Strix Group Q&A: Plenty of opportunities to grow (LON:KETL)

Strix Group plc (LON:KETL) Chief Executive Officer Mark Bartlett caught up with DirectorsTalk for an exclusive interview to discuss the highlights from their half year results, key markets performing well, the launch of HaloPure into farming and dentistry, 14 new products and what investors can expect for the rest of the year.

Q1: You announced your half year results yesterday, can you just talk us through the highlights please Mark?

A1: It’s been a really busy year so far for Strix Group and we achieved a very solid performance given the unprecedented trading environment.

Overall sales in the first half were actually down around 21% which was what we anticipated in our scenario planning, given the efficiency measures that were put in place our adjusted EBITDA was down just 8.6% in the first half of the year. We also delivered an improved profit margin over the prior year.

Despite the environment, we have continued to invest in the business, manufacturing in China remains on track and on budget to be fully operational August ’21. We’ve gone live with a new ERP system to support the needs of the business as we continue to grow. We’ve continued to strengthen our management team, particularly with respect to the people development side and commercialisation of new products.

We’ve started to see a very, very strong recovery at the backend of Q2 and certainly into Q3 and we are forecasting record sales for Q3 for the business with a very, very strong order book on hand.

Based on that current training and the competence in our continued cash generation, we have declared interim dividend of 2.6p and we remain fully committed to the dividend of 7.7p which is in line with the prior year.

Q2: What can you tell us about the key markets that are performing well for the company?

A2: We have three areas in particular, the kettle market really saw a downturn in the first half as we expected, especially in Q1 you had the supply issues from China where more than 90% of kettles are actually produced and then in Q2, we have the result of the various global lockdowns.

However, as stated, we’ve seen a recovery at the back end of Q2, particularly in what we call the regulated markets and this has continued into Q3 where we have seen an all-time record sales as a result of stock being replenished within that pipeline, but also the normal seasonal uplift, which shows in the second half.

Also, the water category was actually quite strong, even during first half, we actually saw a modest growth in that part of the business with online sales showing significant upside. So, we had a 2% growth in the water category, and this has, again, continued into Q3 and we expect to see very positive growth for the remainder year in this particular category as we’ve increased our distribution channels and expanded into new geographic regions.

Q3: Now, you recently launched the HaloPure technology into farming and dentistry, can you tell us more about that please?

A3: The acquisition of HaloPure has been quite interesting and we’ve been working to identify new applications for that technology since we acquired it back in 2019, and we identified sterilisation applications, particularly in the farm and the healthcare sectors as opportunities.

We have now successfully installed a new sterilisation system in a large poultry farm in China that effectively removes any viruses or bacteria from their drinking water. The technology we use is quite unique and it not only kills the toxins when it comes in contact with the HaloPure product but it also leaves a residue which continues to fight bacteria and viruses in the pipeline after that water has gone through. We also have secured a contract within the dentistry sector where the technology can be used to sterilise the various tools used by dentists.

Early days for these products but certainly some really interesting opportunities and you can imagine, the areas such as farming in China are absolutely huge so some good opportunity for some to medium to long term growth.

Q4: Can you tell us more about the launch of the 14 new products that are aimed for the end of the year? What hat areas will these be in?

A4: The 14 products is actually quite a record again for the company, the new products actually span all three of our categories.

We have five new kettle controls being launched this year which really improve our geographical coverage and some competitiveness, it also allows us to get into some applications which will be sort of waterproof applications.

We have six new products in the water category itself that will be delivering improved differentiation, particularly within the filtration side of our business, as well as the new product you just mentioned in HaloPure in the farming sector.

Finally, we have four new parts in our appliance category, primarily in our hot water on demand segment, with drinking stations that provide everything from chilled water to true boiled water in a standalone appliance that also provides some very significant energy savings for consumers.

So, yes, some very exciting new products coming through.

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

A5: We still have plenty of initiatives ongoing and certainly some positive opportunities, we’re certainly well positioned, we’re based here on the Isle of Man and it must be one of the few places without any social distancing restrictions. Everything’s open, obviously apart from the borders of visitors, so very, very lucky from that perspective.

We’ve seen a very positive recovery in our order book, as I mentioned, and we expect to deliver that full year profit in line with our prior year, despite all those disruptions we had in the first half and we remain committed to deliver that full year dividend in line with our prior year.

Obviously, we’ve got to focus on those 14 new products to make sure they’re all ready to launch by the end of the year but that’s certainly on schedule. As you may have heard, we’d entered into conditional agreement, as of last night, to acquire a company called LAICA over in Italy, pending consent from the Council of Ministers in Italy. That’s certainly going to help us expand opportunities in our water and small domestic appliance categories going forward into the year.

A date for the diary, we have a Capital Market’s Day planned early November and there we will provide some further updates on our five-year strategy, given all of those opportunities that we’ve just discussed.

So, as you can see, a really busy time for the company with plenty of opportunities to grow, despite all those uncertainties around the world.

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