Strix Group CEO on Revenue Growth, Debt Reduction, and Future Investments (LON:KETL)

Strix Group plc (LON:KETL) Chief Executive Officer Mark Bartlett caught up with DirectorsTalk for an exclusive interview to discuss how they achieved good revenue growth and strong cash generation, rebasing of the core business, the focus on maximising cash generation to support the debt reduction, new technologies, and what investors can expect over the coming year.

Q1: Mark, Strix has demonstrated good revenue growth, continues to be highly profitable and is strongly cash generative. What would you put this down to?

A1: Yes, that’s correct. The fundamentals of the business remain unchanged, delivering good profitability, being highly cash-generative and with extremely high and stable market shares.

The addition of the full-year impact to Billi has been a primary driver of revenue growth in 2023 and I think really demonstrates the attractiveness of that acquisition and also the longer-term growth potential.

We also saw some small revenue growth in the kettle segment driven primarily this time by the less regulated markets that have shown quite a positive recovery. The regulated market, which is obviously a dominant market for us, is showing some improvement quarter on quarter but at a much slower rate and we’ve therefore adopted a more cautious approach to the recovery of that segment in 2024.

Q2: What is behind the rebasing of the group’s core business in 2024 and its effect on the company’s medium-term growth opportunities?

A2: The rebasing of the business comes from a number of aspects, including some of the market feedback we’ve received from our stakeholders over the last six to 12 months.

As I said, we have taken a much more cautious view of the recovery within the regulated kettle market, which is a dominant market for the group. The infrastructure also is heavily biased by the performance of the UK and the German economies and we will understand where they are at the moment.

We’ve also implemented some restructuring within the consumer division to really focus on the key profitable segments, rationalising the product portfolio and also some of the various routes to market. LAICA Italy, a previous acquisition which saw positive double-digit profit growth in 2023 will be the centre of excellence for that division going forward and will leverage on the core competencies of that group.

As part of the rebase, we’ve also undertaken some optimisation of our operations, particularly with respect to the supply chain. The conflict between Russia and Ukraine has caused some quite significant price increases for some of our supplies due to the increased cost of electricity and processing and that’s led to some quite challenging decisions on where the optimum site is to manufacture some of our key components.

Fortunately for us, we have facilities in Europe, Australia, China and on the Isle of Man, so can optimise our operations accordingly.

And finally, the ability has delivered to all expectations and will remain the key focus for profitable growth, really leveraging on the group’s geographical footprint and also our core technologies.

Q3: Can you comment on the Board’s focus on maximising cash generation to support the debt reduction, which has now resulted in the temporary pause in the dividend?

A3: Again, we have listened to our various stakeholders. The Board is 100% committed to reducing the debt below two times within or by the end of 2024 and to 1.5 times by the end of 2025.

This is being achieved through a number of self-help measures that are very much in our control. Things like efficiency improvements, optimising supply chains, rationalisation of our product portfolio to ensure the focus is on the most profitable categories, as well as that temporary pause in the dividend during 2024, which will allow us to accelerate that de-leveraging profile in the short term.

Q4: Could you provide some insights into the specific new technologies that the group plans to invest in to support its longer term growth initiatives?

A4: Despite the rebasing, there is still an awful lot going on in the background. Obviously, some of those developments are confidential, but the key areas of focus are as follows:

We have a new Series Z control, that is a revolutionary control in the kettle market that would significantly improve our sustainability footprint and also allow us to enter some adjacent markets as well as enhance the product portfolio for the existing kettle markets, both for the group but also some benefits for our partner OEMs as well.

We also have a new series of low-cost controls that we’re about to launch, which will increase our addressable market and our competitiveness in both the less regulated and China domestic market.

We’ve got some additional developments within the heating technology, which are underway, and these will be used across all of our divisions, including Billi, and they will provide differentiated and patented technologies for all of those products.

In filtration, we’ve got some enhanced filtration products, which really will support our premium LAICA brand globally.

In addition to all of that, we’re still continuing to focus on lean initiatives within our various manufacturing facilities to improve our efficiencies and obviously further reduce costs.

Q5: So, we’ve looked at the new technologies, what can investors expect from Strix Group over the next year?

A5: With the rebasing and restructuring within our business, we’ll ensure we build solid foundations for sustainable growth in the medium term and making sure we get that reduced debt and a clear and focused strategy to deliver on our strategic objectives.

Clearly, we’ve taken a cautious view of the forecast on the recovery of the regulated cattle markets, which potentially provide some further upside opportunities, but we will continue to take actions internally to make sure we focus on the profitable growth opportunities within our business.

I’m very confident we have the right people with the right skills in the right places to deliver on our strategic objectives, and we certainly have a solid and committed management team that is very focused and motivated to execute on our growth strategies.

We’ve been through a very tough period over the last couple of years with the various headwinds, but we have made the necessary adjustments to our business and remain very confident to realise the full potential of the business going forward into next year.