Mark Bartlett, CEO, and Raudres Wong, CFO, discuss the recent set of interim results and the acquisition of LAICA, the Italian water purification business. The 38 min presentation is followed by 20 mins of Q&A.
Questions that were unanswered during the presentation and answered here:
What are the long term growth rates in the kettle controls and the water filtration markets?
Volume CAGR in Kettles is c.6–8% and has been for last two decades whilst value growth is closer to c.2-3% due to the continued evolution of the controls (cost reductions allowing more competitive offering to secure new projects). The Water category growth within Strix is estimated at >10% for the full year (2% H1) but going forward we would expect high double digit growth given recent acquisitions and a comprehensive portfolio of products.
What is your overall expected tax rate going forward?
We are estimating it at 4% this year due to some support from the Chinese government (previous guidance was 5%) and guidance of 6-6.5% subsequent years due to the addition of LAICA.
Could you please repeat the factors that affected adjusted GP? Did I hear you have a bad debts provision?
There is £315k on the balance sheet. There has been no bad debt in the company given we take 60% cash up front and 20–30% as a letter of credit. The remaining credit terms are covered by insurance.
Do you also expect Halosource to break-even by end of H2 20?
We are currently not breaking out our guidance for Halosource.
Does the growth of kitchens with instant boiling water present a serious threat?
No – we do not see this as a threat given our own technologies and our ability to supply technology into the Hot Tap market if and when appropriate.
Are you able to give any indication of your plans for earnings per share in 5 years’ time?
We are not making forecasts out that far at this time – further information will be given on revenue / EBITDA in due course.
LAICA has rather low gross margins? What can you get it to?
Margins are in line with that of existing Aqua Optima business but we would expect a positive improvement as we secure supply chain synergies and introduce new products. Furthermore growth is projected in the higher margin water category of LAICA versus the sourced Small Domestic Appliances
When does the LAICA earnout period end ? How many additional earnings accrue to the company vs the additional earnout payment?
The earnout period ends in FY22. To qualify for the max earn out, LAICA has to deliver €4.2m and €4.8m respectively in the two earn out years. The max earn outs are €4m and €3.1m respectively.
What will Mr Moretto’s share percentage in STRIX be after the deal is closed?
C.2% for both of the Moretto’s combined. (roughly €8M at £2.30)
Does COVID make integration of an overseas company very difficult?
We are very accustomed to working remotely given our geographical footprint and the knowledge and with the skill sets within both Strix and LAICA we do not see any issues with the integration regardless of COVID.
What % of your sales are online and what growth have you seen in this?
We have not disclosed the numbers but online sales have increased this year, particularly within the water category.
What percentage of global production capacity including LAICA is based in China?
A very high percentage
Will the LAICA vendors have a seat on the board?
No
According to what I can see online they will own nearly 3% of the company's equity while the current board apparently owns about 1%. If these numbers are right who will be in control?
The Morretto’s will hold less than 2% between them and Raudres, myself and Gary hold > 3%
Do you ever worry about the number of new products. What is the approach to allocating capital / R&D to competing new products?
Every business plan is stress tested and has its own ROI criteria.
