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Strix Group plc CEO Mark Bartlett discusses good revenue growth, debt reduction, new technologies, and more in an exclusive interview with DirectorsTalk.

Strix Group plc (LON:KETL) Chief Executive Officer Mark Bartlett caught up with DirectorsTalk for an exclusive interview to discuss financial highlights, Strategic Business Objectives, how the Billi acquisition is operating, main points from the Capital Markets Day and what we can expect from the group over the next year.

Q1: Strix Group has released its interim results as well as hosting a Capital Markets Day in the city. First off Mark, could you just talk us through the financial highlights please?

A1: During the first half year, we’ve seen an increase in revenues of around 28.6%, that really is primarily as a result of the inclusion of our most recent acquisition which was Billi. This has fully offset the softness within our organic growth sales elsewhere in the business, and yet we have had some quite challenging times.

EBITDA saw a decrease of about 1.9% and the Profit after Tax saw a reduction of around 50% on the prior year, driven mainly by interest and finance costs which were related to that acquisition, along with a weakness in the kettle market particularly during Q1.

Net debt for us increased to £93 million, representing a net debt EBITDA of 2.66 times, well below our covenant, and we expect to drive this down to 2.1 times by the year end.

As a Board, we continue to take precautions to balance that capital allocation priority and have declared an interim dividend this morning of 0.9 pence.

Q2: You mentioned in the announced that the company has group Strategic Business Objectives to be delivered by the end of FY26, could you talk us through what these are and what they mean for the group?

A2: A lot has changed since we last set our strategic objectives back in 2020 which was our last Capital Markets Day. Over that time, we’ve built very strong foundations for growth with the recent acquisitions and therefore, we’ve decided to set out our commitments to grow revenue from £107 million tin 2022 to £206 million by 2026 for the gross profit of £80 million.

Within the Strategic Business Objectives (SBO), we’ve set very clear commitments for the various divisions within the business, these include very clear financial targets for kettles, for the recent acquisition of Billi and our consumer goods division. We’ve also set out our strategy for technology geographical expansion, and particularly for our people, all of which are very key drivers to the success of the business.

Q3: Now, you mentioned the acquisition of Billi, that it continues to be successfully integrated. Can you tell us more about that side of the business and how it’s operating?

A3: Billi really is a transformational acquisition for this business. It’s a highly profitable business with margins above 45%, it’s cash generative and has a history of double digit growth.

Since the acquisition was made, we really have made some very significant progress thanks to the dedication and the passion of the team in Billi. We’ve exited all of the TSA’s that we set up, we’ve set up a new Head Officer in the UK, opened a new showroom in London and even put in a brand new ERP system in just four months. So, great progress has been made.

The acquisition really does offer very significant growth opportunities with new product launches last month, and that will really allow us now to move further into the residential market segment.

Along with the group’s infrastructure, we can now also look to expand beyond their current core markets which were UK, Australia, and New Zealand, providing further opportunities for the medium term.

Q4: Just turning to the Capital Markets Day, could you talk us through the main points and the highlights from the event?

A4: As I said, a lot has changed since we last did the Capital Markets Day back in 2020, and we have built some very very strong foundations for growth within the business.

We’ve now split the business into two divisions, ensuring we really do have the right resources, processes, and particularly focus on the various categories within our business with very clear targets set for all of those.

The key elements of the Capital Markets Day really focus on innovation, sustainability, geographical expansion, all to secure that increase in revenue from £107 million in 2022 to the £206 million in 2026. The focus can really be split into three key areas:

You have the kettles, a continued focus on innovation to really set a new benchmark in technology and secure growth to £88 million worth of revenues and allow us to move into adjacent markets with some of that new technology.

Secondly, you have Billi, and really that’s a story about investing in growth, what is a transformational acquisition, and getting that to deliver £58 million of revenue with a margin in excess of 45% by 2026.

Finally, you have the consumer goods which is really to build on the success we’ve had so far and to grow that business to £60 million worth of revenues with a gross profit of 30% by 2026.

Q5: Just looking forward, what can we expect from Strix Group over the next year?

A5: The business has been through some challenging times over the past three years with the various headwinds and the macroeconomics, however, I think we’ve built some very good and strong foundations over the period and we are really clearly focussed to deliver on our revised commitments.

Over the next year, you will see a focus on our key strengths; innovation, technology, safety, sustainability and of course our people, to ensure we can deliver on those growth commitment.

For me, this is an exceptional business with some really significant opportunities and we are really committed to realise that full potential of the group.

Strix Group plc (LON:KETL) Chief Executive Officer Mark Bartlett caught up with DirectorsTalk for an exclusive interview to discuss interim results, growth in water & appliance categories, the kettle controls market, sustainability agenda and what we can expect from the Group for the rest of the year.

Q1: Strix Group has released its interim results this morning, can you just start by talking us through the highlights?

A1: This has clearly been another challenging macroeconomic and geopolitical environment, but I think the Group has delivered a very robust performance across its three categories. We’ve also made very solid progress towards our 2025 targets that we set out at our Capital Markets day back in 2020.

We made really good progress with our net zero commitments and remain on target to achieve net zero by 2023.

Our new factory is now fully operational and we continue to receive good improvement in efficiency as we manage our cost base, given these challenging times. We’ve now managed to achieve full automation on 77% of our production lines.

We have overcome the various obstacles we’ve reported of supply issues and Brexit within the water category, and we’re now producing and distributing products from both our own factory in China as well as our Italian facilities as well.

Finally, we have managed to secure several quite material contracts within both the water and appliance categories, really enhancing our online sales and network globally, and that really does give us confidence in our midterm targets.

Q2: As you say, the Group has seen growth in both the water and appliances categories and has also been recognised for the domestic appliances that it produces in those categories. Could you tell us more about this and what it actually means for the Group?

A2: These two categories are really important to us as they really are the key growth areas for us in the five year plan that we put out. We have seen very significant process in the global expansion with launches in North America and significantly increased presence across Europe as well in that digital platform.

I think perhaps the most rewarding has been the feedback on our appliances, particularly the Aurora range. Sales for this product have exceeded our expectations and the range has won numerous awards, including the Quiet Mark and also the ‘Sustainable Product of the Year’, which we we’re very pleased to receive.

Q3: Now, you’ve maintained the market leading share position of 56% for the global kettle controls market by value, how is this side of the business performing?

A3: The kettle market has been quite challenging this year and the global market has seen some softening due to the conflict in Ukraine and also some of the recessionary fears in the regulated market.

However, we managed to maintain our market share throughout this period and the market itself has proven very resilient. Historically when you look at this market in such challenging times, we’ve always experienced a drop in demand as we go into these periods, and then we always see a sharp recovery as we exit. Typically, that’s normally one to three quarters, and we’ve already seen two quarters of weakness so far this year so really, it’s just a question of when we start to see the recovery.

We absolutely remain very confident that recovery will come and then our midterm targets will be unaffected and we are very well positioned to maximise the opportunities as that recovery starts to occur.

Q4: You did touch on this earlier, but I know the Group’s sustainability agenda remains a high priority for the company. Are you able to tell us more about it and how it’s developing?

A4: We’re making really good progress here and sustainability really is at the heart of our culture, whether it’s in the new product development, whether it’s in operations or in continuous improvement initiatives that we’ve got across the company. It’s really encouraging just to see how our employees have embraced that culture.

As I say, we are well on track to deliver our net zero and we’re working really hard now with our customers and suppliers on Scope 3.

We have put out an updated report this morning on our website and one thing you will note that in 2021, we actually were running for a period of time, at least two factories as we brought out the new factory. Now, we’ve just got the one custom built factory so we’re really going to start to see some very, very positive improvements as we look forward now with all the features and benefits that have been built into the new factory.

That will include things like improved efficiencies, we’ve now got 70% of our production lines, I mentioned, automated, but also reduction in energy consumption and significantly improved facilities for our staff.

Q5: Just looking forward, what else can we expect to see from Strix Group for the rest of the year?

A5: Still a lot for us to do. So far this year, we’ve launched 89 SKU’s into the market and we’re looking to deliver on 150 by the end of the year, so there’s still plenty to do, and all of those remain on target.

We’re going to see increased cross-selling between the LAICA and the Aqua Optima brands. If you go on Amazon today, you can see those in both the UK and Italy so very good progress being made on the integration of LAICA, which will continue as we go forward .

We continue to drive sales within that water and appliance category, by adding additional sales channels to really maximise that opportunity through the rest of the year.

Strix Group plc (LON:KETL) Chief Executive Officer Mark Bartlett caught up with DirectorsTalk for an exclusive interview to discuss their five-year plan, performance over the last 18 months, the water division, the acquisition of LAICA, impact of the China lockdowns and new products coming to market in the next 12 months.

Q1: Mark, you set out a five-year plan for Strix Group back in autumn 2020. Could you just provide us a recap on what you said and the potential growth of the business by division in terms of both revenue and gross profit?

A1: Back in the autumn of 2020, despite the pandemic, we actually set out our commitments to double the size of revenue to make the Group a £200 million business by the end of 2025 and that was with a gross profit in excess of £67 million.

That was all through organic growth and obviously any strategic acquisitions made through that period would accelerate or be incremental to that plan.

Q2: We’re now 18 months into those ambitious targets, how has the business performed?

A2: To be honest, despite what are some quite challenging macroeconomics, the businesses performed extremely well, and I remain very, very confident on that five-year commitment.

At the end of 2021, the first year of the plan, we saw very strong growth on net sales of around 28% with a gross profit of around £47.4 million on an adjusted basis, that’s an increase of 20% on the prior year.

If you look at the divisions, the appliances performed exceptionally well and in fact, exceeded our Capital Markets Day commitment by around 8%. The kettle controls were more or less in line with expectations and the water division was slightly behind. However, both the appliances and water divisions exceeded the gross profit percentage commitments significantly given the close attention applied to cost coupled with quite a positive product mix over that period.

Q3: So, to summarise, as a Group you’re on target in terms of adjusted gross profit and on revenue, controls and appliances performed ahead or in line and revenue in the water division is the only area that looks to have little catching up to do. Were there specific issues in the year that impacted water and do you expect to catch up with target?

A3: Firstly, as you say, we are very confident we will catch up with the five-year commitment within the division and there were, as you suggest, some very specific issues that we faced in 2021.

The first was Brexit, particularly for the Aqua Optima brand, as it really wasn’t practical to sell these products from the UK into Europe with all the additional costs resulting from Brexit. In fact, we lost around nine months of sales through that period. Fortunately, the acquisition of LAICA has brought us an excellent facility in Europe and as of this year, we’re able to store and ship all of our products in Europe for the sale into Europe, effectively removing that obstacle.

We also had some issues with some of our suppliers, one in particular increasing their price by more than 70% during the year as they treated us as a competitor, following that acquisition of LAICA. As a result, we really did what we do best, we moved all of those products to our new factory in China and as of November last year, we can now manufacture and supply all of those products directly, giving us security of supply as well as improved margins over time.

Finally, there were some issues with approvals. We had planned to launch a full range of products into the USA but during the pandemic, it was almost impossible to get the approvals required, which did delay that part of the strategy by around 10 months. Once again, that’s now been resolved and we will start to see a ramp up in the second half of this year.

So, we did face some significant headwinds but I believe they’ve all now been resolved.

Q4: Now, the acquisition of LAICA appears to be underpinning your confidence in achieving the full year ’25 targets in appliances and water. Could you tell us a little about the business and the potential revenue synergies that it brings?

A4: LAICA has been an excellent acquisition for us and the business performed extremely well during 2021, supporting our growth. The LAICA business has two divisions, the home appliance division and the water filtration division, and therefore was really the perfect fit giving these were also our own growth categories. We’ve already integrated the majority of the business and we are now starting to see some cross selling of the products into the UK.

In addition, we are using the well-recognized LAICA brand to bring some of our exciting new products to market with Visione being the first induction kettle of its kind and the Dual Flo providing exceptional energy benefits by preventing the refilling of kettles. You’re going to see both of those products enter the UK market under the LAICA brand during this quarter, but there are many more benefits to come.

As we saw during a recent investor meeting at the LAICA site in Italy, we have a state of the art manufacturing facility and we will continue to expand this so we can build products in Europe for the sale in Europe, again providing improvements in speed to market but also margins over the longer term as well.

The addition of LAICA has now provided us with a really comprehensive portfolio of products, as well as an exciting roadmap of new products and that’s really now going to allow us to expand our geographical footprint significantly.

Q5: Controls remains an important part of the business, could you tell us a little about what’s going on in the market and have you seen any impact from what’s been going on in China with regards to the lockdowns?

A5: In truth, with the exception of a couple of facilities in Shanghai, we’ve experienced minimal impact from the various lockdowns in China.

Our main factory based in Guangzhou has been unaffected with no lockdowns at all in that region, however, we are far from complacent and we have taken many steps to ensure we minimise any potential issues. For instance, we’ve increased stock in our own factory to prevent against any short term supply issues and we have even held some stock offsite in a different district so that we can support our customers, even in the worst case, if there was an event where we had a lockdown of our own facility.

As with the original outbreak of the pandemic, we continue to put measures in place above and beyond the local regulations across all of our locations to ensure we can protect our employees.

Q6: Now, you touched on this earlier, you’ve a portfolio of new consumer products, could you just give us some colour on the most exciting coming to market over the next 12 months or so?

A6: We’re just 18 months into our five-year plan with lots of exciting things to come. We are very focused on sustainability and we’ll bring a range of new products and support this over the coming years.

In the short term, there are a few things to look forward to. First of all, the Aurora waters dispense system has already been launched, has been extremely successful and you’ll see a range of products being launched within this category globally. That really is a highly energy efficient product and it reduces the use of plastic bottles.

Then we have the Visione, as I mentioned previously, the first induction kettle of its kind, that has already won awards for both innovation and design across Europe.

We then we have the Dual Flo, already available in Canada and soon to launch in the UK and Europe under the LAICA brand, that’s a kettle and a one cup combined into a single device. It is in fact estimated we waste something around £300 million a year by boiling water that we never use, the Aurora and the Dual Flo effectively eliminate that waste.

So, that’s just a taster, we’re going to continue introducing innovative products and initiatives for a sustainable future, making life simpler for our consumers.

So, the outlook is bright with a lot of new products and revenue synergies to come through and the controls business to remain exceptionally resilient and the shares look good value at the moment and offer investors are very healthy yield of over 4.5%.