Strix Group PLC (LON:KETL) Chief Executive Officer Mark Bartlett caught up with DirectorsTalk for an exclusive interview to discuss the highlights of their final results, being well positioned geopolitically, their China relocation and confidence for 2019 & beyond.
Q1: A positive set of results reported for 2018, can you give us the headline highlights?
A1: It’s been a very positive year in 2018, we’ve seen our revenues go up 2.7% and 4.5% on a constant currency basis, good results on our margins which have gone up to 41.5% and we’ve seen a 40% reduction in our net debt during the course of the year bringing it down to £27.5 million. Cash conversion has always been strong in our business and still sitting at around 90% so very very positive from a financial perspective.
From the business itself, our core business has seen continued growth in the kettle markets, so we actually grew our volumes by 7.9% and maintained our global market share of around 38% so that’s been very positive. On the filtration side of our business, Aqua Optima, a very busy year with our share at 25% and some interesting new products and some investments being made in that part of the business.
From a dividend point of view, we have proposed a final dividend of 4.7p which will bring the full year dividend to 7p.
Q2: Mark, are you exposed to geopolitical issues such as Brexit and the US/China trade wars?
A2: Actually, we’re quite well positioned from that perspective and most of our transactions are between the Isle of Man and Asia, either Hong Kong or China. From a Brexit point of view, there are very few transactions directly to the European market so not overly affected other than maybe some of the stock builders being done by brands around the world to protect against any disruption.
Again, from the US side, most of our business is between the Isle of Man and the China-based OEM’s so yes there is some impact in terms of products going to the US, but it doesn’t actually affect our own business.
So, we’re quite well protected and also, from a currency point of view, because we deal with so many different currencies, actually we have quite a strong natural hedge, so we haven’t seen any significant impact from all the currency fluctuations in the marketplace.
Q3: You had some very successful intellectual property protection initiatives undertaken in 2018, can you tell us a bit more about these?
A3: Yes, as you’re aware, we take our intellectual property extremely seriously and 2018 has been no exception. We’ve actually had more than 8 successful initiatives throughout the year which I believe is the highest in our history and that’s been everything from safety actions in the marketplace, we’ve done factory raids as well as legal actions to protect our own IP. It’s something we will continue to do and continue to focus on.
In all those cases, what we’re trying to do is to convert people to using Strix Group’s controls where they have been using infringing controls and maintain a relationship with those people for the next 3-5 years following those actions, which has been very successful for us in the past.
Q4: In 2018, you signed an investment agreement with the local government for the relocation of your manufacturing operation in China to support future growth, how’s this progressing now?
A4: It’s progressing very well, we actually have signed an investment agreement, as you say, so we have actually identified the land which is just over 20 kilometres from our existing facility in China.
We are now in the process of finalising those contracts, there’s sort of a process you have to run through obviously, and we look to start work on the construction of that factory at the beginning of Q3 of this year and we’d like to be moving into that factory in the summer of 2021.
Clearly, we’ve done a lot of work on the automation in our existing factory and this will give us an opportunity to increase that still further as we move in as well as gaining some synergies from our supply chain as we can actually bring in some of the outsourced product with that extra capacity in 2021.
Q5: Just look post period end, you acquired assets from HaloSource, how will they contribute the Aqua Optima business?
A5: The HaloSource has been a really interesting acquisition for us, it’s very much an adjacent business, it has an operation in China which is under a brand called HaloPure which is taking out viruses and bacteria from water. There’s another branch in the US which is where their head office was which is actually looking at the removal of lead in water bottles which is a huge issue in the US market.
It brings a couple of other things for us, one of the core reasons for the acquisition was also that they have some very very strong R&D capabilities and that will actually become our innovation centre for the filtration market. That will allow us now to look at our Aqua Optima product as well and bring in some new technologies to differentiate our Aqua Optima brand as well as bringing those new brands of Astrea and HaloPure into the market.
Q6: Looking forward, are you confident of the position of Strix Group for 2019 and beyond?
A6: Yes, we are very confident of the 2019 numbers and beyond. We’ve probably got the most differentiated products that we’ve ever had in the history of the company so certainly in our core kettle business which is still a market that’s growing at 7% per annum and we believe that we have all the right products and we continue to evolve those products so we can compete head to head with our China competitors.
On the Aqua Optima side, clearly the acquisition of HaloSource coupled with the growth of the distribution, we’ll see continued growth in that area, similar to what we’ve seen in the prior year.
So, yes, very very confident of the future and obviously the investment in the new factory as well as some further investment in the engineering side of our business, we’ll make sure that we can actually continue to drive new product development and some disruptive technologies in the future.