242,000 (2017: GBP115,000),
and the impact on equity would be an increase/decrease
of GBP165,000 (2017: GBP73,000). 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 +/-8.2% for silver (2017: +/-5.2%) and +/-15.8%
for copper (2017: +/-7.8%) based on volatility analysis
for the past year, the impact on profit would be an increase/decrease
of GBP1,068,000 (2017: increase/decrease of GBP497,000).
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 (2017:
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 15. The amount of trade and other receivables written off during the year amounted to less than 0.05% of revenue (2017: less than 0.05% of revenue).
Cash and cash equivalents are held with reputable institutions. All material cash amounts are deposited with financial institutions whose credit rating is at least BBB 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:
2018 2017
GBP000s GBP000s
AA 588 131
A 1,252 1,001
BBB 11,658 8,882
B - 77
n/a 23 20
--------- -------
13,521 10,111
========= =======
(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 a revolving credit facility to provide access to cash for various purposes, and headroom of GBP12,000,000 (2017: GBP14,000,000) remains available on this facility at 31 December 2018.
The Group's non-derivative financial liabilities (represented by trade and other payables) substantially all have a contractual maturity date of less than 3 months. The Group's borrowings are represented by a revolving credit facility which has no contractual maturity other than the maturity date of the entire facility, which is 27 July 2022 and hence between 2 and 5 years.
(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 the reduce 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 facility as disclosed in note 18. These ratios are formally reported on a quarterly basis. At 31 December 2018 these ratios were as follows:
-- Interest cover ratio: 22.0x (2017: 42.5x); and -- Leverage ratio: 0.8x (2017: 1.3x) 22. 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 options granted are subject to service conditions, being continued employment with the Group until the end of the vesting period. The share options 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.
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. Once vested, the options remain exercisable until the 10 year anniversary of the award 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 are granted under the plan for nil consideration and carry no voting rights. A summary of the options is shown in the table below:
07/2017 07/2017 02/2018 11/2018 11/2018 Total
- Directors - Others - Others - Directors - Others
------------- ---------- ---------- ------------- ---------- -----------
1 January 2017 - - - - - -
share options outstanding
Granted during
the year 5,700,000 3,431,505 - - - 9,131,505
Forfeited during
the year - (21,324) - - - (21,324)
------------- ---------- ---------- ------------- ---------- -----------
31 December 2017
share options outstanding 5,700,000 3,410,181 - - - 9,110,181
------------- ---------- ---------- ------------- ---------- -----------
1 January 2018
share options outstanding 5,700,000 3,410,181 - - - 9,110,181
Granted during
the year - 21,000 118,262 400,287 889,343 1,428,892
Forfeited during
the year - (234,048) (9,500) - - (243,548)
------------- ---------- ---------- ------------- ---------- -----------
31 December 2018
share options outstanding 5,700,000 3,197,133 108,762 400,287 889,343 10,295,525
------------- ---------- ---------- ------------- ---------- -----------
The Group has recognised a total expense of GBP4,862,000 (2017: GBP2,042,000) in respect of equity-settled share based payment transactions in the year ended 31 December 2018. No options were exercised during the year (2017: none) as none of the options can be exercised before 1 January 2020. There is no exercise price attached to any of the options granted.
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 outstanding at 31 December 2018 was 8.8 years (2017: 9.6 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 granted in the year are as follows:
Expectation
Share price of meeting
on grant Exercise performance
Grant date date (p) period criteria
1 January
07/2017 - 8 August 2020 - 8
Directors 2017 130.00 August 2027 100%
1 January
07/2017 - 15 August 2020 - 15
Others 2017 133.38 August 2027 100%
1 January
2021 - 12
02/2018 - 12 February February
Others 2018 138.00 2028 100%
1 January
2021 - 1
11/2018 - 1 November November
Directors 2018 146.80 2028 50%
1 January
2021 - 1
11/2018 - 1 November November
Others 2018 146.80 2028 50%
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 GBP78,000 (2017: GBP32,000) and the expected charge over the life of the options by a total of GBP245,000 (2017: GBP169,000).
The other factors in the Black-Scholes-Merton model do not affect the calculation and have not been disclosed, as the share options were issued for nil consideration and do not have an exercise price. The weighted average fair value of the options outstanding at the period end was GBP1.3508 (2017: GBP1.2927).
23. SHARE CAPITAL
Number
of shares Total
(000s) GBP000s
----------------------------------- ----------- ---------
Allotted and fully paid: ordinary
shares of 1p each
Balance at 1 January 2017 - -
Issue of shares (see below) 190,000 1,900
----------------------------------- ----------- ---------
Balance at 31 December 2017 190,000 1,900
----------------------------------- ----------- ---------
Balance at 31 December 2018 190,000 1,900
----------------------------------- ----------- ---------
Under the Isle of Man Companies Act 2006, the Company is not required to have an authorised share capital. The issued capital of the Company on incorporation was one A ordinary share of GBP1, issued to Darbara Limited. This share was transferred to Strix Group Limited prior to admission to trading on AIM, and was repurchased and cancelled by the Company as part of the pre-admission group reorganisation (as disclosed in note 28).
On 8 August 2017, the Company issued 190,000,000 ordinary shares of GBP0.01 each, for consideration of GBP190,000,000, with the balance recorded as share premium. Issue costs of GBP13,817,000 were incurred and debited to equity in accordance with IAS 32.
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 22 for further information regarding share based payments which may impact the share capital in future periods.
24. DIVIDS
The following amounts were recognised as distributions in the year:
2018 2017
GBP000s GBP000s
Interim 2018 dividend of 2.3p per
share (2017: 1.0p) 4,370 1,900
Final 2017 dividend of 1.9p per share
(2017: nil) 3,610 -
------- ---------
Total dividends recognised in the
year 7,980 1,900
======= =========
In addition to the above dividends, since year end the Directors have proposed the payment of a final dividend of 4.7p per share (2017: 1.9p). The aggregate amount of the proposed final dividend expected to be paid on 3 June 2018 out of retained earnings at 31 December 2018, 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.
2018 2017
------- ---------
GBP000s GBP000s
Final 2018 dividend of 4.7p per share
(2017: 1.9p) 8,930 3,610
------- ---------
Total dividends proposed but not
recognised in the year 8,930 3,610
======= =========
25. CASH FLOW STATEMENT NOTES
a) Cash generated from operations
2018 2017
Note GBP000s GBP000s
----------------------------------------- ------- --------- ---------
Cash flows from operating activities
Operating profit 25,789 26,177
Adjustments for:
Depreciation of property, plant
and equipment 12 3,198 3,023
Amortisation of intangible assets 11 2,292 3,032
Impairment of intangible assets 11 - 148
Profit on disposal of property,
plant and equipment (14) (4)
Pension contributions made 5(c) (40) (38)
Movement in derivative financial
instruments - (42)
Share based payment transactions 22 4,862 2,042
Net exchange differences 6(a) (78) 201
----------------------------------------- ------- --------- ---------
36,009 34,539
Changes in working capital:
Increase in inventories (1,396) (595)
Increase in trade and other receivables (266) (532)
Increase in trade and other payables 1,084 936
----------------------------------------- ------- --------- ---------
Cash generated from operations 35,431 34,348
----------------------------------------- ------- --------- ---------
b) Movement in net debt
Non-cash movements
At 1 January Cash flows Currency At 31 December
2018 movements 2018
------------ ---------- ------------------ ----------------
GBP000s GBP000s GBP000s GBP000s
Non-current borrowings (56,000) 15,000 - (41,000)
-------------------------- ------------ ---------- ------------------ ----------------
Total liabilities from
financing activities (56,000) 15,000 - (41,000)
-------------------------- ------------ ---------- ------------------ ----------------
Cash and cash equivalents 10,111 3,203 207 13,521
-------------------------- ------------ ---------- ------------------ ----------------
Net debt (45,889) 18,203 207 (27,479)
-------------------------- ------------ ---------- ------------------ ----------------
26. 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. Prior to admission to trading on AIM, the ultimate controlling party of the Group was considered to be AAC Capital Partners as majority shareholder.
27. 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 Group financial statements and are not disclosed.
The Group also operates a defined benefit pension scheme, The Strix Limited (1978) Retirement Fund, and a defined contribution pension scheme, The Strix Limited Retirement Fund, which are both considered to be related parties.
(b) Related party balances
Trading balances
Balance due from Balance due to
Related party 2018 2017 2018 2017
GBP000s GBP000s GBP000s GBP000s
The Strix Limited Retirement
Fund - - (37) (14)
(c) Related party transactions
The following transactions with related parties occurring during the year:
Name of related party 2018 2017
GBP000s GBP000s
Group reorganisation
Distribution to Strix Group
Limited - (283,911)
Repurchase of A Shares in Strix
Group Limited - (199,795)
Release of former group company
related party receivables - 370,835
Forgiveness of former group
company related party payables - (144,586)
- (257,457)
========= =========
Transactions with other related
parties
Post-employment benefit schemes (421) (436)
========= =========
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 24.
-- The distribution to Strix Group Limited in 2017 was
made as part of the group reorganisation prior to the
Group's admission to trading on AIM, as described in
note 28.
28. GROUP REORGANISATION
The principal steps of the Group reorganisation which occurred in 2017 were as follows:
-- The Group was reorganised prior to admission to trading
on AIM by releasing receivables from former group company
related parties totalling GBP370,835,000, and forgiving
payables to former group company related parties totalling
GBP144,586,000, resulting in the net release of GBP226,249,000
of debtors in the consolidated balance sheet.
-- The Company was incorporated on 12 July 2017 as a public
company limited by shares in the Isle of Man, with share
capital of one A ordinary share of GBP1.
-- The Company became the ultimate holding Company of the
Group with Sula becoming the Company's direct subsidiary
on 8 August 2017 by the issue of one further A ordinary
share to Strix Group Limited in return for the entire
issued share capital of Sula Limited. The A ordinary
share of GBP1 nominal value was issued with a premium
of GBP190,000,000. The insertion of the Company as a
new holding company by way of a share-for-share exchange
constitutes a group reorganisation.
-- The shares issued in this transaction were recorded
in the consolidated balance sheet at the nominal value
of the shares issued plus the fair value of any additional
consideration. The assets and liabilities of the subsidiaries
are consolidated at book value in the Group financial
statements and the consolidated reserves of the Group
are adjusted to reflect the statutory share capital,
share premium and impact of the group reorganisation
recognised in retained earnings of the Company as if
it had always existed.
-- On 8 August 2017, the Company undertook a capital reduction
in accordance with Part III of the Isle of Man Companies
Act 2006, which had the effect of reducing the share
premium on acquisition of the Sula Group and share premium
arising on admission to trading on AIM to nil, with
the balance credited to retained earnings.
-- On 8 August 2017, the Company repurchased and cancelled
all the A ordinary shares in the capital of the Company
held by Strix Group Limited for a payment of GBP199,795,000,
being an amount equal to the net proceeds of the IPO
and an agreed level of surplus cash in the Group. The
difference between the nominal value of GBP2 and the
consideration of GBP199,795,000 was charged to retained
earnings.
-- Distributions to former group company related parties
totalling GBP283,911,000 were made from Sula Group to
Strix Group Limited, using funds from the IPO proceeds
and the new borrowings drawn down
Admission to trading on AIM in 2017
-- On 8 August 2017 the Company issued 190,000,000 ordinary
shares of GBP0.01 each, for consideration of GBP190,000,000
in an IPO, with the balance recorded as share premium.
-- A total of GBP13,817,000 of costs were paid using the
proceeds, which were debited to equity in accordance
with IAS 32.
The impact of the group reorganisation transaction recognised in 2017 in the consolidated statement of changes in equity is made up of the issue of a GBP1 share with a premium of GBP190,000,000 relating to Strix Group Limited, the purchase of Sula Group shares totalling GBP199,795,000, and the distributions to former group company related parties totalling GBP283,911,000.
29. POST BALANCE SHEET EVENTS
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 the general meeting held on 26 February 2019. The Group has entered into an asset purchase agreement with HaloSource, pursuant to which it will acquire specified assets relating to HaloSource's HaloPure division and its Astrea product, for total consideration of US$1.33 million.
Incorporation of Strix (USA), Inc
On 14 February 2019 Strix (USA), Inc was incorporated in the state of Washington, United States of America. Strix (USA), Inc is a wholly owned subsidiary of Strix (U.K.) Limited.
Incorporation of Strix (China) Limited
On 20 February 2019, Strix (China) Limited was granted a business licence. Strix (China) Limited, a company incorporated in China, is a wholly owned subsidiary of Strix (Hong Kong) Ltd.
New manufacturing facility in China
In February 2019, a contract was signed to purchase a plot of land in the Zengcheng District of Guangzhou, China, close to the Group's existing facility. The acquisition of the plot of land is expected to take a further 2 to 3 months before the process can be completed in order to comply with local regulations.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR PGUAWWUPBGMU
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March 21, 2019 03:00 ET (07:00 GMT)
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