30th Mar 2022 12:00
(Alliance News) - Strix Group PLC shares fell on Wednesday after annual results showed profit was hurt by higher costs, but Chief Executive Mark Bartlett remained confident in the company's prospects, with revenue on the rise and dividend increases pencilled in for the foreseeable future.
The Isle of Man-based kettle safety controls provider reported pretax profit of GBP21.5 million in 2021, down 16% from GBP25.5 million in 2020, amid cost pressures.
Revenue rose 25% to GBP119.4 million from GBP95.3 million. But cost of sales jumped 34% to GBP75.6 million from GBP56.4 million, and administrative expenses also increased, up 37% to GBP11.5 million from GBP8.4 million.
Strix's boss told Alliance News in an interview that the increase in commodity prices last year pushed up the company's costs, with Strix largely exposed to silver, plastics and copper prices.
Looking at copper alone, credit risk and market research outfit Fitch put the average copper price for 2021 at USD9,285 a tonne. The average worldwide copper price in 2020 was at USD6,174 per tonne, according to figures from market and consumer data company Statista, suggesting a roughly 50% rise.
Bartlett said that Strix will increase the price of its products in May, which is "intended to cover any known increases in the costs of commodities through the remainder of the year". He stressed the bit about 'known' cost increases, Russia's invasion of Ukraine having turned commodity price forecasts on their head.
"So I think we have done everything we can to mitigate those costs. Certainly for the headwinds that we can see as of today and looking at the spot prices today," the Strix CEO said.
Other costs mitigation efforts include making production more efficient, particularly in the company's factory in China. This includes the automation of production lines, which reduces the labour required, making a big impact on costs, according to Bartlett.
Adjusted earnings before interest, tax, depreciation and amortisation was up 6.3% to GBP40.5 million in 2021 from GBP38.1 million in 2020.
Liberum analyst Christian Hinderake noted this was around two percentage points off the expected year-on-year growth for Strix due to the timing of rising costs versus the expected increase in the company's product prices.
Revenue growth in 2021 was driven by both organic growth and the acquisition of Laica Spa, which delivered strong a revenue gain last year.
Laica focuses on water purification and the sale of small household appliances for personal health and wellness. It was acquired for EUR19.6 million towards the end of 2020.
Despite the fall in profit, Strix increased its final dividend by 6.7% to 5.60 pence per share from 5.25p a year before. This brought the year's total payout to 8.35p, which was 6.4% higher than 7.85p in 2020.
Looking ahead, Strix said it remains on track to deliver its medium-term target, announced last October, to double revenue between 2020 and 2025. This primarily will be achieved through growth in its Water and Appliances categories and will mean bringing annual revenue up to about GBP190 million.
"We are still absolutely committed to that plan and as far as we're concerned we're on track to achieve that over the five years," CEO Bartlett said.
On profit, Bartlett said he "absolutely" expects profit to rise in 2022, despite the prevailing headwinds. He also expressed commitment to implementing progressive increases to the company's payouts to shareholders, which he said will not be hindered by the current cost challenges.
Strix is looking at bringing new products out toward the end of 2023. These will include a new range of controls, which will be smaller and more complex to manufacture and for which the company already has the infrastructure in its factory in China.
Liberum said that, with growth on track and with environmental, social and governance credentials to the fore, it continues to see Strix as a top-tier industrial stock and has reiterated its Buy rating, though it shaved Strix's target price to 370p from 460p.
Strix shares were down 4.8% to 228.50 pence each in London on Wednesday. The stock is down 16% over the past 12 months.
Strix has integrated the UN 'sustainable development goals' into its core business activities in 2020, and now aims to reach net zero scope 1 & 2 emissions by next year. Notably, Strix aims to achieve over 95% of the target through direct emissions reductions.
The UN sustainable development goals are a collection of 17 interlinked global goals designed to be a "blueprint to achieve a better and more sustainable future for all".
"Should the group prove successful, this would be well ahead of the timeframe set out under the 1.5 degrees Celsius Paris Agreement and we argue such ESG credentials should support Strix's valuation," Liberum said.
In late February, Strix was hit by a cyber-attack of Russian origin that targeted its servers, first in the UK and then in the Isle of Man. The attack saw no loss of business for the company, with Bartlett calling it more of a "nuisance" than anything.
Bartlett said that the attack was probably more opportunistic, with cyber-attack activity normally spiking after the company makes any releases public, such as on the Regulatory News Service of the London Stock Exchange. February's attack happened shortly after Strix made a pre-close announcement on RNS.
Many attacks of a similar nature occur in many companies across sectors, Bartlett said, so it is unlikely that Strix was targeted for any specific reason other than the company's name coming up in the public sphere.
"One of the things for us was the lesson learnt. We had very, very strong systems - we thought - in place before the attack and we have done a lot of work to strengthen it further," he said, referring to the hiring of cybersecurity consultants to work with the company for the foreseeable future.
By Greg Roxburgh; [email protected]
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