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

Good morning, and thank you to those of you who are joining us today to hear from Strix plc, who announced their interim results earlier this week. If you haven't seen it already, you can find an updated note and forecast on our website at equitydevelopment.co.uk. But the purpose of today is to hear from the management team who will talk you through their half year presentation, and then there'll be an opportunity for Q&A at the end. [Operator Instructions] But for now, I will hand over to Mark Bartlett, CEO.

Thank you very much, Hannah. Welcome, everybody. Good to see a very strong turnout. As Hannah said, we're here to actually present the interim results for the period ending 30th of June. I think the best way to describe this, we'll start with the highlights first, obviously, is it's been a half year of quite mixed fortunes. There's been a lot going on in the business. And over the course of the next 30 minutes or so, we will try and give you as much detail as possible. As always, we'll run through relatively quickly to make sure we can allow some time at the end. However, if I start with just some very high-level points. I think, first of all, let's start with Billi. Billi has a very strong performance in the first half of the year, maintaining its double-digit growth performance as we've all come to expect, which has been supported by both new products and also some further geographic expansion. I'll get into more detail as we go through the divisions. It has also been very good to see consumer goods also performing well in the first half of the year, delivering a solid 7% growth following all the previous restructuring and despite what is still a very volatile global small domestic appliance market. Unfortunately, the Controls division has continued to face some challenges. And despite what was a very strong quarter 1, the geopolitical instability and the macroeconomic uncertainties due primarily to the indirect and direct impact of tariffs decreased revenues by 24.2%, more than offsetting the successes of the other divisions. Clearly, I'll get into much more detail on the Control division as we get into that part of the presentation. You'll see on the slide, there's some more numbers there. I'm going to leave those a little bit later on for Clare to be able to go through those in detail as she goes through the financials. But just one other point I'd like to cover on the next slide, if I may, Hannah, and that is actually looking at the year-end. So after much discussion of the Board, we have decided to change the financial year-end from the 31st of December to the 31st of March 2026. As many of you will know, there are 2 very important industrial fairs in China, known as the Canton Fair, and these are held in April and October, both just around our current road shows. These shows really do provide us very significant market data and intelligence for the Controls division. We get a better understanding of the market dynamics, consumer demand, which will allow us to give much more accurate information to update the market on future forecasts and in the market trends. Right now, we come out to see you in March and in September as we are now. And literally, 2 weeks later, we go to China, gather this information and then come back and report again. And obviously, that is not the most efficient way to actually update the market, and it gives a very last-minute information. So change in the year-end will actually allow us to give better and smoother information and more accurate information to the market, both on our reporting and on our forecasting as well. So as part of this change, we will be providing an update in November on both our trading and our accelerated debt reduction plans, which Clare will cover in some more details, including some metrics for the 6 months to 30th of September 2025. Analysts are currently updating the modeling to reflect the 15-month period. And hopefully, you'll see those changes going through in the next few days and some have already actually achieved that already. So with that, I will pass over to Clare to go through the financials and the refi.

Thank you very much, Mark. Before we get into any detail of divisional margins and movements in net debt, as normal, I wanted to take us through the high-level financial highlights of the half year just gone. As you can see here, and as Mark has already spoken about, we have undoubtedly seen some macro challenges in this half year period, which have impacted our results and have led to that 6.4% reduction in adjusted revenue. I'm not going to say any more about that because Mark has already spoken about it, and I know will take us through in a little bit more detail in a few slides' time. As expected, when we look at gross margin, we've seen a decrease in the period, reflecting some of the commercial changes that we have made, especially in the Consumer Goods division. However, it's fair to say that the unsettled trading conditions in controls have exaggerated this further. I'll give a little bit more detail on the next slide as we have the information shown divisionally there. Adjusted EBITDA has unsurprisingly also decreased at both the margin and the pound note level. This largely reflects the reduced gross margin. But as you can see there in the basis points differential between 360 basis points and 280 basis points, we have been working hard to offset the impact of this by prudent cost control, bringing overheads down around about GBP 1 million against the prior half year despite the ongoing strategic investments, particularly into Billi. And I am going to be bold and even controversial here when I say this, but still being able to secure gross margins in the mid-30s and an EBITDA margin of more than 20%, given such extraordinary macro conditions in the controls part of the business really does speak to the underlying resilience of this group. Turning to cash generation. In the bottom right-hand corner, it's fair to say that the speed of the tariff-led downturn in controls has knocked us off our 75% to 85% target. The biggest impact to this is the increase in control stock as we've struggled to second guess the timing of the recovery, production levels have somewhat inevitably overshot sales demand. In fact, without the increase in stock, cash conversion would have been around 95%. We expect this to be a temporary impact. And as you would expect, reducing this back down will be a key element of the accelerated debt reduction strategy that we will speak a bit more about in a couple of slides' time. Although it is just the other side of the cash conversion, I do think it's also worth mentioning the net debt leverage position. The macro conditions in controls and the impact these have had on both trading levels and working capital has reduced the business' ability to keep leverage within our net debt appetite of 1 to 2x. So despite the ongoing careful control of OpEx and CapEx investments, we have ended the half year '25 at 2.21x. This is obviously not where the business wants to be and plans are already under development with the support of our existing lenders to ensure that we can accelerate debt reduction in the short term and get back comfortably into range. So that is the highlights. If we can move on to the next slide, Hannah. Thank you. And here, we can talk a little bit more about gross margin. Now before we go any further and in the spirit of full disclosure, we have adjusted the way that we calculate divisional gross margins here. For the first time, we have reclassified certain costs, including those relating to group departments as central costs rather than allocate them out into the divisions. The specific impact of this is made clear in Note 3 of the RNS for those of you who want to go and look at the detail. This change allows for better analysis of underlying divisional trading performance effectively with less distractions. Obviously, comparatives and also obviously, overall gross margins have been restated and the overall gross margin continues to take all costs into account, so there is no change to be seen there. If we look back at the half year '25 results, as mentioned and in part as expected, we have seen a decrease in our overall gross margin of 360 basis points. The main reasons for that decrease relate to the Controls and the Consumer Goods divisions, as you can see here, with our highest gross margin division, Billi, continuing to secure gross margins in excess of 45%. For Controls, gross margins have decreased by 340 basis points. As we have discussed, half year '25 has been a challenging time for the controls market, and the gross margin has seen the negative impact of 3 main factors. The first and the most important is simply lower sales over what is a semi-fixed cost base. On top of that, the ongoing weakness in the U.S. dollar has had an impact as we sell about 50% of our export controls revenue in U.S. dollars. And finally, we've seen a shift in market mix with the high-margin reg and less reg export markets more impacted by the tariff concerns, as you would imagine, than the lower-margin Chinese domestic market. Looking ahead, it is the market settling that will have the biggest impact on marginality in controls. And obviously, if the U.S. dollar continues to strengthen, then we would expect to see a positive impact as a result. As I said at the beginning, for Billi, margins will remain broadly in line with half year '24, and we expect this to continue, supported by high underlying growth and a markedly lower price sensitivity across Billi's main end markets. Our Consumer Goods division has also seen a decrease in gross margin, down 450 basis points. However, we were expecting this. And in fact, this was something that we've already spoken about in the context of the 2024 announcement. It is due to the ongoing rollout of appliance manufacturing, which started in quarter 4 of 2024. And we've seen manufacturing levels further ramp up in the period and also the launch of additional products. Now this is a real driver for revenue growth, which Mark will provide more detail on later. However, inevitably, it does not generate the same margins as the original product sales do, and therefore, it's had an overall dilutive effect on margins in the division. As we look ahead, we continue to see gross margins remaining broadly consistent at around 25% to 30% in our Consumer Goods division. So that's the income statement. If we turn over to the next slide, we can see what's happened on the balance sheet side. And to understand that and also more importantly, where the business is from a net debt point of view, we have included our usual net debt bridge. As we said at the beginning of the presentation, underlying cash generation and therefore, continued net debt reduction has been more challenging in the face of the significant macro uncertainty in our Controls division. And as a result of this, we have seen net debt increase by just over GBP 5 million in the first half of 2025. However, notwithstanding that, we do continue to generate substantial operating cash inflows of GBP 12 million, as you see there, albeit this is lower than the GBP 15 million we secured in half year '24. If we turn to the third bar on the graph, this predominantly illustrates the impact of that temporary stock increase in the Controls division that we spoke about a couple of slides ago, with GBP 5.7 million of that GBP 6.8 million shift being led by higher inventory levels and therefore, giving us a clear area of focus as we look to pull together our accelerated debt reduction strategy, which I'll speak about a bit more in the next slide. As you would expect, when it comes to cash, we haven't stood idly by in the face of the controls trading challenges. We already touched on our ongoing careful control of OpEx earlier. Well, not only has that allowed us to reduce overhead spending over the course of half year by GBP 1 million, but as it says here, we have also reduced CapEx spend by a further around GBP 1 million against half year '24. And where we are spending money, this has been strictly focused on our key strategic drivers, such as the building the next-gen production lines. It is also pleasing to see that all the hard work we put into net debt reduction in financial year '24 has been paying off as net finance costs have continued to reduce, ending up over 25% lower than in half year '24 at GBP 3.6 million. Now seeing an increase in net debt is very clearly not what we want -- where we want it to be right now, and it has had wider implications on, among other things, our refinancing plans. So if we turn over to my final slide, I want to take us through where we are in terms of the refinance process and what our current planning looks like in this regard. And I have put something a reminder on the left-hand side of this slide as it really does provide important context of where we were and where we've come over the course of this year. As you know, we've been on a journey over the last couple of years, effectively laying the foundations down to enable us to secure cost-effective and flexible funding to best support our medium-term growth aspirations. The strong focus on cash generation and conservation reduced net debt by GBP 20 million in financial year '24 and brought leverage back into range of 1.87x. And we've also just seen one of the key immediate benefits of this in the reduced finance costs that we spoke about on the previous slide. A lot of time has also been spent further developing our existing banking relationships and to be fair, also looking outwards in order to identify other potential lending partners. And in September 2024, we got full support from the existing banking group to extend our facilities for 1 year out to October 2026. And this was to give us appropriate time to run a sensible refinance process. And on top of that and simplifying the refinancing ask, we have also almost paid off the Billi term loan with the last payment going out in November of this year. In fact, to all intents and purposes, we exited financial year '24 on track to initiate a full competitive refinance process over the course of 2025. And as announced in July 2025, that is exactly what we have done. However, -- despite the high degree of interest with 9 lending banks involved in the process, it became obvious that the group would not be able to secure new appropriate cost-effective and flexible funding in the context of the unsettled macro conditions. And as a result, we have sensibly put the refinance process on hold. However, that is not the same as saying nothing has changed. As soon as that decision was made, we have been in proactive and supportive conversations with our existing lending group. And with full lender support, we've been able to amend the current facilities to ensure that they can more appropriately support the business in the short term. This has culminated in 2 things: one, a resetting of the DSCR covenant to an interest cover metric, which is more fitting for a purely RCF extension; and two, a temporary relaxation of the leverage ratio to 3x from 30th of September to provide additional flexibility to better support the group's short-term commercial strategies. But perhaps the most important thing to come out of this process is that in the context of the current macro conditions and to further support a future refinance process, we are committing to an accelerated net debt reduction program in order to get comfortably back within leverage range with a more cost-effective funding structure as quickly as possible. Detailed plans are currently under development in this regard, and we look forward to reporting back on progress alongside our trading update in November 2025. And with that, I will hand you back over to Mark to take you through each of the divisions in a bit more detail.

Great. Thank you very much, Clare. So let's move into controls. I see the Q&A is ramping up very quickly and nicely there. So hopefully, I can try and answer a few of these as we go through the controls section, where we've seen most of the challenges within our group. And that's really because of the geopolitical instability and the uncertainty and disruption caused around the interruptions of tariffs, as I mentioned. So Q1 for us actually was very strong. I think it was going very nicely. We went out to the Canton Fair in April, and then we had the implementation of the tariffs. And that has had a significant impact on the SDA market, small domestic appliance market in the quarter 2. And really, what we've seen is OEMs and brands taking a much more cautious approach, limiting stock build and preserving cash during a period of some quite significant uncertainty. Several of those OEMs have opened factories in other parts of Asia, such as Indonesia, but these are generally being used for higher-value products. However, this shift has without doubt distracted OEMs in their core businesses and has limited the free cash and their appetite to build stock in advance of the peak season, resulting in what was a very depressed Q2. And as such, revenues for the Controls division reduced by about 24% during the first half of the year, most of that obviously being in Q2. Clearly, when you look at the drop in Q2, you're talking about reductions of 30%, 35%. We haven't seen 1/3 of all kettles not being bought. So there's something going on within that market. And at some point, there will need to be a correction. The challenge as always with the controls is identify when that correction will take place. On a more positive note, good progress has been made on an operational front with the automated next-generation control line now fully operational in our China facility. In addition, we've launched the full range of low-cost controls to tackle the less regulated and nonregulated territories where copies still remained strong. The combination of low-cost controls and the patent-protected next-generation controls will really allow us to compete across all markets with a competitive high-quality range of products, increasing our addressable market with multiple products already signed up, many of which will be on show at the Canton Fair in October in 2 weeks' time. We've also spent some time enhancing our industrial design service, which has been really well received, particularly as we optimize designs for the new range of controls, allowing OEMs to also benefit from those cost reductions as well. If I can move into the next slide on the market itself. The global small domestic appliance market has seen some significant volatility over the last few years with growth in items such as air fryers and more recently, high-end coffee systems really offsetting slower sales in items such as toasters and kettles. In the period 2024 through to 2029, the overall market is expected to grow at a CAGR of around 1.5% However, this will still be skewed depending on the product mix, and we therefore need to take actions to make sure we can secure share growth in the kettles segment, almost regardless of the growth in the overall market. In the regulated markets, we continue to aggressively defend our market position whilst introducing new innovative and patented products, and you'll certainly see those coming to market during the course of 2026. And then within the fast-growing and less regulated market, we will continue to leverage our extensive partnerships with both OEMs and brands to gain share through our new range of low-cost controls and increase our addressable market in what was a very strong territory for our China competitors. Of course, China is the most competitive region given the location of the majority of our competitors, and we will continue to take a value-based approach to secure specifications with the leading brands whilst further evolving our range of controls to reduce cost appropriately. For us, the upcoming Canton Fair is really a key period with several new appliances being launched to our core OEMs and a tiered product and pricing strategy to secure growth during 2026. In addition, we'll be demonstrating new technology that will secure growth in adjacent markets such as milk frothers, travel kettles, travel flasks and what is known as the healthy eating appliances, which are effectively a multi-temperature kettle. So with that, if I may, we'll move into Billi. Again, another positive delivery for Billi, which continues to deliver double-digit growth, supported by the sales of new products, very strong growth in Australia and some really good positive geographic expansion. In the first half of the year, European sales grew by 140%, albeit from a low base, and we now have representation in 9 territories across Europe. In the rest of world, exports were up 26%, with Hong Kong, Singapore and China having the strongest performance. You'll see from the pictures there, manufacturing, warehousing and dispatch operations have now been transferred to a new facility. We're just finishing off the office fit-out at the moment and the official opening for that facility will be scheduled for November. But all of the manufacturing is running out of that factory, and we've effectively doubled the capacity of the Billi operation for future growth. Investment in new product development continues despite all the move with the Q4 launch of a small capacity Omni-One under bench unit. This really does support the Australia and New Zealand residential market growth and also can support the light commercial sector, smaller offices across other sales territories such as the U.K. and Europe. Work is also underway on the tapware range to make sure we can refresh that in 2026, in addition to research and development work on a new disruptive residential offering for the U.K. and European markets in the future. Moving to the market slide. The global boiling children sparkling tap market continues to grow. It's a really nice model around 7% at the moment with Billi's core markets being Australia, U.K. and New Zealand. We have a well-established direct sales and service team in those core markets, which drive service and aftersales revenue growth in addition to the new product sales. And then elsewhere, we have third-party distribution channels, which enable market penetration in new countries with the core Billi territories currently supporting the business development for those regions. Worth mentioning, the rental model remains very popular in the U.K. Currently, rental contracts typically amount to about 20% to 25% of our revenue, and that's clearly a very helpful option for businesses navigating the current challenging economic environment, particularly in the U.K. If I can move on to Consumer Goods. So following the restructuring and focus -- sorry, following the restructuring, the real focus we've got now in the consumer goods is on the filtration part of the business, particularly around the LAICA brand and also the appliance manufacturing, which has driven some very solid growth in the first half of the year. New product development successes with the launch of a new range of patent-pending LAICA Health Expert filters. These are designed to enhance magnesium content, reduce things like PFAS, the [ Ferrero ] chemicals, microplastics, chlorine, limescale and heavy metals. We've also seen strong growth in the first half on bespoke filtration sales as well as some positive movements in the Aqua Optima by LAICA in some of the larger retailers in the U.K. Appliance manufacturing for the group's leading baby brand continues to gather pace and is also driving some very strong filter sales. And we are in discussion with a number of premium brands where we can actually look at future projects in our China facility, adding technology to their own products. We are now doing a very targeted launch of the LAICA brand in the U.K. You can see some very nice pictures there. Anybody who's going around London going to find it quite hard to miss them, I think. And certainly, we've had some very positive feedback in the last few days, probably here in London. And this really does help us to promote the LAICA brand such that the bricks and mortar will be more interested in actually taking the LAICA products as we start to bring more products into the U.K. Moving to the market side of Consumer Goods. Really, what our focus with consumer goods is now is to make sure that we're focusing on the profitable areas of growth. We have reduced the SKUs significantly over the last 2 years, but also making sure we're focused on the Strix Group's strength. So technology-led innovation and appliance manufacturing. Water filtration is still a priority for branded product, whilst we are also delivering our white label and our bespoke OEM offerings as well. And that launch of Strix design and manufacturing services in the first half really does enable a wider commercialization of our core technologies in the field of water heating, steam management, dispensing and filtration. As mentioned on the previous slide, patent-protected appliance manufacturer for a leading baby brand is now established and growing as is the pipeline of new projects and opportunities in adjacent applications with a number of premium brands. If I can move on to sustainability slide. So Strix, we continue to keep sustainability at the heart of our operations, and it really is encompassed in everything we do, whether it's operations, new product design or even employee empowerment. This year has been no different, and we continue to seek new creative and innovative ways to improve our sustainability footprint. We've got zero pathway plans being developed throughout the group. Actually, Billi is leading the way, having already completed that task, and we're now looking at ways to accelerate those various initiatives. We're definitely on track to secure record internal electricity generation in 2025, just now hoping for very good weather in China and Australia in Q4 to ensure that happens. And we further improved our CDP rating from what was a modest score of a C to a B with a 2024 return now completed as well. LAICA, in particular, has made some very positive steps forward. It now has its own stand-alone ESG report, which really does assist in further developing relationships with local financial and government bodies in Italy. And we recently had a bit of a sort of roadshow with them in Italy, which is all very, very positive, and those reports have been extremely well received. And we have now introduced a new global HR system called HiBob. This provides much greater employee empowerment, collaboration and really promotes the use of a social media style communication facility within the company. Again, it goes right across the group and has been really well received throughout the business. So moving on to the future. I'm sure some of you will recognize this slide. And really, our strategic objectives have not changed. Maybe with the addition of the accelerated debt reduction plan that Clare has mentioned, that we have very clear strategic objectives for all of the groups. Our vision, as it says there, to have stretch products and technologies at the heart of every home and workplace across the world. And in reality, if you look at our Controls division, we already are -- our controls are already estimated to be used 1.2 billion times every day in over 100 countries by 10% of the world's population. So actually making good headway. We now want to put that across the other divisions as well. So looking at Controls, it really is about profitably growing revenue and share through the introduction of innovative new products focused on sustainability, safety and convenience. We also look to leverage the group's global manufacturing footprint and expertise to drive cost efficiencies and improve sustainability. The next-generation control is a really good example of that. It's physically smaller, uses 30% less commodity materials and yet it's a higher specification control. We're also introducing a tiered pricing structure to make sure we can really increase the addressable market by being competitive in some of those less regulated markets, which are really driving growth in the cattle market as well. In Billi, it's all about expanding geographical coverage in both residential and commercial markets with a particular focus on Europe, Southeast Asia and the Middle East, all incremental opportunities for Billi. There's also a lot of focus on new product development to bring differentiated and patented product that will increase our addressable market. The new smaller Omni-One, again, is a great example in Australia targeted at that residential market. And then on Consumer Goods, leveraging on a streamlined refocused division to deliver long-term profitable growth, looking to seek geographic expansion and introduce innovative products again to address increasingly diverse consumer demands. And there's an increased focus on the appliance manufacturing with our China facility being a technology provider to high-end consumer products and brands. So moving to the outlook. We will continue to navigate the volatility of the small domestic supply market and where possible, mitigate the impacts of the macroeconomic trading environment. There's a lot of things that we can do as self-help, as Clare has already mentioned some of those, and I'm sure there'll be some more coming in the Q&A. Hopefully, we will soon see some clarity on the tariff position in China because that is causing one of the major issues in the Control division. And that will allow our OEM and brand partners to rebuild confidence in the future and actually start to rebuild stock and improve the trading opportunities. We're going to continue to drive growth in Billi through both new product launches and further geographical expansion. To be very clear, that is where the clear focus for Strix will be, there is significant and very profitable growth opportunities in that Billi market segment. We do anticipate a part recovery in controls or correction, whatever you want to call it, through the remainder of the calendar year as the tariff situation stabilizes. We will obviously gain further intelligence on the market and the consumer demand when we meet our partners at the Canton Fair during October in 2 to 3 weeks' time, and we've committed already to report back to the market in November with that additional information. Bearing in mind, in those meetings, we meet somewhere in the order of 120 to 150 brands and retailers from all over the world. Despite the challenges and the volatility, we continue to strengthen our foundations and the Board does remain confident in the medium-term outlook, and we expect trading for the 15 months to the 31st of March 2026 to be in line with the management expectations. As stated, we will provide an update on trading and our accelerated debt reduction plan in November with the benefit of that additional feedback from our OEM and brand partners globally. So with that, I will pass over to Hannah, hopefully, to try and manage some of the Q&A, which has ramped up very nicely.

Absolutely. I will do my best to group them. So I thought -- let's get out of the way and start on the subject of debt. What initiatives does the debt reduction program actually entail? And what is your projected net debt position at the year-end?

It's a very fair question, Hannah. And obviously, a key question that we've had a lot over the course of this week to be fair and can completely understand why. The first thing I'm going to say, as you expect me to is we are planning to come back in November and talk to you. And so there will be significantly more information available at that point because we, as a business, need to go away and consider what exactly the right options are and exactly how they will create cash and at what speed as we go forward. What I can say is though we have 2 things that are -- I'm going to claim are probably entirely within our control and are things that we would look at definitely as part of our debt reduction strategy. One is to revisit the stock and the inventory build that we have seen over the course of this half year and also to look more generally at our stock holdings. I think it's fair to say that ever since the end of the pandemic, we have probably held somewhere between GBP 3 million and GBP 5 million of additional stock on the balance sheet in our Controls business that for efficiency, it would be preferable if we didn't. Perfectly logical to do that. It is costly from a profit and loss point of view to unwind those inventories. However, now is the time with the debt reduction strategy to relook at that as a position. So about GBP 3 million to GBP 5 million there. And as you heard when I was presenting the net debt bridge, we have another GBP 5.7 million that has appeared over the course of this half year. We will clearly be looking at those parts very carefully as part of the debt reduction strategy. I'm not going to promise you can add those numbers together and they will turn instantly into cash, but that is the consideration that we're doing at the moment, and it will obviously make a reasonably big difference. The other thing I would also mention is that we do, do some nonrecourse debt factoring over in Italy, in line with a lot of other businesses because in Italy, credit terms for customers can be as high as 150, 180 days. This is very normal procedure. We have the opportunity to do more of that, fully nonrecourse, so effectively not putting extra lending into the balance sheet. And we are looking to do that and then to supplement that with some notional cash pooling at the group level so that we can make much more efficient use of our cash holdings around the group, particularly in Italy, but also in Australia and in the U.K. as well.

Okay. Was it just the rate of interest on the refinancing that was the issue? Or was there some other problem that prevented the refinancing? This individual -- obviously, 2x -- 2.2x doesn't seem like high leverage.

No. It isn't terribly high leverage, but 2x is a bit of a magic number and a bright line in the world of banking. And also, I'm going to say, in the world of equity markets here in London. And so it was an unwelcome move. Look, the reality was it was part costing, but costing is important because we're trying to put in place facilities that would last for the next 3 to 5 years. It is not the right thing to do to put expensive, unnecessarily expensive facilities in place for that period if what it actually is better is to spend a little bit extra time and get ourselves ready for a future refi that is going to be more appropriate. The other thing you do tend to lose if banks become less comfortable is flexibility. So that talks a lot of how much you can borrow, whether it needs to be amortizing and exactly what flexibility you have within the clauses of the document in terms of disposals and acquisitions and other things like that. All of that is absolutely key. The other thing we also keep an eye on is we want to be with the right -- the best banks we can be in our banking group, everyone pointing in the same direction and everyone fully supportive of the strategy. If you can't get those 3 things ticked appropriately when you're going through a refinance process for perfectly understandable reasons, then the right thing to do is to put a pause on it and then come back when we feel we will be able to do that.

Okay. Have there been any thoughts about selling parts of the business in order to pay down debt a little quicker?

I think as a Board, we always look at all various options. And I think sometimes you need to look at some of the parts of our business as well, and you can sort of really clearly see that they don't match where the current market cap of the business is as well. I think we've been through the various parts. The Cattle Controls is still very much a cash cow. Yes, it's not quite as strong as it has been over the last few years, but we will correct at some point in time. Billi is booming at the moment and Consumer Goods is in a very positive way. There's also a lot of synergies between them as well. So Billi uses some very sophisticated filters, for instance, that we can manufacture without any question. Strix has some very technical and innovative heating technology, patented heating technology that can go into future developments from Billi. So the parts all do stand together to a certain degree. And I think the point Clare made earlier is there are some things that we can do very, very much in our control. They're our priority as it stands at the moment.

Okay. What is the interest rate on the borrowing at the moment?

We're paying at the moment, it's got a ratchet mechanism as many of these things do. So it depends where your net debt leverage is at any point in time. But being currently, I think I'm right in thinking about 7.5% overall. That is not all margin. Some of that obviously is underlying SONIA rates as well.

Okay. And finally, could you let people know what the 2.2x relates to?

I know -- I saw that question actually come up, guys, and I'm ashamed to say I can't give you the full answer. I know that part of it, about GBP 500,000 of it is actually the unwinding of the amortization -- sorry, the amortization of the arrangement fees. I would have to go away and check what the other bit is. I can't remember off the top of my head, but it is something very logical. I can promise you that.

Right. Let's move on to Controls. So can you explain how far you are from launching your next-generation Controls, the key features and the differentiation from the other products on the market?

Yes, that's a relatively easy one. So it is launching. We are producing now in our China factory. The -- already line is fully operational. We have worked with a number of OEMs so that there will be product on display at the Canton Fair on the 15th of October. And then you'll start seeing them coming into the markets over the course of the next sort of 6 to 18 months. The difference with it primarily is the physical size. It's about 30% smaller. Therefore, there's a cost benefit in that as well. It is also a high specification control. It's very highly patented. Obviously, we want to make sure we can protect the future of that as well. And I guess one of the big benefits of it is because it is smaller, it means you can actually reduce the cost of the overall appliance as well. So the OEMs can benefit by redesigning a canton making the elements, for instance, slightly smaller and therefore, reducing the cost of the overall appliance.

Market share. How are you -- can you be certain that you are not falling? Where do you think you currently sit?

So it's a really good question. It's something we try and track a lot. We used to get a tremendous amount of data prior to COVID. That's waned a little bit. And actually, the small domestic appliance data isn't very helpful because there's so many different products in that, that it skews the results. We're very confident in the majority of the regulated market that we've maintained our position, and we are still very much a dominant player in the regulated markets with one exception, which I'll come on to in a second, which is the U.S. In China, we have deliberately walked away from certain parts of that business. It is very, very cost competitive. And the profit margins just don't justify the time and energy you would spend in those markets. Obviously, we're working on new controls, and we'll continue to evolve those controls to get to a lower cost point such that we can compete in the future. But that market at the moment, we're sort of only working with the major brands, obviously, that value the quality specification that Strix can provide. The less regulated market is an interesting part. That really is where the growth is today. And we've always had a sort of moderate share there of around sort of the 25% to 30%. That's an area that we are very much focused on. It is where the growth is today. And as I mentioned, we've got new controls coming out with a different pricing strategy such that we can, even as early as the October fair in 2 weeks' time, go out and promote new products for those markets. Just coming back to the American market, there has been some incursion in the American market with some of the China controls. It's a market you probably wouldn't expect them to be in, and it's something that we've evaluated very, very carefully over the last months and even the last year. It is something that we have plans to address. Obviously, it's very commercially sensitive. So I'm not going to disclose on a call like this because I certainly don't have a list of all the people on this call. But yes, it's something that is very much on our attention. We are bringing out new ranges of controls. We are working with our brands and OEMs to make sure that we can reverse that. Actually, it's not so much that we've lost any specifications in the U.S. It's more that we're not capturing the growth in that market, which is growing at the moment. So very much on our sort of visibility at the moment.

Okay. So with a fall in controls of nearly 25%, which is obviously more than your exposure to the U.S., where did the other losses come from?

It's a mix. So when you look at that, it's certainly partly in the U.S. because of the situation you've got in there. The U.K. at the moment is one of our biggest markets and our strongest markets. We all know the economy in the U.K. is not particularly strong. So that market is actually declining. It's not Strix that is declining in terms of our share. It's the market itself that's declining. So where we've got some cost of living challenges for one of a better word or the houses aren't being sold or people are not investing on doing up their kitchens and so on, we're seeing that discretionary spend in the kettle markets diminish. It can't be sustainable. There's not 40% less kettles being used in the market at the moment. The real question is when is that correction going to take place and how big will it be. And as you've seen in our numbers, we've got a partial correction there. We're certainly not expecting it to recover in our sort of full year. And we'll get much more information in the next couple of weeks in the Canton Fair, talking to those brands and retailers and come back to the market in November.

Do your competitors also have smaller newer generation controls coming out?

Not that I'm aware of, and we've got quite a lot of intelligence.

Okay. [ Copyists ] are also mentioned as a reason for the fall. Why has that increased particularly at this time?

There is always incursions from other manufacturers. I've been in the business now for 2 decades. And in that time, we've had 3 that have been prominent and then they disappeared almost completely actually or 2 of them over that period of time. There's always the next one coming through, and we've got one of those there at the moment. It is something that we watch very carefully. We obviously protect our IP. Again, I can't give you details of anything like that because it would be very commercially sensitive. But actions are in place to limit any future issues there and to regain some of that share going forward.

Okay. Just the change in the year-end, will you report 12 months and 15 months next April, May, June?

I think the plan at the moment is that our main announcement date, as was on the slide that Mark took us through will be following the 31st of March 2026. So it will be for a 15-month period. I think what we will do, though, obviously, we've talked to [ AIM ] about this as part of the process to get approval to do the year-end change. What we will do when we come out in November is give you information that looks back at the 6 months till the end of September 2025 as well because that will then become our new comparative for next year's half year results. And so they will be disclosed in full as part of next year's half year, but we'll give you a glimpse into some of the key metrics when we come out in November. Clearly, whilst we're not going to present December's numbers in their entirety, the things we will be talking about when we come out in November will be heavily focused on what has been happening in the Controls market over the course of quarter 4 and where we think that's going to end. So you're not going to get a whole series of pro forma numbers, I'm afraid, folks, partly because quarter 1 is generally quite a boring quarter, and so it doesn't make that much difference as you've probably seen in some of the analyst remodeling. But also, we will come out in the narrative and give you information so you can understand how the calendar year is expected to exit as well.

Okay. There are a few questions on dividends, largely, what's the plan? When can we expect to hear? Most people supporting a hold, but you will have your views.

Yes. I think, obviously, we can't give an answer to right now. We are aware of the situation where we are at the moment. You've heard us talking about debt reduction plans. I mean really, what's going to happen is we're going to go out in October and get a lot more intelligence. Q4 is by far our biggest quarter. Even with the market a little bit depressed, it will still be by far our largest quarter, our largest cash generation process as well. So we need to get more information around us for that, and then we'll come back to the market in November when we come back with that trading statement and declare our intentions with the dividend.

Yes. Let's move on to the growth from Billi. When will Billi expand into the U.S. market?

That's a really good question. Yes, there's a lot of differences in the U.S. market. And from the market intelligence we've got, we've got sort of views in terms of the size. So the biggest price for us at the moment without any doubt at all is the European piece and our existing markets of U.K. and Australia as well. It is something on our radar. It's not in the short term. For us, growing into that and expanding into the European piece is in some ways easier and it's a bigger price, but also that residential part is also a very attractive part of the market and a bigger price. So I'm not saying we're not going to go into the U.S., but it will be with some of our future developments rather than the current existing product.

Okay. Are you able to quantify the impact of tariffs in terms of looking to diversify away from your China facility?

I mean this is all about controls when you talk about the tariffs. I mean, 93% or 94% of kettles are made in China. So it's very difficult to sort of imagine how that will change dramatically. As I mentioned before, some of the OEMs are opening up in places like Indonesia, Thailand, Vietnam, but most of those are higher-end products than kettles or toasters. And actually, when I look at it as a really good example, an anecdotal example, there's one particular OEM that has moved all the significant brand production into Indonesia almost as soon as they did it, a tariff was put on Indonesia, and it was stopped in China. So actually, that was all lost benefit because it's cheaper still to manufacture in China. So there is still lots and lots of uncertainty. The tariffs at the moment are just disruptive. There is no end to the 90-day period. I mean the last time we all know we got to the end of the 90-day and it was extended for another 90 days. What we need is clarity, remove the uncertainty and then people will start to reinvest.

Okay. One for you, Clare. Where in the results can we see the GBP 2 million, GBP 3.5 million quarterly payments for Billi?

Well, it will be in the cash flow statement that we paid out. So obviously, our borrowings have reduced as an effect of that, but they are netted off at the moment that we have borrowed down on the RCF over the course of the period because of the trading conditions. So yes, but we have made those 2 payments. I promise folks, we've been in a lot of trouble if we hadn't done. So they did go out in March -- end of March, end of June. And then the final payment just because of the margin centric way that term loan was written is not until the 23rd of November, I think it is this year.

Okay. And what is your view on share buybacks? Better use of your cash elsewhere?

Did you talk to the debt reduction?

Yes. Yes. Obviously, we are looking at all sorts of different things as we sort of look at that debt reduction profile. there's mixed view. It's something the Board discusses on a regular basis in terms of what the right things are to do. I think I'd just rather reiterate that we're going to come back with a relatively detailed plan back in November in terms of where we stand and what the priorities are for that capital allocation.

Okay. Again, back to you, Clare. The GBP 1.6 million on the strategic review costs, what were the 2 most costly items in that GBP 1.6 million?

If they -- it was really -- to be fair, it was external advisory expense. So part of that cost, I know we did put in the narrative that it was to do with the refi, it was -- but what it was actually was work done more generally in order for us to understand and interrogate our strategic planning for the next 3 to 5 years. It was incurred largely in the first half of the year before the macro so visibly turned. And it was in order to make sure we were match fit, knew exactly what we wanted to do and also had all the information around us in order to pull the banking information back together that went off for the refi request. We will use that information far more widely than for the refinance because it is underpinning how we see the medium-term growth aspirations of the business, albeit as we stand now, they are slightly deferred or at least changed by the debt reduction strategy that we'll be going through over the next 12 to 18 months. But that money is -- continues to be very well spent because it's given us a far greater idea and understanding of our markets, our market shares and the way that we can operate successfully within them. The biggest costs, I'm not going to give you invoice values folks, but the biggest costs really relate to external third parties coming in and looking at the way that we're pulling our strategy together and our understanding of the markets and market shares and growth abilities. So we've taken external expertise to make sure that we are on the right track with our plans.

Okay. What proportion of the -- back to controls, of the FY '26 controls revenue do you expect from the next-generation SKUs? And a bit perhaps, if possible, on the gross margin delta versus the legacy portfolio?

I'll start with the SKUs and then I'll pass over to Clare for the margins. So next generation is slightly different to other controls that we've rolled out insofar as that it's physically smaller, and therefore, you have to redesign the whole kettle to get the benefit from that control. So it's not going to be a very rapid ramp-up because it's by appliance device. You can't go and just swap out the controller in the current design and put a next gen that would not give you any benefits at all. So there will be a slow ramp-up over the course of 2026 and beyond. However, it will be a very unique position and a very highly differentiated position, helping to get the cost out of those appliances that will be very attractive. And we can leverage on that with our discussions with brands and OEMs as well. So actual sales for it will be relatively small during '26, but the leverage we can get from it will be much more significant.

Margins, Clare?

Happy to step in. I mean, obviously, these things are commercially sensitive folks as we're talking about our new range of controls going out there. Look, broadly, the cost base of the new controls is about a 30% decline on what we currently spend on the control. We are hoping to be able to share some of that saving between ourselves and the customers. I'm not going to give more information than that because that then comes down to commercial negotiations.

Lots of ongoing questions on market share and how this has come about. But perhaps, I mean, this individual is concerned that you are only going to the Canton Fair every -- twice a year. Perhaps can you give us a sense of your closeness, I think, to what is going on over there and how you can maintain good operational controls.

Yes. We are extremely close to all of the major OEMs. We deal with over 200 OEMs in China. Obviously, the top 20 are by far the most important. I can assure you, I can literally go to any of those top 20, walk in uninvited and go and look at whatever is going on in there. We've got OEM managers. We've got project managers that go into those on a daily basis. So we are very, very strongly connected to the OEM base. And we've also got a group of people that are constantly traveling around the brands as well. However, I will say there's nothing as good as having all of those in one place around the Canton Fair because that's where a lot of the deals and negotiations are done between brands and OEMs. So you get far more intelligent on those 2 events than you would at any other time in the year.

And how much visibility do you have on these inventory levels of your customers, particularly in China?

Again, a little bit commercially sensitive. So I've got to be a little bit careful. I mean we have great relationships with our top OEMs, and we do get reports on inventory in the OEMs themselves. What is harder is to know what is the inventories at the consumer end. And again, we get more intelligence when we're talking to brands and retailers around the Canton Fair. You can look at things like Amazon. So we look at all sorts of different points to see where SKUs have gone out of stock, for instance, how long they're out of stock. So there is a lot of market intelligence that we do ourselves. But again, we get most of it from -- directly from the brands and the OEMs. We deal with over 450 brands and retailers around the world. So there are very few brands that we're not in contact with at some point.

Okay. Finally, only because it's been asked quite a lot of times on this. Are you experiencing any approaches from private equity? I'd like you to have you told us.

Yes. I mean it's one of those things, isn't it? I mean, share price is clearly in the wrong place. So there's always going to be lots and lots of noise around. Clearly, if we get an approach that is viable, then we are obliged to announce it. So hopefully, that answers the questions of where we are.

Super. Well, listen, you've both been very generous with your time. I hope we've answered everyone's questions. Lots of the same one reframed, but I think we've really got into the key points there. So thank you both very much for your time. Thank you for our audience. You're clearly very engaged. And we look forward to hearing an update in -- well, I won't say 6 months, 9 months' time, but hearing from you from in November.

Perfect. Thank you very much.

Thank you.