Strix Group Plc (KETL.L) Earnings Call Transcript & Summary

[Audio Gap] [Operator Instructions]. Before then, we will hear from Mark Bartlett, who will talk us through the presentation. Over to you, Mark.

Thank you very much, Hannah, and welcome, everybody. First of all, I just like to put out some apologies. Normally, Clare Foster, our CFO, would join us today. But unfortunately, she had a bit of a medical accident. So she is recovering well, but she's not able to join us today. But we do have Rachel Palette here joining me today, who's the CCO of the Controls and Billi Group and she would be able to give you a little bit of color on those 2 key divisions in the business as well as we go forward. So let me start, if I may, with some highlights for the business, first of all, before we get into some of the detail. 2024 really was a year of restructuring the business, really trying to optimize it for the medium-term profitable growth. We've been strengthening some of the areas through strategic hires, particularly within the finance and the commercial teams. And we've been carefully investing in some of those key strategic projects that we'll talk through over the next 30 minutes or so. Part of the Ramsey production had been moved over successfully to China, and that was really an attempt or not an attempt, it did improve our ESG footprint, optimizing our supply chain and reducing cost for that part of the business, that was primarily around the press machines. Our new products, we launched a new low cost control for unregulated markets and for China, and we're well on the way now to introducing a revolutionary new Control with a much smaller footprint, which will actually increase our target addressable market as well and defend our position in the regulated market. Rachel will cover that in more detail shortly. Staying on new products. Billi successfully launched the OmniOne and the multifunction tap in Australia returning the division to double-digit growth during Q4 of last year. And that's -- I'm pleased to report has continued going into this year. These products are now being launched in both Europe and the U.K. We've continued to rationalize the Consumer Goods division to really make sure, again, we're focused on the most profitable long-term growth opportunities. And we're now building appliances, incorporating strict technology in our China factory with further products to be launched during 2025. Overall, from a financial point of view, we secured an adjusted profit after tax of GBP 18.7 million on a constant currency basis, comfortably within the range that we communicated of GBP 18 million to GBP 19 million. Also a lot of focus on the net debt side of the business, and we are able to actually report a reduction of GBP 20 million during the course of the year, resulting in a net leverage now at 1.87x, well within our target range of the 1 to 2x. It's been an interesting few weeks for us. We've literally just come back from travel around Asia, and particularly in the Canton Fair. And I'm going to let Rachel cover that as he goes through the Controls part of the business because it's always a very important time for us, gathering a lot of intelligence about the market but also from our core customers, both OEMs and brands alike. So with the strong foundation, the Board remains confident in the group's outlook with its full year expectations unchanged. And the Board also plans to reinstate the final dividend payment as we had promised in December of 2025, alongside the full year '25 interim dividend. I'll touch on that a little bit more as we go into the financials. So with that, if I can move on to the next slide. As you can see here, just looking at bit of an overview first. 2024 has been a year where we've continued to report some revenue growth, albeit this has been lower, recording an increase of 1.3% to a level of GBP 145.7 million at a constant currency rate. I think it's worth noting that outturn reflects a mix of small decreases in both Controls and Consumer Goods, offset by a solid single-digit growth in Billi. Also worth mentioning that actually if you look at the constant currency, particularly the Australian dollar, that growth would have been higher, but there has been some FX movement when you consolidate into pound sterling. As expected, when we look at the gross margin, we've seen a small decrease, around 230 basis points year-on-year. This reflects a number of things, again, largely in our Controls and Consumer Goods division, and I will cover those in more detail as we get to the divisional slides. Adjusted EBITDA has decreased at both margin and pound level. This largely reflects the reduced gross margin, although ongoing strategic investments, particularly in our sales and the Billi divisional management teams have increased some overheads in the year. Despite this, it remains true that an adjusted EBITDA of just under 25% continues to provide a very strong foundation to the group's medium-term growth plans. One place you really see the benefit of that strong EBITDA margin very clearly is the group's ROCE. We continue to enjoy an enviable position of being north of 20% with a return of 21.7%. So very pleased with that result. Reflecting on all of that, adjusted PBT has seen a reduction of around 16.3% to that GBP 18.7 million of constant currency rate, again firmly in the range that we spoke about and actually, there's been quite a strong performance at the back end of the year. Looking at cash generation. This business has always been able to generate significant cash. It's fair to say that we have made some very significant inroads into this over the course of the year. I know from previous meetings that Clare was very careful to manage expectations when it came to cash last March because we have just achieved a 105% cash conversion in full year '23. But the reality is that we are still keeping focused on that part of the business, and we've been able to improve that position even further, leading to 114% cash conversion. That focus, albeit helped a little bit by a reverse equity placing in June of '24, has allowed the business to take an impressive GBP 20 million of our net debt and taking our leverage now within our medium-term appetite at 1.87x. So with that covering highlights, let's move into a little bit more detail and maybe starting with the gross margin first of all. As mentioned, you can see a small decrease in the overall gross margin at 230 basis points, although at 37.5%, this still does reflect a pretty strong trading performance. I mean, the main reasons for that decrease relates again to the Controls and the Consumer Goods division with our highest gross margin division Billi, continuing to secure gross margins in those mid-40s. For Controls, we've seen a number of impacts in the year as we reported in Q3 and well publicized in the media. Commodity prices, you did increase markedly in the second half of 2024. We were able to mitigate some of that with some stock holdings, board ordering and some stock commitments. However, this has still had a negative impact on the margin in the year, especially in the second half. Also a weaker average U.S. dollar over '24 versus '23 has also impacted with around 50% of the Control sales being in U.S. dollars against a largely renminbi cost base. Looking ahead, the U.S. dollar continues to be weaker as a result of everything that is happening at the moment, although there is some signs that the commodity prices are moving in a more positive direction. However, the main gross margin impact we were seeing in '25 relates to the expected increase in sales to the very low margin China market as a result of the successful launch of our low cost control, something that Rachel will cover in a bit more detail shortly. Securing a recovery in the group's China market share is a key element of our sort of protection strategy. However, success here will depress overall marginality as volumes increase. As I said at the beginning, for Billi, margins have remained in line with 2023. We expect that to continue going into 2025, supported by high underlying growth and a markedly lower price sensitivity across Billi's main end markets. On the Consumer Goods division, we have seen a marked decrease in gross margin, just shy of 500 basis points. There were a few one-offs in full year '23, which made the comparison against '24 position a more useful exercise. I mean here, we see a much more decrease of around 190 basis points largely reflecting the start of the appliance manufacturing for one of our key baby formula systems. Expanding -- again, expanding that appliance manufacturing for key brands remains a core part of the Consumer Goods strategy. And notwithstanding that this is a new revenue stream, it's a relatively lower margin than other routes to market. It is offset by a much higher quality customer engagement and obviously, retention that it provides to those customers as well as all the consumers will continue to get following the sale of the appliances. So let's move on to the balance sheet side, if I may. Cash generation and debt reduction remain a key priority to the group. And so it's worth spending a few minutes just taking you through what has driven that GBP 20 million reduction in net debt that we talked about in those financial highlights. First thing to note is there is very noticeable sort of [indiscernible] columns on the left-hand side, which shows just how well we generate operating cash inflows with GBP 31.4 million coming into the business as a result of trading and not an insignificant additional GBP 4.4 million of cash inflows as a result of strong working capital management. It is those columns that are driving our 114% EBITDA conversion rate we talked about before. And when you look at our working capital as a percentage of sales, you can really see the impact of this with a large swing from 16.7% sales in '23, down to 10.7% in 2024. Perhaps even more notable is the fact that at the end of 2022, that number was 25.8%. So we have effectively more than doubled our working capital efficiency over the last 24 months with that focus. Investment wise, we've taken a very measured approach to capital expenditure with the GBP 8.2 million you can see there, really reflecting more of a maintenance level of spend, supplemented by prudent but key strategic investments, most notably into our next-generation Control. As reported at the half year, the successful reverse equity placing generated proceeds of net GBP 8.4 million, and that's been further supplemented by the self-help in the year to achieve that overall GBP 20 million reduction to get the net debt down to now GBP 63.7 million. So if we can move into the balance sheet side further. There is no doubt during 2024, the net debt leverage remained a key priority. We've moved a substantial way along the path in 2024 with a GBP 20 million reduction in debt, securing a greatly reduced leverage at 1.87x. This has put us in a position where we have the confidence to reinstate the full year '24 final dividend at 1.28p per share for payment in December alongside that full year '25 interim dividend payment. The reason for the delay is very much prudent. There's an awful lot of things going on in the market at the moment, as I am sure we all agree. And we are obviously very, very confident. And the history shows that our greatest cash generating -- cash generation is between September and December. And therefore, we've pushed those payments out into December. Lastly, what we want to be doing is holding back on some of those key strategic initiatives as a result of paying the dividend earlier than that period of time. But we're very confident and I'm very pleased to reinstate that dividend. Looking ahead, we've taken or we will continue to take a very measured approach to investment. This is not about the group making no investments for the future from it. It's about being very careful to ensure where we do spend our notes, we are focused on essential investments, particularly into new products, such as the low-cost Controls and next-generation so to ensure that we continue to protect the group's long-term growth prospects. I think it's also very much worth noting that the last Billi term loan repayment will take place in November of 2025 that will substantially free up cash generation going into next year. Currently, we're spending GBP 14 million a year paying that down on an annual basis. So in 2026, that cash will become available to be able to make further investments into the growth of the business. The other important part of this picture, of course is our banking side. And if we turn over to the next slide, I will just take you through some of our plans on that as well. As you can imagine, we've continued to work very closely with our banking syndicate as we look to enhance flexibility and security of funding within that existing agreement. We're very pleased to report in March, step 1 of that journey was to normalize the net debt leverage covenant to 2.75x for the remainder of the facility, and that was secured with the support of the syndicate. That clearly gives us very significant headroom from where we are today at 1.87x. We followed that up with a 1-year extension request for the full GBP 80 million of our existing facilities, which was approved on the 11th of September to give the group secure funding now up till October 2026. And now with secure existing facilities, plenty of headroom on covenants and a strengthened balance sheet, the group can really look at ahead to the future. So what does that mean? Well, with the help of our new Head of Treasury, the group will be initiating a full competitive refinance process in the coming months to ensure that we are able to secure the right cost-effective and flexible funding to really support our medium-term growth ambitions. So the last thing I wanted to touch upon on the financial side and the accounting impact was some of those restructuring and rebasing costs that have gone through during 2024. Let's move to the next slide. We've put together just a bit more detail in this regard. We did come this in great detail at the half year. So I'm not going to spend too much to all on there, but given the quantum of this in the group, I think it's worth just at least laying out some of those costs. The largest area of activity has been with regards to the ongoing restructuring and rebasing of our Consumer Goods division, including further rationalization of product lines and groups as well as a number of head count reductions made at the beginning of the year. In the Kettle Controls, yes, there was a careful deferral of capital expenditure to support net debt reduction and that did impact a number of fixed term licensing agreements, which have been adjusted. And also, we had the part closure of Ramsey manufacturing, which led to a cost of around GBP 400,000 as well. The third box on the slide there relates to the disposal of Halopure on the 30th of November 2024. As an industrial farming filtration product, we consider that underlying technology was less naturally aligned to the rest of the group's smaller scale filtration range and therefore, decided to divest that part of the business. Although the amount on this side are very significant, we do consider all of these decisions represented positive choices that the business has made to allow it to appropriately streamline its operations in order to lend a greater focus on long-term profitable growth. With that, I'm going to pass over to Billi (sic) [ Rachel ] and cover the Controls and Billi divisions.

Thanks, Mark. Okay. Before I talk about the Controls division, a few words about the Canton Fair. Of course, hugely important events for the small domestic appliance industry. Significantly more than 90% of all small domestic appliances are still made in China. So a very interesting time for us to go just after the announcement of the U.S. tariffs. Contrary to news reports that we were reading at the time, we didn't experience any panic or chaos. We did certainly witness a mix of amusement and exasperation of what's going on. And there's undoubtedly disruption while the OEMs and the manufacturers wait and see what happens. So despite that, we don't know what Q2 will bring, but it was business as usual in many regards. In fact, it was very good to see quite a large number of new projects under discussion. We saw more than 3,000 different models of kettle at the fair, and we secured multiple new projects with our new designs. So on to the division. Of course, Controls is the Strix Group's foundation involving the design, manufacture and sales of safety controls for small domestic appliance industry, predominantly kettles, of course. Our market leadership in this area is protected by high barriers to entry including extensive global relationships across the supply chain. We've got patent-protected technology and sought after industrial design services. The key takeaway on performance are our revenues of GBP 69.5 million, and we maintained a leading and stable market position despite quite volatile trading conditions. There was year-on-year volume recovery in our higher-margin regulated and less regulated business that offset somewhat by a slowdown in China. On strategy, we made progress on key initiatives, including the support of our dual strategy of enhancing our own cost competitiveness and maintaining our technology leadership position. So the new low-cost control products that Mark referenced were launched in H2, targeting China and the less regulated markets, and we gathered pace on our preparations for the 2025 launch of a whole new series of controls and next-generation controls. Also, we took defensive actions against patent infringement and also launched promotional activities, celebrating the production of our 3 billion controls. Okay. If we move on to our market overview. The small domestic appliance market volume is forecast to grow at around 1.5% CAGR over this forward-looking 5-year period. Our strategy is adapted to the 3 primary segments shown on this slide of the Controls market, each characterized by a different level of stringency of safety regulations and appliance pitch ratings. In the highly regulated market, our goal here is to defend our leadership position and improve our volume share through innovation. The growth opportunity for us is with kettle adjacent applications such as milk frothers, travel flasks and other food and drink appliances, enabled further by the next-generation control range. We also have opportunity in the less regulated markets, largely through our established OEM and brand partnerships targeting new business in these regions. They introduced new high-end and mass market products to increase household penetration. We support this with existing products, next-gen and low cost controls. And finally, we use the extremely cost competitive domestic China market to drive our own rigorous cost-down approach, which provides us the opportunity to regain some market share with our low-cost controls. Okay. And moving on to Billi. Okay. Acquired at the end of 2022, Billi is all about the provision of instant boiling, chilled or sparkling filtered water, dispensed through a single tap, driven by a neat under-bench unit. Product sales and rentals drive recurring revenue streams for us from service contracts and filter replacement. And key takeaways for 2024, Billi's integration into the group successfully completed, including some changes in restructuring in the leadership team. And this all helped return us to double-digit growth rates in Q4, contributing to full year adjusted revenues of GBP 44.2 million at constant exchange rates, 7% above prior year. Strategic priorities were fully aligned with our major growth opportunities at Billi, namely expanding our geographical presence and growing our share of both the commercial and the residential sectors in our core markets of Australia, U.K. and New Zealand. We also began selling in Europe through third-party distribution, supported by Billi U.K. A few other highlights of note. The new OmniOne under-bench unit was launched in Australia in Q3, followed by New Zealand, U.K. and European market introductions in Q4. This supports our growth in the commercial and residential markets. The new Billi multifunction mixer tap shown on the slide here, was launched in Australia in Q4 with a global launch rollout happening throughout H1 2025. This tap is a key driver of residential market growth in particular. And we've introduced new retail displays into our major high-end Australian kitchen retail partners to showcase the expanded Billi product range. And moving on to some Billi market insights. Estimated growth forecast for the global boiling water tap market range from around 6% to 7.5% CAGR with the higher growth rates coming from smaller capacity units aimed at the residential market. Growth drivers for instant filtered water dispensing include health concerns, single-use plastic reduction, awareness of waterborne contaminants and workplace refurbishments. We define the commercial market as taps in the workplace rather than the domestic home and we have completed our analysis of the commercial market in our major territories of Australia and the U.K. noting that Billi has captured approximately 30% commercial market share in Australia and around 7% market share in the U.K. We've been operating in Australia for close to 30 years, just around 10 years in the U.K. and have every aspiration to replicate our success in Australia in the high-growth U.K. market. So we see significant opportunities coming from market and share growth as we continue to invest in new products and expand our geographical distribution. New tapware options and the ability to conserve under-counter space and reduce energy use are examples of new product focused growth drivers for us and expansion into Europe, already mentioned, Southeast Asia and the Middle East does increase our accessible market. And of course, increasing the Billi tap installed base provides us with the further growth through the recurring revenues from service contracts and filter replacements. I'll hand over to Mark for Consumer Goods.

Thanks, Rachel. Thank you. So just moving to the Consumer Goods side of the business. Yes, we've had a lot of changes in the Consumer Goods over the last couple of years, and those who have been on the calls before, I know we've been doing a lot of restructuring and rebasing at this part of the business to really make sure that we've got the right foundations for our midterm profitable growth. I mean, that has led to a slight and deliberate reduction in the revenue for the year, but we are now in a much stronger position to be able to actually secure growth going forward, which I'll touch on now. So there are a number of areas where we have seen positive progress within the division. First of all, we have secured some very positive retail contracts, where we'll see the full upside of those during the course of 2025 and they're already actually in production within that company. But we are also now producing appliances for a leading baby brand in our China factory, which has been quite a significant change. That started in October of last year. So this year, we will get the full benefit of a full year's sale of those products. And we're also now working on some further products, which will be launched middle of the year, again, further expanding the capability. And I think that just speaks to the ability we have in our manufacturing facility over in China. We are getting a number of companies now coming to talk to us about building products for them in that China factory. We've also launched a number of new products in our Health and Wellness range as we continue to strengthen that product portfolio and we'll start seeing those coming out in November this year. And we've established a new distributor in China, which will allow us to further expand into the Asian markets as well. One of the changes we made in Italy, we have bought in the manufacture of some of the additional filters, and we are now investing further in automation to increase the efficiency of those within the Italian factory itself. So where we're actually selling filters into Europe, we're actually trying to manufacture those closer to the demand, if you like, to reduce the time within the supply chain and obviously reduce costs as well. I can move over to the next slide. Global Water sort of purified market does remain a very compelling growth market. It still has a projected CAGR growth of around 7.6%, really driven by consumer purchasing habits and some of these, you'll certainly recognize. Sustainability is still a key concern for consumers and awareness of sustainability is certainly increasing. Lack of disposable income in the market today is certainly changing some behaviors of consumers as well. Consumer loyalty has reduced and there's a rise in sales of private label products and also the challenger brands, which obviously is very supportive for both our LAICA and Aqua Optima brands. We're also seeing consumers really trying to prioritize health and wellness, moving away from things like sugary drinks, again, which is driving further sales into this filtration market. Another thing we see quite a lot at the moment, there is definitely an increased awareness of waterborne diseases and the contaminants, really trying to lead into an increased focus on solutions that provide superior filtration and purification capabilities, again, leading to the strength of the like LAICA and Aqua Optima brands. The increase in the appetite for high-quality coffee machines is also driving additional filter sales and is very much a growth segment, as they maximize the life of the systems and obviously improve the taste of the coffee that comes from those systems as well. So looking forward, the key growth opportunities for this division really will focus on three items. First of all, we've got the OEM and ODM contracts and partnerships, really leveraging on strict world-class manufacturing capabilities and also the innovation that we have within technologies for appliances and filtration. We are working on numerous projects with key brands, giving confidence in the longer-term growth opportunities for this part of the division. There's also a clear focus on growing brand awareness outside our core territories as the challenger brand and very much working on the LAICA brand and expansion, particularly within the European markets. The introduction of those new targeted health and wellness products across both water filtration and small appliances will also drive growth through the back end of this year going into 2026. So if I can move on to another key topic, sustainability. And I always feel a little bit -- we always see a little bit of time from this part. I mean, obviously, a very, very important part of the business. It's something where Strix has had a significant amount of focus over previous years. It really is the heart of what we do, whether it's in the operations side of the business or whether it's on new product development, we're always looking at improvements in sustainability. We are now in a position for 2 years where we've had a 0 position for Scope 2 emissions with 10% of the group's power now generated by our own solar panels and we've reduced the what we call the further hard to abate Scope 1 emissions by 30%. So still working very hard to improve our position despite having a strong position for the last 2 years. I'm also very pleased to see that our CDP rating has improved from a C to a B over the last 12 months. And on the Scope 3 side of the business, we are developing a pathway to net zero for each of the divisions with a separate strategy and we have released a much more detailed ESG report, which is now available on our website. So if you want more details on some of those actions being taken, please feels free to go and review that at your leisure. Moving on to the key objectives. We have tried to simplify our vision statement really to reflect our technology-led strategy and our mission is to give ready access to innovative water, beverage and well-being technology everywhere where people come together. Our strategy and objectives, I believe, are very clear, and we've done a lot of work to build the right foundations. So in Controls, we're looking to profitably grow revenue and share through the continued introduction of innovative new products, with a very clear focus on sustainability, safety and convenience. We are able to leverage our world-class manufacturing footprint to drive further efficiencies and with our next-generation control, we will secure the lowest cost footprint control within market and we'll change the goal post for many of our competitors. This particular control is around 30% smaller. It's using, therefore, around 30% less commodity items. And it allows some significant benefits to OEMs to reduce cost of the overall appliances as well. So really important for us to make sure we continue to lead the technology in our dominant core market. For Billi, we're focusing on expanding geographical distribution in both the residential and commercial markets, particularly in the U.K. and Europe. And we've got to focus on new, disruptive and differentiated technology, really leveraging on Strix' core technologies to increase our addressable market. And in the Consumer Goods side, as we mentioned, increased focus on our OEM and ODM capabilities with some key strategic partners leveraging off our manufacturing capabilities and innovation and really trying to find some key disruptive technologies within the market. There's also going to be a focus on strategic and targeted geographical expansion of the established LAICA brand, using new products and innovation to really meet the diverse needs of our customer base. So some really clear strategic objectives for the groups going forward. And if I move into the outlook statement. Rachel mentioned the Canton Fair. That has been -- it always is a very important time for us. So we meet about 100 brands and retailers. We meet as many OEMs in the business as well during that period of time. I think one thing that was also seen in addition to Rachel's comment is there was a number of OEMs that see this as a significant opportunity. And our largest OEM in fact, opened a factory in Indonesia 6 years ago and is already supplying product to the U.S. from that factory. And then they opened a secondary one, anticipating perhaps some of these things 6 months ago. And walking around everywhere, you could see signposts saying new factories being opened in different parts of the world. So this was very much a disruption and a short-term disruption. Their attitude was very much a wait and see, and I think, yes, they will respond very quickly should the tariff situation not change in the short to medium term. So yes, there was a lot of activity there. And for us, a lot of drive to our new technology, which is very encouraging. Our industrial designs were very well received with numerous new products being signed up during the course of that fair which, again, is also encouraging, and it just shows the brands are trying to move to a more differentiated product where they can actually maybe even change their own price points in the marketplace. There was obviously some evidence of disruption, so that could weigh a little bit on to the Q2 control sales. But I think what we're seeing is more a move to the more normal seasonality whereby Q3 is the stronger quarter of the 4 within the year. Billi's double-digit growth has continued into '25 as against further traction with customers in its core markets. And we've seen a very strong takeup of the new products in Australia, which we expect to see continue going into the U.K. and Europe as we go into this year. So we certainly would expect to continue that double-digit growth with the Billi systems going into the marketplace. Consumer Goods is now a much stronger and better focused position to really execute on the sale of more profitable products with geographical expansion and some new product innovation being brought in. I think too early to determine the net global impact of the evolving tariff arrangements, but strict direct sales into the U.S.A. are limited with just GBP 7 million worth of sales on the Controls side of the business. No sales for Billi going into the U.S. and nothing material for the Consumer Goods as well. So it really is focused around that GBP 7 million for the Controls segment. Also worth pointing out that 95% of kettles today are still manufactured in China. There is no manufacturer of Kettles in the U.S.A. If people want to continue to buy kettles, they are quite limited in where they can actually buy them. We're dealing with OEMs across all areas. The next largest territory would actually be Turkey. And obviously, we support their OEMs as well. No question, macroeconomic conditions remain challenging, at least in the short term, but we continue to see opportunities in key markets and investment across the group is ongoing really to protect NPD and other projects to support our medium-term growth. So we believe there's a very strong foundation for the group, and that means the Board remains confident in the group's outlook with those full year expectations being unchanged. One of the questions I often get asked is about my own position in the company. I'm sitting here with just under 3 million shares. I am very invested to make sure we can continue to grow this business. I believe we've built very strong foundations for the business and looking forward now to really execute on those to get back to a growth position in the business. So with that, if I may, Hannah, I will pass over to any questions you may have.

Thank you for that presentation, and we've got plenty of questions, so let's make a start. Can you explain more about Billi's expansion plans, commercial versus home? It sounds like the commercial officer is in Australia, New Zealand and the U.K., but the U.K. is the focus for growth this year. Is the geographic expansion through distributors for the home market only and if it is for commercial, who will fit in service units?

Okay. So taking -- let's start with the U.K. Yes, very much a growth opportunity for this year, but not the only one. We do expect double-digit growth across for Australia and New Zealand as well as the U.K. The residential market in Australia is actually a growth sector for us right now. So that's another area of growth. And I think the other part of the question was about geographical expansion and through distribution. We refer to our core markets as Australia, New Zealand and the U.K. because we have our own direct sales and service organization in those countries. Where we expand such as countries in Europe, we're using third-party distribution and we also have that in Southeast Asia, including well-established distributors in Hong Kong, China and Singapore, and we're also opening up some new territories in the Middle East.

I think one other point to make on that as well, if I may Hannah. I think when you start looking at the residential side, yes, clearly, that's a good growth market as well. in the U.K. and in Europe. We have within Strix some very strong core technology and heating. Billi has some very core technology in cooling. And we believe very strongly that bringing those 2 together, we will be able to bring in some quite disruptive technology long term. Clearly, that's in the future and is somewhat sensitive, but it's a watch list space.

And also supported by LAICA filtration expertise, so a very nice synergy.

Excellent. Well, let's stick on the theme of Billi, which posted broadly flat gross margins over full year '23 and '24. Are these sustainable?

Simple answer, yes. We're confident they're sustainable.

Excellent. And the return to double-digit growth during Q4, again on Billi, was welcomed with a full year of new products plus all 7 EU distributors contributing. Do you expect that level of growth to continue for the remainder of this year?

Yes. Another simple answer.

Thank you. A question from Ian, which I know the team can't answer. So I should do it for them and you ask Ian, what are the Board's full year expectations in terms of earnings per share. And I would just direct you to the research note on our website where you can see what our analysts has put in. But safe to say that the management team does get an opportunity to review that note before it goes out. Moving on. What design and manufacturing remains on the Aisle of Man?

The Aisle of Man has the legacy product, which is the bimetallic blades. They're all produced on the Aisle of Man and then shipped to our factory to be put into the Controls. Everything else -- sorry, everything else on the Controls side is produced in China.

Great. What should the profit drivers long term be and which division should drive it? Where will we see the drivers for double-digit growth this year?

Okay. I think just to sort of maybe split the divisions to sort of say how this looks. Kettle side of the business, clearly very profitable. And it's -- apart from some of the things that have gone on in the last few years have been relatively stable over the last sort of 2 decades. That will remain. We are focused on investing in that business to make sure that we can continue to drive that profitability and particularly the cash generation that, that provides. So very, very good business. It's always going to be a slow growth business. It's typically sort of 2% to 3% per annum and our priority is to make sure we can maintain our profitability in that part. When you look at the growth drivers, Billi has to be one of the biggest opportunities we've got in the business. You've got 40 -- mid-40s in gross margin. It's a growth market itself. Yes, we've got a 7% share in the commercial side of the U.K., 30% in Australia. Clearly, there's good opportunity there, and we're making good grounds and getting good growth there. So in terms of investments, yes, there's going to be a lot of focus on that, Billi, both in current commercial world, but also moving into new areas of residential as well as we go forward. So very, very strong for us, and that's definitely a key growth area. Consumer Goods side is slightly different. I mean, Consumer Goods is still a very good growth area. And I do believe now that we've got the foundations right, that will be good, not at the same level of profitability as the Billi side of the business, but certainly will give us some strong revenue growth as a part of the growth story as well.

Okay. Would you have expected high growth in controls in China given the recent consumer electronic stimulus package?

Not really. I mean the China market is a challenging market. I mean, obviously, all of our competitors are there. I mean we're still holding around 30% share of the China market. So we're still the biggest player in China as it stands today. I think it's very, very cost competitive in China. And what we've done is we brought out the new low cost control that is deliberately to make sure that we can continue the challenge in that marketplace. Over the last couple of years, we've walked away from some of the business because the profitability is so low. This control now allows us to be much more aggressive in those markets to compete and maintain our position or improve our share position in that market as well as some of the unregulated markets as well.

Okay. The GBP 7 million exposure to the U.S., how much is exported directly from your China facility? And how much is indirectly by the OEMs?

It is pretty much all indirect. So we're selling our controls to a China-based OEM who is then putting in the kettle and selling them out. So direct, there is hardly anything going directly to the U.S.A. So the exposures through the OEM.

How do year-to-date control sales in regulated markets, specifically compared with last year and with a normal year, for example, in 2019, which feels a very long time ago now?

I wish there was an easy comparison to that. But the markets have changed so much, and they change every year quite considerably. So certainly, in the first quarter, it was relatively good. There's been disruption, as we mentioned, around the tariffs and so on with OEMs. So there's a little bit of a disruptive influence there at the moment. But I don't think there's anything that's surprising us in the market at the moment in terms of the level of sales.

Okay. A question on buybacks. Obviously, knocking GBP 20 million this year off your debt is a great result, and you do have the authority to buy back up to 10%. This person quotes the AGM document saying the directors do not currently have any intention of exercising this authority, and they ask, why not? If LAICA and Billi were great buys in 2020 and '22, then the combined group must be a steel now?

I don't disagree with that sentiment at all. If I look at our share price, I 100% agree. It's something we discuss at Board level on a regular basis, frankly. Yes, there is an awful lot of things in the business that we are investing in at the moment, and we're obviously being very careful with our cash situation. There's also a lot of uncertainty in the world in the markets at the moment. So we are being prudent, I think, is probably the best way to describe it. It is something we will continue to discuss, certainly not something I would rule out going forward. Obviously, one of the other things that we're doing at the moment is getting all the banking syndicates such that we can go into competitive refinance as well. So the number of -- there is a number of levers, if you like, being played at the moment. I think the best I'll try and give you at the moment, it is something we will continue to review, but I certainly wouldn't rule it out in the longer term.

The controls business used to produce GBP 80 million to GBP 90 million of revenue, now it produces GBP 60 million to GBP 70 million. What caused this drop down and will it ever return to the previous level?

I mean, again, it's a very good question. There have been a number of things that have changed. I mean, obviously, the markets have never fully recovered -- regulated markets that is, since all the COVID changes and so on. So there is still a bit of a gap there. You have all the situation with Russia, which did have a drop in the market as well. Yes, there is potential for it to regain. And one of the issues that we faced in the last couple of years is we kept reforecasting this bounce back, which was more typical following a sort of financial crisis and it never quite happened in the regulated segment. I think we are being more prudent, obviously, with our forecasting for obvious reasons. If and when that does come back, everyone will be very happy. There's no reasons to believe it won't come back at some point in time, but I'm not able to predict when that will be at this stage.

Okay. A good question here actually on inventory levels, particularly in kettles. Can you give us any insight into whether there's been perhaps bought buying ahead of the tariffs or any other spikes in inventory levels?

I mean over the for the last couple of years, there have been all sorts of swings and it does make it very difficult to forecast. So certainly in COVID, you had a bit of a buildup at the beginning and we saw that sort of tail off and there was a drop then. There probably was a small amount of inventory build ahead of the tariffs. I don't think it's significant. And as we've already said, the total yearly volume for us is GBP 7 million worth of our products getting in there. So it's quite limited anyway. So I don't think there's a significant build up there. Elsewhere, we saw a buildup at the back end of quarter 1 last year. I haven't seen that same buildup going into it this year. So I don't think there's a particularly high level of inventory in the market today. I think the brands and retailers are being quite cautious with their stock.

Okay. Did you register many patents last year?

Oh, gosh. Yes, we did. I couldn't give you an exact number. I can tell you that the next-generation control has at least 9 patents on it. So we are constantly looking at things and how we patent. We've got over 360 active patents in the business at any one time. So it is something we will constantly review and continue to do on all of our new technology.

Okay. You recently added a new executive to improve your e-commerce strategy. What is the new hire changing? And has this resulted in an uplift to revenues from the channel? Or is it too early to say?

Yes, it's improved things without doubt. And that was primarily focused on the way we deal with or work with Amazon. Amazon is quite -- obviously a large -- I was going to say a monster, probably not fair. It's a very large organization. And clearly, having to manage or the way to manage that is quite challenging at times. We did have a number of different products going through Amazon, and we still do. But sometimes the approach to Amazon was not the optimum. So yes, a big part of the role of that individual is really to try and optimize Amazon and make sure we're selling on the right platforms within Amazon. A lot of that work has been done. We're just starting to see some of the fruits of that. So it is a little bit early days, but yes, we're obviously monitoring that very carefully.

Super, thank you. Are all the costs associated with the disposal sale of HaloSource accounted for in this year's numbers? Or will we see some in next year?

Yes, they're all the '24 number. These are '24 numbers when we sold in '24.

Okay. A quick follow-up here. What were the Billi leadership changes?

We restructured to ensure that there was a senior leader responsible for each distinct function in the business. We also -- the original CEO and CFO of the Billi Group had left after the acquisition. So we replaced the Finance Director at the beginning of the year. And in November, we were pleased to announce the appointment of a local MD in Australia. So it's both new talent coming in, internal promotions from inside the business and quite importantly for us, bolstering of our new product development capability. We've also supported Billi very well and effectively from our group functional leaders, particularly to on-process products and people development.

Thanks. You've introduced a new ROCE metric. Does the new low cost control have a good ROCE?

I'd be honest, I don't have the answer. So I'd have to come back on that. I don't want to guess on those things. I don't have the answer to handle these.

Probably a good moment to wish Clare Foster a speedy recovery. So thank you both for your time today, and that's the end of the questions. So thank you to our audience. Thank you to you both, and we look forward to an update come your interims in September.

Thank you very much.

Thank you, Hannah.