Welcome to the 2023 final results from Strix Group. I'd like to start by welcoming and introducing Clare Foster, who will join me to present the financial part of this presentation. Clare has now been with Strix for almost eight weeks and has certainly wasted no time getting up to speed, you know, with the numbers and connecting with various stakeholders, as you will see as she presents the numbers. She'll also formally take up the role of CFO as from the 2nd of April. I'd like to start really just by looking at some of the key highlights. Certainly 2023 has been a challenging year, with the global small domestic appliance market showing negative growth year-over-year. Given that backdrop, you know, we have initiated a rebasing of the business to build a strong foundation for the medium-term growth as that market continues to recover.
Despite all the macroeconomic challenges, you know, the fundamentals of this group really have not changed. We hold very strong and stable market share in our core business. You know, we're highly cash-generative with exceptional margins, all of which Clare will cover in more detail, a little later in the presentation. During the year, we did manage to demonstrate good revenue growth, primarily on the back of the inclusion of Billi, but also some growth within the kettle markets driven by recovery in the less regulated market, as you'll see later in the presentation. At year-end, our debt ratio was 2.19x , and we as a board remain highly focused on maximizing cash generation to support that debt reduction. Clare will cover that in more detail shortly, so I don't want to steal her thunder, but this has been a clear message from the market as well.
As part of this ongoing commitment, there will be a temporary pause in the final and interim dividend payments in 2024, and we intend to resume to a sustainable dividend payout of 30% of Adjusted PAT in 2025, where debt levels will be low 2x . The pause will not only accelerate the deleveraging profile, but it will also provide some flexibility to selectively invest in the new technologies that are going to support our longer-term growth initiatives, some of which will be discussed later within the divisional updates. Since Clare has been on board, she's been working very closely with our banking syndicate and has gained their support to provide a normalization of the net debt leverage covenant to 2.75 for the additional duration of the facility. This clearly provides a good level of headroom and should provide additional confidence for the future.
And finally, we have seen some management changes within Strix over the year as we continue to strengthen our management team. In addition to Clare, Rachel Pallett has also joined the business to lead the kettle controls and the PFS division, which is primarily Billi. Rachel brings a wealth of experience and knowledge and has already had a very positive impact with the integration of Billi and refocusing the kettle division more to follow on this in the divisional updates after Clare has run through the financials. So with that, I'm going to pass over to you, Clare.
Thanks, Mark. And, can I just say on a personal level, it's great to be back in the presentation hot seat after having a little time off, albeit as Mark says, I have snuck in slightly ahead of formally taking on the role of CFO, which happens on the 2nd of April. So I guess on some level, folks, that means that these numbers are not officially mine to present. However, I won't tell anyone if you won't. Before we get into any of the detail of the divisional margins, movements in net debt, what I wanted to do was take us through at a high level, the financial highlights of the year just gone. As you can see here, and as Mark has already mentioned, 2023 was a year of strong revenue growth, recording an increase of 35.2% to GBP 144.6 million.
The main reason for this is our latest acquisition, Billi, which has brought in a full year of trading for the first time, versus only one month in 2022. Obviously, from a group perspective, this has driven a large increase in revenues of about GBP 39 million. However, it is worth noting that this also reflects a double-digit organic growth within Billi itself at a constant currency. But the growth hasn't only been Billi. Following on from a very tough 2022, we are pleased to report that we're starting to see the beginnings of growth coming back into the kettle controls market. We've recorded a 2.7% increase in revenue, particularly as trading in the less regulated and the China market starts to recover strongly.
Tough conditions in our consumer goods division have led to a reduction in trading, about 8.7% down, particularly in the APAC region, although this has been partly offset by the expansion of both our online presence, and sales of our lower-price point water filtration brand Aqua Optima. Looking at gross margin in the middle of that page there, again, we see a strong performance with an 80 basis points increase to 39.6%. I'm not going to say any more about that right now as there's a more detailed divisional slide to come later on. Adjusted EBITDA has increased significantly. We're up 23.1%, to GBP 39.5 million. And as you can see there, although we have seen a reduction, small reduction in the EBITDA margin with Billi coming on board, the group has continued to secure consistently high profitability with an EBITDA margin north of 25%.
That really comes down to two things. It's the quality of the products that we sell, and it's our positioning in key markets. Despite the increase in trading profits at EBITDA level, adjusted profit after tax has reduced year-over-year by 12.7% down to GBP 20.1 million. There's a little bit of tax movement in there, largely because of Billi growing this year, and that does attract a 30% corporation tax rate over in Australia. But by far the biggest increase is, of course, on the interest side. We've seen an overall increase in our average gross debt up to GBP 112 million in 2023, and the higher interest rates environment has also played on that, leading to additional interest costs of GBP 6.3 million in 2023.
On the net debt side, we're pleased to report a small decrease of GBP 3.7 million, equating to a net debt leverage of 2.19x , as Mark said earlier, and within our maximum covenant limit. I will speak more on the various movements that have gone into that change in a couple of slides' time and also provide a little bit more context around the covenant normalization that we've secured. Operating cash flow conversion has been put on there for the first time down in the bottom right-hand corner, and it's really there to drive home exactly how cash-generative this group is. Not only do we secure gross and EBITDA margins that many businesses would give their eye teeth for, we then go on and consistently convert that EBITDA into cash at high ratios. In 2023, there was a particularly sterling effort.
I'm not going to sit here and say we're going to achieve 106% cash conversion ratios every year. You'll, you'll run out of things to convert at a certain point. But it is worth noting there that even over the last two years before that, we are averaging over 85% of cash conversion, a really, really good sign of strong balance sheet management. So if those are the highlights, if we turn onto the next slide, I can take you through the gross margin in a little bit more detail. As mentioned earlier, the overall gross margin remains very strong. We've got an 80 basis points increase up to 39.6%. The main reason for that is right in the middle of that page there, as you see, and it's a full-year inclusion of Billi.
Billi and therefore the premium filtration systems division, the PFS division, operates at the highest gross margin around the group, reporting 45.8% in 2023. Offsetting that increase, the kettle controls division has seen a small reduction in gross margins of about 180-190 basis points to 39%. The main reason really is that quicker recovery of the China and less regulated market business. Although higher-margin regulated business is coming back on board, we are seeing that recovery continue to be slower than was originally anticipated. We do expect margins to start to stabilize as the more regulated market does continue to recover, but it is worth noting there will be an offset as we start to push into some lower-cost areas of kettle controls as well in order to access increase our accessible market.
In consumer goods, we've seen a decline in gross margins of 250 basis points. There's two main reasons for this. One is the reduced volumes, that we spoke about earlier that has led to a lower manufacturing overhead recovery in this division, but also coupled with a product mix shift with a higher 2023 weighting towards that lower margin online and Aqua Optima ranges. If that's the income statement, if we turn over onto the next slide, we can see what's happening on the balance sheet side. To understand that, and also more importantly, where the business is from a net debt point of view, we've included a net debt bridge here on this particular slide.
There is a lot of information on this slide and a lot of words, but this is really important as cash generation and gross debt reduction is a key priority, as Mark said, of the group at the moment. We have to get the strength back into our balance sheet, ultimately to provide a secure foundation to the group, to reduce our interest costs, to allow us to continue to invest for growth in the future, and to improve our access to funding for the purposes of our medium-term aspirations. And so I do want to spend a few minutes now taking you through what has driven that GBP 3.7 million reduction in net debt that we talked about at the beginning in the highlight slide.
The first thing to notice, those very noticeable yellow columns on the left, which show just how well we generate operating cash flows, with GBP 36.6 million coming into the business as a result of trading and a not insignificant additional GBP 2.3 million of cash as a result of strong working capital management. It is those two yellow columns that are driving our 106% EBITDA conversion rate we talked about before. And when I look at our working capital as a percentage of sales that you can see on the right-hand side of that slide, you can see just how the dial has shifted in 2023 because of that strong working capital management. We've got a large swing from 25.8% of sales down to 16.7% that represents a very efficient balance sheet position.
Investment-wise, we've kept capital expenditure as low as possible in the year with a GBP 8 million you see there, reflecting a more or less maintenance level of spend, including the capital development work that we do. We have had to pay out the final LAICA earnout amount of GBP 7.5 million as well. It's difficult to argue that's a bad thing. It, it reflects a successful achievement of a number of pre-acquisition targets, but it does obviously take additional cash out of the group as we reduced our ability to decrease net debt in the year. As we spoke about before, interest cash outflows have increased substantially to GBP 7.6 million, again making it very clear why the onus has to be on reducing our gross debt reduction so we can we can reduce this cash outflow.
What you don't see on the bridge because it doesn't have a net debt impact, but is worth understanding, so I've put a specific bullet point there in the finance section, is the significant level of repayments that the group has made back into our banking syndicate each year in relation to the Billi acquisition loan. We are paying GBP 3.5 million a quarter to amortize that loan down to zero by October 2025. This is a real reflection of just how much cash the business is able to generate that has been able to meet that amortization profile and that we are forecasting to continue to be able to do so. Billi was only bought at the end of 2022, and despite the macro challenges, the group will effectively have paid for that acquisition in just three years.
One of the reasons we can do that and we can get the group back to a position of balance sheet strength relates to that penultimate dark blue column that you see on the graph there, and that is dividends. For the first time since IPO, the group has reduced the level of its interim dividend to GBP 0.009 per share, and that has been there purely in order to prioritize debt reduction, which brings us neatly onto the next slide and our capital allocation framework. Don't want to spend a lot of time on this because Mark said some things about this and I have already before, but we've chosen to put this in really just to pull together the key messages all in one place. As a group, absolutely, as it says there, we are prioritizing debt reduction. But what does that actually tangibly mean?
Well, in terms of target, it means the two things that you see in that first green circle. One, we have a clear plan to reduce our net debt leverage down to around 1.5x by the end of 2025. And once achieved, two, we have set a clear ongoing leverage appetite of between 1-2x , and we will make future capital allocation decisions within that range. It is also what has led to the decision to temporarily pause the dividend payment in 2024 with a plan to return to a sustainable dividend payout ratio of 30% of adjusted PAT in 2025. This decision has been made 100% to allow the group to accelerate its deleveraging for all the good reasons we spoke about before.
We are going to continue to invest in some organic growth drivers in the short term, and Mark will talk to you about some of those in a few slides' time. But we are going to manage this very carefully, and we do not expect to return to anywhere near the level of Capex that we've seen in recent years with the Chinese factory and the acquisitions of LAICA and Billi. Turning to acquisitions, these do still remain a key part of the group's medium-term strategy. But as that last such circle says, this is something that is currently on hold until we have returned to a position of balance sheet strength. So if that's capital allocation, let's turn onto the next slide, and I'll take us through a few things on the banking side.
The first thing to notice that we continue to operate within our existing covenants at 31st of December 2023, and we are forecasting to continue to do so for the remainder of the facility term. However, notwithstanding that, over the last week, as Mark said, we have been working proactively with our banking syndicate to enhance both the flexibility and the security of funds within the existing agreement. I have spent a lot of time with each of our banking partners, I expect they're fed up with me, to further develop those relationships both in the short term and also with an eye on our more medium-term requirements. As Mark said at the beginning of this presentation, one of the key changes coming out of that process to date is the normalization of our net debt leverage covenant to 2.75x for the duration of the facility.
That illustrates that our banking syndicate's ongoing confidence and support, that this change was approved on the 22nd of March 2024. Banking and treasury management will continue to be key priorities for the group in the coming years. So to help support our proactive approach to this important priority, I am also pleased to report that we've recruited an experienced group head of treasury who will be joining the business in August 2024. On that good news, I would just like to turn to my last slide, which is our normal technical guidance slide. And here we presented those key metrics that we shared with you in previous years. There's a lot of detail and words on this slide, and so I only really want to pull out the main bits here.
Adjusting items, as you can see here, are expected to be broadly in line with 2023. A sizable chunk of this going forward now relates to share-based payments and to the amortization of acquired intangible assets as well as some additional spend relating to divisional restructuring costs that we anticipate making in the year. Effective tax rate is expected to remain at 12.5%, which I think most, most of the analysts have already got into their models. It was a little bit lower in 2023 because of some non-recurring deductible integration costs in Billi, but going forward, we expect it to normalize to that level. Capex, you can see we have forecast to allow this to increase a little bit from pure maintenance spend relating to certain short-term investments for growth, which Mark can touch on in more details in a few slides' time.
Interest is expected to reduce a little as the average gross debt declines and also reflecting some stabilization in the interest rates. Whereas around 1.5x is the target for the end of 2025, with all the cash generation and debt reduction efforts we're making, we are looking to get below 2x by the end of 2024. That's everything from me, and I will hand you back to Mark, who's going to take you through the individual divisions in a bit more detail.
Thank you, Clare. Let's now take a deeper dive into the various divisions, starting with an overview of the market itself, you know, primarily the small domestic appliance market, which accounts for our kettles and our consumer goods. 2023 was actually quite a tough year for that, the small domestic appliance market.
We actually saw a decline during the whole of 2023, and that really does highlight the tough backdrop that we were operating in within our core categories, particularly within the regulated market for kettles where we have more than 70% market share. So clearly, when that declines, it's very hard to recover from that. The middle graph you see on the slide, you know, shows the China export data, which was also very weak across all regions during the first half of 2023. However, yeah, there were some positive signs during the second half suggesting that brands were starting to gain some confidence in terms of the Q4 sellout, and also the sell-in for 2024 with some stock being pushed back into the pipeline.
Then finally, on the right-hand side of the graph there, you can sort of see the UK expectations for one of our key markets, the UK electricals. Here, there is an expectation for some modest growth, but single-digit modest growth after what has been a very difficult period, aligning with some of the stock fill activity we saw in the previous graph and our commercial plans and growth expectations for the year across our divisions. However, this data is also somewhat skewed by specific high-growth appliances such as air fryers, which at the moment are actually booming, both in the U.S. and in the European markets as well. So let's move to our own market of kettles. The regulated market is clearly the core market for Strix, accounting for more than 60% of sales, and it delivers the highest margins.
As you can see, after eight quarters of negative growth versus prior year, it finally turned positive in the second half of 2023. However, this has not been the typical or historical rebound or will bullwhip that we would normally have expected, more of a steady quarter-on-quarter improvement. As we have rebased the business, we have clearly taken a much more conservative view of the recovery period within this key segment of our business. The less regulated market shows a very different profile, much more in line with historic norms, with a very strong recovery in the second half of the year. This did drive some revenue growth for Strix in 2023 where we saw double-digit growth, albeit at lower margins.
On the very right-hand side, you can see that despite this improvement in the second half of the year, the global market is still significantly off the highs of 2021, primarily due to those regulated markets. We still expect this to recover as global household penetration of kettles is still anticipated to be well below the 50%, and there remains plenty of growth opportunities in places like India, America, and in China. So if we move on to the next slide, still on the kettle controls, you can see net sales for kettles have been in decline since 2021 due to the various headwinds we've seen, you know, the pandemic, Brexit, conflicts in Ukraine, cost of living crisis, the list goes on. However, Strix did outperform the market with a modest 2% growth in value driven primarily by the strong recovery in the less regulated markets.
So yeah, what's next, you know, in this segment? There's a lot of things going on in the market for, for kettles. You know, we have new patented control coming out, the Series Z control, which is currently undergoing customer testing. Very important in terms of the future. It's a much smaller control, much lighter, so it uses less commodity material, obviously very good from a sustainability messaging point of view, but it's also actually a higher spec control as well. We're also doing some technology showcases. These are really trying to show how this Series Z can be used in different appliances, you know, smaller appliances, things like travel kettles, things like blenders. So you know, it is allowing us to move over time into adjacent markets as well.
And then finally, in this segment, we've also got a new control coming out, which is a low-cost control, which is specifically targeted at increasing addressable market share in China and the less regulated market. Very important for us. I mean, it's a market where, you know, there is obviously less margin available, so this will allow us to improve our margins in those areas but also protect our regulated margins as well. Moving on to Billi. Yeah, as stated at the time, you know, this has to be the deal of a lifetime, although unfortunately was made at a time when the economy was in a very fragile state. I think it's just worth reminding ourselves of the strategic rationale and the importance of Billi.
The product range, you know, really is a natural fit for Strix and an extension to our product portfolio, moving our technology into offices and homes and increasing opportunities for all of our products, in fact. Its financials are extremely positive with very high margins, strong cash generation, and supportive of the growth ambitions. There's an opportunity to bring Strix's patented technology into some of the new products within Billi to allow us to further differentiate the product line, making it more cost-effective, more sustainable, and also making it more diversified from the competition. There is also a significant opportunity for geographical expansion into Europe and eventually into the USA through new and existing partners. Strix's expertise in manufacturing and procurement will also allow further cost efficiencies to be realized within Billi. So now let's look at the progress we've made.
Frankly, it's delivered exactly what it said it would over the last 12 months, double-digit growth both top and bottom line. There's been an extraction from the various TSAs with new facilities opened in the U.K. and Australia, particularly in the U.K. where we have a new head office, a new showroom in London, and a new, more cost-effective warehousing proposition. We've seen successful launches of new products in Australia with the OmniOne and LuxGuard, now to be expanded globally. And we've seen an integration into the Strix Group within the functions of finance, human resources, compliance and approvals, engineering, and operations. So what's coming next? There is certainly an increasing interest in Billi products and the trends within the water market, the water segment. Customers looking to remove the use of single-use plastics. They're looking for more convenience and more flexibility.
They're concerned over the quality of drinking water and a move away from sugary drinks, and towards filtered and sparkling waters on tap. There is also no question that Billi has significant profitable growth potential, and we will continue to execute on initiatives to really maximize those opportunities. A number of things they will include. First of all, we will see the global launch of the multifunction tap compatible with a full range of Billi products that are already out there in the market. We're going to see the introduction of the LuxGuard and the OmniOne to the export markets and further new product development leveraging on Strix technology, targeting the global residential market. We're going to see an expansion into Europe, and I apologize in advance, but I can't help but say this. It is an untapped market for Billi, significant opportunities.
And then further expansion into Southeast Asia and the Middle East through established distribution channels. So now let's look at the consumer goods. Last year, we saw an overall decline in revenues, and there are a number of key reasons behind this. Firstly, we've looked at a rationalization of appliances. There were some products that really were not so profitable, either because there was a significant cost in the approvals or just because of the types of products and markets they were going into. You know, those have been removed, and we've lost nearly half of the SKUs within that segment, really to make sure we are focusing on the most profitable appliances. Also, we've rationalized the online channels, again focusing on those that really give us the more profitable routes to market and withdrawing from those that were effectively damaging the retail price points.
We saw a number of retail customers struggle with the economy last year, even some exiting the market completely. However, yeah, there were also some very good positives as well. You know, LAICA saw an EBITDA growth of 21% versus 2022, so very, very strong growth. Aqua Optima from a brand itself saw nearly 20% growth driven by the increased appliances of the Aurora range, including a new launch of the Aurora Coffee system going into the USA. We've also moved the production of the antibacterial filters, which was originally in China. We've now insourced that into our LAICA manufacturing facility. And we secured a number of significant retail contracts at the back end of the year in the UK and in Europe that will provide more than half of the anticipated growth moving into 2024.
To further strengthen the division and provide strong foundations required for growth, we have started a divisional restructure, making sure that we have a very clear strategy focused on sustainable, profitable growth with the right resources and technologies in place to execute. So with this restructure, we are refocusing and doubling down on our core profitable categories, particularly within water filtration and the vacuum sealing/food preservation, to really try to make sure we are driving sustainable profit growth. We're also driving operational efficiencies. This means driving a more robust marketing strategy, understanding the key profitable customer segments, making sure we are effectively targeting and driving incremental growth using our core competencies and a differentiated product portfolio.
Some good examples of where we're doing this, you know, within the product roadmap, water filtration, expanding to the lucrative growing coffee machine market, with new filters in the pipeline to target profitable growth utilizing our European manufacturing base and our expertise in appliances and filtration. On the vacuum sealers, you're further expanding to the domestic food preservation segments with a range of more convenient-to-use small-footprint rechargeable handheld vacuum sealers. Moving forward, we are also expanding into adjacent subcategories with a focus on leveraging our OEM capabilities, particularly on the filtration side but also distribution into the health and wellness space. So moving on to ESG. Sustainability really is at the heart of our organization. It's somewhere where we have been particularly strong, both in products but also the actions that we've been taking over the last two to three years.
We have an embedded culture of continuous improvement, constantly looking at different ways to do things, to do them better, to do them faster. Within our product development, sustainability has always been a key focus, looking to reduce energy, to improve the quality of drinking water, provide increased convenience and flexibility to consumers. It really is our people that are driving this every day, challenging me, Clare, and the status quo of our business. In 2023, we achieved Net Zero on Scope one and two in line with our targets, excluding the Billi acquisition. However, Billi themselves have really made great efforts since we've acquired that business, and they will be Net Zero within the first year of the acquisition.
You know, nearly 10% of the group's power is now from our own solar panels, and we've managed to reduce our water by up to 11% over the last 12 months, bearing in mind that all of our products, you know, are water-related in testing kettles but also in our water filtration categories as well. A lot more details can be found on a separate report that has been launched today on our website, so please go and take a look at that. And it also shows some of the actions that we're targeting to, to further reduce emissions in Scope three, with the same drive and commitment that we've had over the last 12 months. So as a summary, let's review our strategic business objectives with our goal to develop leading, innovative technology in the fields of water heating, safety controls, and drinking water treatment.
Starting with the kettles, profitably grow our revenues. A number of things we're doing here, the addition of a low-cost control to increase our addressable markets and improve profitability in both China and the less regulated markets, also protecting our regulated margin. We're also going to introduce innovative new range of controls with Series Z, a revolutionary control that will open up adjacent markets and opportunities and increase our differentiation in the market as well. Of course, to continue with our lean initiatives to drive down cost through operation efficiencies and continuous improvement. For Billi, we really need to make sure we make the most of what is an excellent acquisition, leverage on the Strix technology and the new product opportunities, expand the geographical footprint in both residential and commercial markets with a clear priority on the European market opportunity.
In consumer goods, following the restructure, build on the success of LAICA as the center of excellence for this division, grow our market share through geographical expansion, innovative products, and our established expertise in manufacturing and procurement. To succeed on all these, you know, we need the right people in the right places with the right skills, motivated and engaged to deliver our strategic objectives. And I am really confident that we have built those foundations within the Strix Group, and we do have the right people to deliver on these plans. And finally, just to look at the outlook and as a reminder, so a rebase and divisional restructure to really build strong foundations for the medium-term profitable growth, which is well underway.
Strong foundations of the business that are unchanged, high profit, good cash generation, very strong market share, and on top of this, the acquisitions of LAICA and more recently Billi provide exceptional longer-term opportunities. A recovery in the regulated kettle market. We're obviously taking a very conservative view, but it will happen, and it will recover over time. A strong focus on growth opportunities within Billi with expansion into Europe and product developments to expand our addressable market into that residential segment. A clear focus from the board on deleveraging and prudent strategic investment focused on profitable growth opportunities to support an accelerated growth profile for the medium term.