Consolidated cash flow statement

for the year ended 31 December 2020

 

		2020	2019
	Note	£000s	£000s
Cash flows from operating activities
Cash generated from operations	27	32,120	35,345
Tax paid		(908)	(985)
Net cash generated from operating activities		31,212	34,360
Cash flows from investing activities
Purchase of property, plant and equipment		(12,999)	(12,565)
Capitalised development costs	11	(2,808)	(2,358)
Purchase of HaloSource Inc. assets net of cash acquired	14	-	(953)
Purchase of LAICA S.p.A net of cash acquired	14	(6,735)	-
Purchase of intangibles	11	(1,642)	(518)
Proceeds on sale of property, plant and equipment		-	4
Finance income		13	19
Net cash used in investing activities		(24,171)	(16,371)
Cash flows from financing activities
Drawdowns under credit facility	19	22,193	9,000
Repayment of borrowings	19	(12,339)	(10,000)
Finance costs paid	19	(1,951)	(1,198)
Principal elements of lease payments	26	(1,455)	(1,301)
Proceeds from issue of new shares	23	3,800	-
Dividends paid	25	(15,310)	(13,870)
Dividends paid to non-controlling interests		(63)	-
Net cash used in financing activities		(5,125)	(17,369)
Net increase in cash and cash equivalents		1,916	620
Cash and cash equivalents at the beginning of the year		13,658	13,521
Effects of foreign exchange on cash and cash equivalents		(128)	(483)
Cash and cash equivalents at the end of the year		15,446	13,658

 

 

 

Notes to the consolidated financial statements

for the year ended 31 December 2020

 

1.    GENERAL INFORMATION

Strix Group Plc ("the Company") was incorporated and registered in the Isle of Man on 12 July 2017 as a company limited by shares under the Isle of Man Companies Act 2006 with the name Steam Plc and with the registered number 014963V. The Company changed its name to Strix Group Plc on 24 July 2017. The address of its registered office is Forrest House, Ronaldsway, Isle of Man, IM9 2RG.

The Company's shares were admitted to trading on AIM, a market operated by the London Stock Exchange on 8 August 2017. The principal activities of Strix Group Plc and its subsidiaries (together "the Group") are the design, manufacture and supply of kettle safety controls and other components and devices involving water heating and temperature control, steam management and water filtration.

 

2.    PRINCIPAL ACCOUNTING POLICIES

The Group's principal accounting policies, all of which have been applied consistently to all of the years presented, are set out below.

Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and International Financial Reporting Standards Interpretation Committee ("IFRS IC") interpretations as adopted by the European Union. The financial statements comply with IFRS as issued by the International Accounting Standards Board (IASB). The financial statements have been prepared on the going concern basis.

The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 3.

Historical cost convention

The financial statements have been prepared on a historical cost basis, except for the following:

·      contingent consideration - measured at fair value

Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and all of its subsidiary undertakings. Subsidiaries are fully consolidated from the date on which control commences and are deconsolidated from the date that control ceases. The financial statements of all group companies are adjusted, where necessary, to ensure the use of consistent accounting policies.

Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group is exposed to or has the rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of comprehensive income, consolidated statement of changes in equity and the consolidated balance sheet, respectively.

Joint ventures

Joint ventures are joint arrangements of which the Group has joint control, with rights to the net assets of those arrangements. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Interests in joint ventures are accounted for using the equity method of accounting (detailed below) after being recognised at cost in the consolidated balance sheet. 

Equity method of accounting

Under the equity method of accounting, investments in joint ventures are initially recognised at cost and adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses from the joint arrangement in profit or loss, and the Group's share of movements in other comprehensive income of the joint arrangement in other comprehensive income. Dividends received from joint ventures are recognised as a reduction in the carrying amount of the investment.

Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group's interest in these entities.

The carrying amount of equity-accounted investments is tested for impairment in accordance with the impairment of assets policy as described below in this note.

Transactions eliminated on consolidation

Intra-group balances, and any gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.

Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date with the assets and liabilities of subsidiaries being measured at their fair values. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. The Group measures goodwill at the acquisition date as:

·	the fair value of the consideration transferred; plus
·	the recognised amount of any non-controlling interests in the acquiree; plus
·	if the business combination is achieved in stages, the fair value of the pre-existing interest in the acquiree; less
·	the fair value of the identifiable assets acquired and liabilities assumed.

 

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis at the non-controlling interest's proportionate share of the fair value of the acquired entity's net identifiable assets. Transaction costs that the Group incurs in connection with a business combination are expensed as incurred.

If the initial accounting for a business combination is preliminary by the end of the reporting period in which the business combination occurs, provisional amounts are reported.  Those provisional amounts are adjusted during the measurement period, or additional assets or liabilities recognised to reflect the facts and circumstances that existed as at the acquisition date.

Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value, with changes in fair value recognised in profit or loss.

Going concern

These consolidated financial statements have been prepared on the going concern basis.

The Directors have made enquiries to assess the appropriateness of continuing to adopt the going concern basis. In making this assessment they have considered:

·    the strong historic trading performance of the Group;

·    budgets and cash flow forecasts for the period to December 2023;

·    the current financial position of the Group, including its cash and cash equivalents balances of £15.4m;

·    the availability of further funding should this be required (including the headroom of £30.0m on the revolving credit facility and the access to the AIM market afforded by the Company's admission to AIM);

·    the low liquidity risk the Group is exposed to;

·    the fact that the Group operates within a sector that is experiencing relatively stable demand for its products, amidst the global COVID-19 pandemic; and

·    that there has been no disruption to the Group's manufacturing or supply chain.

 

Based on these considerations, the Directors have concluded that there are no material uncertainties that may cast significant doubt on its ability to continue as a going concern and the Group has adequate resources to continue in operational existence for the foreseeable future. As a result, the Directors continue to adopt the going concern basis of accounting in preparing the annual financial statements.

Foreign currency translation

Functional and presentational currency

Items included in the financial information of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The consolidated financial statements are presented in sterling, which is Strix Group Plc's functional and presentation currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates, are recognised in the consolidated statement of comprehensive income within cost of sales.

Group companies

The results and financial position of foreign operations that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

·      assets, including intangible assets and goodwill arising on acquisition of those foreign operations, and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet, or at historic rates for certain line items;

·      income and expenses for each statement of comprehensive income presented are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

·      all resulting exchange differences are recognised in the consolidated statement of comprehensive income.

Standards, amendments and interpretations adopted

There are no standards, amendments to standards or interpretations that the Group has applied for the first time in the reporting period commencing 1 January 2020 that have had a material impact on the financial statements.

 

Standards, amendments and interpretations which are not effective or early adopted

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2020 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

 

Property, plant and equipment

Initial recognition and measurement

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes the original purchase price of the asset and the costs attributable to bringing the
asset to its working condition for its intended use. When parts of an item of property, plant and equipment have different useful lives, the components are accounted for as separate items.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying value of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred.

Subsequent measurement

Depreciation is calculated using the straight-line method to allocate the cost of the assets, net of any residual values, over their estimated useful lives as follows:

·      Plant and machinery                                   3 - 10 years                          

·      Fixtures, fittings and equipment               2 - 5 years

·      Motor vehicles                                             3 - 5 years

·      Production tools                                          1 - 5 years

·      Right of use assets                                       2 - 8 years

·      Land and buildings                                       50 years

 

The Group manufactures some of its production tools and equipment. The costs of construction are included within a separate category within property, plant and equipment ("assets under construction") until the tools and equipment are ready for use at which point the costs are transferred to the relevant asset category and depreciated. Any items that are scrapped are written off to the consolidated statement of comprehensive income.

The assets' residual values and useful lives are reviewed at the end of each reporting period.

Fixtures, fittings and other equipment includes computer hardware.

Derecognition

Property, plant and equipment assets are derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of property, plant and equipment, measured as the difference between net disposal proceeds and the carrying amount of the asset, are recognised in the consolidated statement of comprehensive income on derecognition.

Impairment

Tangible assets that are subject to depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. 

Intangible assets

Initial recognition and measurement

The Group's intangible assets relate to goodwill, capitalised development costs, intellectual property, customer relationships, brands and computer software. Goodwill is the excess of the consideration paid over the fair value of the identifiable assets, liabilities and contingent liabilities in a business combination and relates to assets which are not capable of being individually identified and separately recognised. Goodwill acquired is allocated to those cash-generating units ("CGUs") expected to benefit from the business combination in which the goodwill arose. Goodwill is measured at cost less any accumulated impairment losses and is held in the functional currency of the acquired entity to which it relates and remeasured at the closing exchange rate at the end of each reporting period, with the movement taken through other comprehensive income. The CGUs represent the lowest level within the Group at which goodwill is monitored for internal management purposes.

Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use. Internal costs that are incurred during the development of significant and separately identifiable new products and manufacturing techniques for use in the business are capitalised when the following criteria are met:

·        it is technically feasible to complete the project so that it will be available for use;

·        management intends to complete the project and use or sell it;

·        it can be demonstrated how the project will develop probable future economic benefits;

·        adequate technical, financial, and other resources to complete the project and to use or sell the project output are available; and

·        expenditure attributable to the project during its development can be reliably measured.

Capitalised development costs include employee, travel and other directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management.

Intellectual property is capitalised where it is probable that future economic benefits associated with the patent will flow to the Group, and the cost can be measured reliably. The costs of renewing and maintaining patents are expensed in the consolidated statement of comprehensive income as they are incurred.

Customer relationships, intellectual property and a brand have been recognised on the acquisition of LAICA S.p.A. where it is probable that future economic benefits will flow to the Group.

Computer software is only capitalised when it is probable that future economic benefits associated with the software will flow to the Group, and the cost of the software can be measured reliably. Computer software that is integral to an item of property, plant and equipment is included as part of the cost of the asset recognised in property, plant and equipment.

Other development expenditures that do not meet these criteria are recognised as an expense as incurred.

Subsequent measurement

The Group amortises intangible assets with a limited useful life using the straight-line method over the following periods:

·      Capitalised development costs                       2 - 5 years

·      Intellectual property                                        Lower of useful or legal life

·      Technology and software                                2 - 10 years

·      Customer relationships                                    10 - 13 years

·      Brands                                                                 Indefinite useful life

 

 

Amortisation is charged to the consolidated statement of comprehensive income on a straight-line basis over the estimated useful lives above. Given proximity of the LAICA S.p.A. acquisition to the year end, the intangible assets arising on acquisition have not been amortised in the period and amortisation will be charged straight-line basis over the estimated useful lives commencing 1 January 2021.

Derecognition

Intangible assets are derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of intangible assets, measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognised in the consolidated statement of comprehensive income when the asset is derecognised. Where a subsidiary is sold, any goodwill arising on acquisition, net of any impairment, is included in determining the profit or loss arising on disposal. 

Impairment

Intangible assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use.

Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired.

An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.

Leases

Leases in which a significant portion of the risks and rewards of ownership were not transferred to the Group as lessee were classified as operating leases.

The leasing activities of the Group and how these are accounted for

The Group leases office space, workshops, warehouses and factory space. Rental contracts are typically made for periods of 3 - 10 years, but may have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.

Leases are recognised as a right-of-use ("ROU") assets and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability, finance costs and foreign exchange (where the lease is denominated in a foreign currency). The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight line basis

Measurement of future lease liabilities

Assets and liabilities arising from a lease are initially measured on a present value basis. Future lease liabilities include the net present value of the following lease payments:

·	fixed payments (including in-substance fixed payments), less any lease incentives receivable
·	variable lease payments that are based on an index or a rate
·	amounts expected to be payable by the lessee under residual value guarantees
·	the exercise price of a purchase option if the lessee is reasonably certain to exercise that options, and
·	the payment of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

Lease payments are allocated between principal and finance cost. The finance cost is charged to the consolidated statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Measurement of right-of-use assets

Right-of-use assets are measured at cost comprising the following:

·	the amount of the initial measurement of lease liability
·	any lease payments made at or before the commencement date less any lease incentives received
·	any initial direct costs, and
·	restoration costs

Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in the consolidated statement of comprehensive income. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise primarily IT equipment.

Extension and termination options

Extension and termination options are included in a number of property leases across the Group. These terms are used to maximise operational flexibility in terms of managing contracts.

Lease income

Lease income from operating leases where the Group is a lessor is recognised in other income on a straight-line basis over the lease term.

Financial assets

Classification

The Group classifies its financial assets as financial assets held at amortised cost.  Management determines the classification of its financial assets at initial recognition.

The Group classifies its financial assets as at amortised cost only if both of the following criteria are met:

·      the asset is held within a business model whose objective is to collect the contractual cash flows; and

·      the contractual terms give rise to cash flows that are solely payments of principal and interest.

Financial assets held at amortised cost are initially recognised at fair value, and are subsequently stated at amortised cost using the effective interest method. Financial assets at amortised cost comprise cash and cash equivalents and trade and other receivables (excluding prepayments and the advance purchase of commodities). Trade receivables are amounts due from customers for products sold performed in the ordinary course of business. They are due for settlement either on a cash in advance basis, or generally within 45 days, and are therefore all classified as current. Other receivables generally arise from transactions outside the usual operating activities of the Group.

Impairment of financial assets

The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

The Group applies the expected credit loss model to financial assets at amortised cost. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. Given the nature of the Group's receivables, expected lifetime losses are not material.

Financial liabilities

With the exception of contingent consideration, the Group initially recognises its financial liabilities at fair value net of transaction costs where applicable and subsequently they are measured at amortised cost using the effective interest method. Financial liabilities comprise trade payables, payments in advance from customers and other liabilities. They are initially recognised at transaction price, unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Contingent consideration is measured at fair value with changes in fair value recognised in profit or loss.

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Other liabilities include rebates.

Borrowings, including option-type arrangements, are recognised initially at fair value. Option-type borrowing arrangements are subsequently measured at amortised cost. Fees paid on the establishment of such option-type arrangements are recognised as a 'right to borrow' asset, and are capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which the fees relate. This prepayment has been deducted from the carrying value of the financial liability at 31 December 2020. In the prior year the amount is included within prepayments. The prior year amounts have not be restated as they are not considered to be material.

Borrowing costs

General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings, pending their expenditure on qualifying assets, is deducted from the borrowing costs eligible for capitalisation. Other borrowing costs are expensed in the period in which they are incurred.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with a maturity of three months or less. While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, impairment losses are not material.

Employee benefits

The Group provides a range of benefits to employees, including annual bonus arrangements, paid holiday entitlements and defined benefit and contribution pension plans.

Short-term benefits

Short-term benefits, including holiday pay and similar non-monetary benefits, are recognised as an expense in the period in which the service is rendered. The Group recognises a liability and an expense for bonuses where contractually obliged or where there is a past practice that has created a constructive obligation.

Pensions

Subsidiary companies operate both defined contribution and defined benefit plans for the benefit of their employees.

A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. A defined benefit plan is a pension plan that is not a defined contribution plan.

Typically, defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors, such as age, years of service or compensation.

The liability recognised in the consolidated balance sheet in respect of the defined benefit scheme is the present value of the defined benefit obligation at the balance sheet date less the fair value of the scheme assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is calculated by qualified independent actuaries using the projected unit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability.

The net pension finance cost is determined by applying the discount rate, used to measure the defined benefit pension obligation at the beginning of the accounting period, to the net pension obligation at the beginning of the accounting period taking into account any changes in the net pension obligation during the period as a result of cash contributions and benefit payments.

Pension scheme expenses are charged to the consolidated statement of comprehensive income within administrative expenses. Actuarial gains and losses are recognised immediately in the consolidated statement of comprehensive income. Net defined benefit pension scheme deficits before tax relief are presented separately on the face of the consolidated balance sheet within non-current liabilities.

 

Share based payments

The Group has issued conditional equity settled share based options and conditional share awards under a Long Term Incentive Plan ("LTIP") in the parent company to certain employees. Under the LTIP, the Group receives services from employees as consideration for equity instruments of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense.

The total amount to be expensed is determined by reference to the fair value of the options granted:

·      including any market performance conditions such as the requirement for the Group's shares to be above a certain price for a pre-determined period;

·      excluding the impact of any service and non-market performance vesting conditions, including earnings per share targets, dividend targets, and remaining an employee of the Group over a specified period of time; and

·      including the impact of any non-vesting conditions, where relevant.

These awards are measured at fair value on the date of the grant using an option pricing model and expensed in the consolidated statement of comprehensive income on a straight line basis over the vesting period, after making an allowance for the estimated number of shares that will not vest. The level of vesting is reviewed and adjusted bi-annually in the consolidated statement of comprehensive income, with a corresponding adjustment to equity.

If the terms of an equity settled award are modified, at a minimum, an expense is recognised as if the terms had not been modified. An additional expense is recognised for any modification that increases the total fair value of the share based payment, or is otherwise beneficial to the employee, as measured at the date of modification.

If an equity award is cancelled by forfeiture, where the vesting conditions (other than market conditions) have not been met, any expense not yet recognised for that award as at the date of forfeiture is treated as if it had never been recognised. At the same time, any expense previously recognised on such cancelled equity awards is reversed, effective as at the date of forfeiture.

The dilutive effect, if any, of outstanding options is included in the calculation of diluted earnings per share.

Further details on the awards is included in note 23.

Inventories

Inventories consist of raw materials and finished goods which are valued at the lower of cost and net realisable value. Cost is determined using the first in, first out ("FIFO") method. Cost comprises expenditure which has been incurred in the normal course of business in bringing the products to their present location and condition, and include all related production and engineering overheads at cost. Net realisable value is the estimated selling price in the ordinary course of business, less applicable selling expenses. At the end of each reporting period, inventories are assessed for impairment. If inventory is impaired, the identified inventory is reduced to its selling price less costs to complete and an impairment charge is recognised in the consolidated statement of comprehensive income.

Revenue

The Group primarily recognises revenue from the sales of goods to its customers. The amount of revenue relating to the provision of services is minimal and the Group does not undertake any significant long-term contracts with its customers where revenue is recognised over time.

The transaction price is based on the sales agreement with the customer. Revenue is reported net of sales rebates, which are based on a certain volume of purchases by a customer within a given period. Other than sales rebates, there is no variable consideration. Rebates are contractually agreed taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. No element of financing is deemed present because the sales are made under normal credit terms, which is consistent with market practice.

Revenue (continued)

The performance obligation is the delivery of goods to customers, and revenue is recognised on dispatch for most revenue transactions. Otherwise, revenue is recognised when the products have been shipped to a specific location, or when the risks of obsolescence and loss have been transferred to the OEM or wholesaler. There are a very small number of revenue transactions where different performance obligations and/or recognition patterns occur. All of the amounts recognised as revenue are based on contracts with customers. 

The Group does not create any contract assets or contract liabilities and all amounts are recognised as trade receivables as there are no performance conditions other than the passage of time. Payment terms for the majority of customers are to pay cash in advance of the goods being delivered. The Group recognises these balances within trade and other payables on the consolidated balance sheet as "Payments in advance from customers". At the point the revenue is recognised, these balances are transferred from "Payments in advance from customers" to revenue. For the majority of other customers payment is normally due within 30 to 45 days from the date of sale.

Due to the simple nature of the Group's revenue no significant judgments have been made in the application of IFRS 15.

All revenue is derived from the principal activities of the Group.

Cost of sales

Cost of sales comprise costs arising in connection with the manufacture of thermostatic controls, cordless interfaces, and other products such as water jugs and filters. Cost is based on the cost of purchases on a first in, first out basis and includes all direct costs and an appropriate portion of fixed and variable overheads where they are directly attributable to bringing the inventories into their present location and condition. This also includes an allocation of non-production overheads, costs of designing products for specific customers and amortisation of capitalised development costs.

Exceptional items

Items that are material in size, unusual or infrequent in nature are included within operating profit and disclosed separately as exceptional items in the consolidated statement of comprehensive income. The separate reporting of exceptional items helps provide an indication of the Group's underlying performance, and includes restructuring costs, exit costs, share based payment transaction costs and costs relating to certain strategic projects.

Research and development

Research expenditure is written off to the consolidated statement of comprehensive income within cost of sales in the year in which it is incurred. Development expenditure is written off in the same way unless the Directors are satisfied as to the technical, commercial and financial viability of the individual projects. In this situation, the expenditure is classified on the consolidated balance sheet as a capitalised development cost.

Finance costs

Finance costs comprise interest charges on pension liabilities, interest on non-current borrowings, and finance charges relating to letters of credit. Finance costs are recognised when the right to make a payment is established.

Finance income

Finance income comprises bank interest receivable on funds invested. Finance income is recognised when the right to receive a payment is established.

Income tax 

Income tax for the years presented comprises current tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income, and any adjustment to tax payable in respect of previous years.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

The deferred tax liability in relation to investment property that is measured at fair value is determined assuming the property will be recovered entirely through sale.

Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

Share capital and share premium

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction from the proceeds. Share premium has arisen on the issue of shares during the year and is distributable. Share capital and share premium have been grouped for the purposes of financial statement presentation.

Dividends

Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by the Directors. In the case of final dividends, this is when approved by the shareholders at the AGM.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing the performance of the operating segments, has been identified as the Board of Directors. The Board of Directors consists of the Executive Directors and the Non-Executive Directors.

Government grants

Subsidiary companies receive grants from the Isle of Man and Chinese governments towards revenue and capital expenditure. Government grants are recognised at their fair value where there is a reasonable assurance that the grant will be received and all attached conditions complied with.

Revenue grants are recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. The grant income is presented within other operating income in the consolidated statement of comprehensive income.

Capital grants are recognised by deducting the carrying amount of the asset. The grant is recognised in profit or loss over the life of a depreciable asset as a reduced depreciation expense. The grants are dependent on the subsidiary company having fulfilled certain operating, investment and profitability criteria in the financial year, primarily relating to employment.

EBITDA and adjusted EBITDA - non-GAAP performance measures

Earnings before Interest, Taxation, Depreciation and Amortisation ("EBITDA") and adjusted EBITDA are non-GAAP measures used by management to assess the operating performance of the Group. Exceptional items charges are excluded from EBITDA to calculate adjusted EBITDA.

The Directors primarily use the adjusted EBITDA measure when making decisions about the Group's activities. As these are non-GAAP measures, EBITDA and adjusted EBITDA measures used by other entities may not be calculated in the same way and hence are not directly comparable.

3.    CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Group's financial statements under IFRS requires the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances.

Critical judgements in applying the entity's accounting policies

Going concern

The Directors have prepared the consolidated financial statements on a going concern basis. In making this judgment the Directors have considered the Company's and the Group's financial position, current intentions, profitability of operations and access to financial resources and analysed the impact of the situation in the financial markets on the operations of the Group, as set out in the paragraphs entitled 'Going concern' in note 2.

Functional currency

The Directors consider the factors set out in paragraphs 9, 10 and 11 of IAS 21, "The effects of changes in foreign currency" to determine the appropriate functional currency of its overseas operations. These factors include the currency that mainly influences sales prices, labour, material and other costs, the competitive market serviced, financing cash flows and the degree of autonomy granted to the subsidiaries.

The Directors have applied judgement in determining the most appropriate functional currency for all entities to be Sterling, with the exception of Strix (Hong Kong) Ltd which has a Hong Kong Dollar functional currency, Strix (USA), Inc. which has a United States Dollar functional currency, HaloSource Water Purification Technology (Shanghai) Co. Ltd which have a Chinese Yuan functional currency, LAICA S.p.A which has a Euro functional currency and LAICA International Corp. which has a Taiwan Dollar functional currency. This may change as the Group's operations and markets change in the future.

Capitalisation of development costs

The Directors consider the factors set out in the paragraphs entitled 'Intangible assets - initial recognition and measurement' in note 2 with regard to the timing of the capitalisation of the development costs incurred. This requires judgement in determining when the different stages of development have been met.

Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are disclosed below.

Acquisition of a subsidiary

In performing the acquisition accounting, the fair value of the consideration transferred (including contingent consideration) and fair value of the assets acquired and liabilities assumed have been measured. Initially, these are measured on a provisional basis and if new information obtained within one year of the date of acquisition about facts and circumstances that existed at the date of acquisition identifies adjustments to the above amounts, or any additional provisions that existed at the date of acquisition, then the accounting for the acquisition will be revised. The key inputs used are disclosed in note 14.

4.    SEGMENTAL REPORTING

Management has determined the operating segments based on the operating reports reviewed by the Board of Directors that are used to assess both performance and strategic decisions. Management has identified that the Board of Directors is the chief operating decision maker in accordance with the requirements of IFRS 8 'Operating segments'. The Group's activities consist of the design, manufacture and sale of thermostatic controls, cordless interfaces, and other products such as water jugs and filters, primarily to Original Equipment Manufacturers ("OEMs") based in China. The Group has been managed as one entity and management have consequently reported internally on the Group's performance as one segment.  

The Board of Directors has identified 3 reportable segments from a product perspective, namely: kettle controls, water category and appliances.

The Board of Directors primarily uses a measure of gross profit to assess the performance of the operating segments, broken down into revenue and cost of sales for each respective segment which is reported to them on a monthly basis. Information about segment revenue is disclosed below, as well as in note 7.

A prior year comparative analysis has not been provided has no such analysis had been presented to the Board of Directors previously for monthly management reporting purposes. Consequently the prior year comparative analysis of gross profit has been not been disclosed in this note.

	2020
	(£000s)
	Kettle controls	Water categories	Appliances	Total
Revenue	79,816	11,744	3,745	95,305
Cost of sales	(44,022)	(9,387)	(2,991)	(56,400)
Gross profit	35,794	2,357	754	38,905

 

Assets and liabilities

No analysis of the assets and liabilities of each operating segment is provided to the Board of Directors as part of monthly management reporting. Therefore no analysis of segmented assets or liabilities is disclosed in this note.

Non-current assets (i) attributed to country of domicile and (ii) attributable to all other foreign countries

A geographical analysis of revenue from external customers has not been presented, as the OEMs to whom the majority of sales are made are primarily based in China.

In accordance with IFRS 8, the following table discloses the non-current assets located in both the Company's country of domicile (the Isle of Man) and foreign countries, primarily China, where one of the Group's principle subsidiaries is domiciled.

	2020	2019
	£000s	£000s
Country of domicile
Intangible assets	8,888	6,137
Property, plant and equipment	2,958	3,381
Total country of domicile non-current assets	11,846	9,518
Foreign countries
Intangible assets	20,760	931
Property, plant and equipment	34,247	22,144
Total foreign non-current assets	55,007	23,075
Total non-current assets	66,853	32,593

       Major customers

In 2020, there were two major customers that individually accounted for at least 10% of total revenues (2019: two customers). The revenues relating to these customers in 2020 were £13,683,000 and £11,618,000 (2019: £20,816,000 and £11,064,000).

 

5.    EMPLOYEES AND DIRECTORS

(a) Employee benefit expenses

	2020	2019
	£000s	£000s
Wages and salaries	18,347	17,981
Defined contribution pension cost (note 5(c)(i) and 5(c)(iii))	631	646
Employee benefit expenses	18,978	18,627
Share based payment transactions (note 23)	1,869	5,944
Total employee benefit expenses	20,847	24,571

 

 

(b) Key management compensation

The following table details the aggregate compensation paid in respect of the key management, which includes the Directors and the members of the Trading Board, representing members of the senior management team from all key departments of the Group.

 

	2020	2019
	£000s	£000s
Salaries and other short-term employee benefits	1,673	1,787
Post-employment benefits	160	160
Termination benefits	99	100
Share based payment transactions	404	4,525
	2,336	6,572

 

-There are no defined benefit schemes for key management. Pension costs under defined contribution schemes are included in the post-employment benefits disclosed above.

 (c) Retirement benefits

(i) The Strix Limited Retirement Fund

The Strix Limited Retirement Fund is a defined contribution scheme under which the assets of the scheme are held separately from those of the Group in an independently administered fund. The pension cost charge represents costs payable by the Group to the fund and amounted to £611,000 (2019: £646,000).

(ii) The Strix Limited (1978) Retirement Fund

The Strix Limited (1978) Retirement Fund is a defined benefit scheme providing benefits based on final pensionable pay. The assets of the scheme are held separately from those of the Group. The trustees of the pension fund are required by law to act in the interest of the fund and of all relevant stakeholders in the scheme. The trustees are responsible for the investment policy with regard to the assets of the fund.

The scheme is closed to new members and future accruals. During 2019, all retirement benefit plan obligations relating to the defined benefit scheme were transferred to Aviva. On transfer, income of £78,000 was recognised directly in equity.

The remainder of the disclosures required by IAS 19 have not been included in these financial statements as the scheme is not material to the Group.

(iii) LAICA S.p.A. Termination Indemnity

LAICA S.p.A., acquired by the Group on 26 October 2020 (note 14), operates a defined benefit plan for its employees in accordance with the Italian Termination Indemnity (named "Trattamento di Fine Rapporto" or  "TFR") provisions defined by the National Civil Code (Article 2120). In accordance with IAS 19, the TFR provision is a defined benefit plan, which is based on the principle to allocate the final cost of benefits over the periods of service which give rise to an accrual of deferred rights under each particular benefit plan.

The calculation of the liability is based on both the length of service and on the remuneration received by the employee during that period of service. Article 2120 states that severance pay is due to the employee by the Companies in any case of termination of the employment contract. For each year of service, severance pay accruals are based on total annual compensation divided by 13.05. Although the benefit is paid in full by the employer, part (0.5% of pay) of the annual accrual is paid to INPS by the employer, and is subtracted from the severance pay accruals for the contribution reference period. As of 31 December of every year, the severance pay accrued as of 31 December of the preceding year is revalued by an index stipulated by law as follows: 1.5% plus 75% of the increase over the last 12 months in the consumer price index, as determined by the Italian Statistical Institute.

In accordance with IAS 19, the determination of the present value of the liability is carried out by an independent actuary under the projected unit method. This method considers each period of service provided by workers at the company as a unit of additional right. The actuarial liability must therefore be quantified based on seniority reached at the valuation date and re-proportioned based on the ratio between the years of service accrued at the reference date of the assessment and the overall seniority reached at the time scheduled for the payment of the benefit. Furthermore, this method provides to consider future salary increases, due to any cause (inflation, career, contract renewals, etc.), up to the time of termination of the employment relationship.

The below chart summarises the defined benefit pension liability of LAICA S.p.A. at 31st December 2020:

	£'000
Liability as at date of acquisition by the Group (26 Oct 2020)	878
Current service cost for the period	20
Liability as at 31 December 2020	898

The key actuarial assumptions used in arriving at these figures include:

•     annual discount rate of 2.5%

•     annual price inflation of 6.0%

•     annual TFR increase of 2.1%

•     demographic assumptions based on INPS published data

 

The remainder of the post-employment benefit liability of £457,000 (2019: £nil) as at 31 December 2020 is made up of contractual post-employment liabilities within LAICA S.p.A. that do not meet the definition of a defined benefit plan in accordance with IAS 19.

 

 

6.    EXPENSES

(a) Expenses by nature

	2020	2019
	£000s	£000s
Employee benefit expense	18,978	18,627
Depreciation charges	3,042	2,903
ROU depreciation charges	1,470	1,323
Amortisation and impairment charges	1,477	1,298
Exceptional items  - reorganisation costs	334	171
Exceptional items - strategic projects	3,253	1,208
Exceptional items - share based payment transactions	1,869	5,944
Foreign exchange losses	505	266

 

Research and development expenditure totalled £4,117,000 (2019: £4,439,000), and £2,808,000 (2019: £2,358,000) of development costs have been capitalised during the year.

(b) Exceptional items

Strategic project costs relate to certain projects being undertaken to support the achievement of the Group's strategic plans including the acquisitions of LAICA S.p.A. and HaloSource disclosed in note 14, COVID-19 costs of £630,000 and the implementation of a new global Enterprise resource planning system.

The share based payment transactions relate to conditional share options and awards issued to certain employees. Further details are provided in note 23.

(c) Auditor's remuneration

During the year the Group (including its subsidiaries) obtained the following services from the Company's auditor as detailed below:

	2020	2019
	£000s	£000s
Fees payable to Company's auditor and its associates for the audit of the consolidated financial statements	178	124
Fees payable to Company's auditor and its associates for other services:
- the audit of Company's subsidiaries	24	4
- other assurance services	12	9
- tax compliance and other	7	5
	221	142

7.    REVENUE

The following table shows a disaggregation of revenue into categories by product line:

	2020	2019
	£000s	£000s
Kettle controls	79,816	85,799
Water category	11,744	9,829
Appliances	3,745	1,248
Total revenue	95,305	96,876

 

8.    FINANCE COSTS

	2020	2019
	£000s	£000s
Letter of credit charges	89	65
Right-of-use lease interest	103	110
Borrowing costs	1,002	1,176
Total finance costs	1,194	1,351

 

9.      TAXATION

	2020	2019
Analysis of charge in year	£000s	£000s
Current tax (overseas)
Current tax on overseas profits for the year	1,384	1,265
Adjustments in respect of prior years - overseas	-	74
Total tax charge	1,384	1,339

 

Overseas tax relates primarily to tax payable by the Group's subsidiary in China. During 2016, the Group's Chinese subsidiary paid additional tax of £1.1m following a benchmarking assessment by the Chinese tax authorities relating to contract processing businesses in the years 2009 to 2014. The potential additional liabilities for 2015 to 2018 of £0.9m (2019: £1.2m), has been included within the current tax liability balance in the consolidated balance sheet as a result. The Chinese subsidiary converted to an import processing model in 2019.

A deferred tax liability of £2,558,000 (2019: £nil) has been recognised as part of the fair value acquisition accounting of LAICA S.p.A. (note 14) relating to the timing differences arising on the recognition of intangible assets.

As the most significant subsidiary in the Group is based on the Isle of Man, this is considered to represent the most relevant standard rate for the Group. The tax assessed for the year is higher than the standard rate of income tax in the Isle of Man of 0% (2019: 0%). The differences are explained below.

	2020	2019
	£000s	£000s
Profit on ordinary activities before tax	25,454	22,877
Profit on ordinary activities multiplied by the rate of income tax in the Isle of Man of 0% (2019: 0%)	-	-
Impact of higher overseas tax rate	1,384	1,265
Adjustments in respect of prior years - overseas	-	74
Total taxation charge	1,384	1,339

The Group is subject to Isle of Man income tax on profits at the rate of 0% (2019: 0%), Chinese income tax on profits at the rate of 25% (2019: 25%) and Italian income tax on profits at a rate of 27.9% (2019: n/a), following the acquisition of the Italian subsidiary LAICA S.p.A. on 26 October 2020.

10.   EARNINGS PER SHARE

The calculation of basic and diluted earnings per share is based on the following data.

	2020	2019
Earnings (£000s)
Earnings for the purposes of basic and diluted earnings per share	24,049	21,538
Number of shares (000s)
Weighted average number of shares for the purposes of basic earnings per share	197,432	190,000
Weighted average dilutive effect of share awards	8,947	12,845
Weighted average number of shares for the purposes of diluted earnings per share	206,379	202,845
Earnings per ordinary share (pence)
Basic earnings per ordinary share	12.2	11.3
Diluted earnings per ordinary share	11.7	10.6
Adjusted earnings per ordinary share (pence) (1)
Basic adjusted earnings per ordinary share (1)	14.9	15.2
Diluted adjusted earnings per ordinary share (1)	14.3	14.2

 

The calculation of basic and diluted adjusted earnings per share is based on the following data:

 

	2020	2019
	£000s	£000s
Profit for the year	24,049	21,538
Add back:
Reorganisation costs/exit costs	334	171
Strategic project costs	3,253	1,208
Share based payment transactions	1,869	5,944
Adjusted earnings (1)	29,505	28,861

¹ Adjusted results exclude exceptional items, which include share based payment transactions and other strategic project costs. Adjusted results are non-GAAP metrics used by management and are not an IFRS disclosure

The denominators used to calculate both basic and adjusted earnings per share are the same as those shown above for both basic and diluted earnings per share.