Stelrad Group PLC (SRAD) Earnings Call Transcript & Summary

Good morning, everyone. My name is Trevor Harvey. I'm the CEO of Stelrad Group plc. Welcome to this presentation. I'd like to thank everyone for joining today. Record results underpinned by our resilient business model. Today's agenda, we've an overview, a financial review, a business review, summery and outlook and an opportunity for questions at the end. Overview. Stelrad's resilient business model delivered record results in 2022. In a challenging macroeconomic environment Stelrad Group delivered record results in 2022 with revenue, adjusted operating profit and contribution per radiator all increasing to record levels, driven by proactive margin management and continuous operational improvement. During 2022, we made further successful production line transfers to a low-cost Turkish facility in Corlu, Turkey. In our first full year as a plc, we also made the strategic acquisition of Italian heat emitter manufacturer, DL Radiators for EUR 28.3 million in July 2022. As a result, Stelrad remains well positioned for the future with the position of scale, market leadership and diversified geographic exposure supported by positive long-term market trends and regulatory tailwinds. Over to you, George.

Good morning. I'm George Letham, the CFO of Stelrad. And I'm today pleased to be presenting record results for the group. And this was achieved despite much weaker market conditions in 2022 because of the group's resilient business model. Revenue grew by 14.6% in 2022. The growth was 3% on a like-for-like basis, excluding the impact of the acquisition of DL Radiators. Adjusted operating profit of GBP 34 million increased by 2.4% over 2021, up 1.6% on a like-for-like basis. Sales volume in 2022 decreased by 9.2% against the prior year. It was actually down 15.3% like-for-like against an exceptionally strong comparative in 2021. But the impact of this volume decline in 2022 was more than offset by a 16.5% improvement in contribution per radiator, which was generated by our proactive margin management and a focus on operational efficiency. Just to note that the contribution per radiator is an important KPI used by us to manage the business, and it's defined as net revenue less variable manufacturing and distribution costs. Leverage at year-end was 1.6x EBITDA following the acquisition of DL Radiators in July 2022, and the Board is recommending a final dividend of 4.72p per share, giving a total dividend for the year of 7.64p per share. The robust financial performance recorded in 2022 positions the group well for continuing growth as a new player in the market recovers from the current weak economic backdrop. This slide highlights the trends in our key financial measures since 2020. Revenue increasing year-on-year to GBP 312.1 million in 2022, adjusted operating profit of GBP 34 million in 2022, building on the large increase achieved in 2021 and strong cash generation with adjusted free cash flow of GBP 17.2 million adjusted EPS, 13% ahead of 2021 and resulting in total dividends for the year of 7.64 based on 40% of adjusted EPS. The resilient performance of the group was evident in all our territories. U.K. and Ireland increased revenue by 6.5% and adjusted operating profit by 5.2%. Europe increased revenue by 25.3%, boosted by the DL Radiators acquisition, and adjusted operating profit increased by 7.3%. And Turkey and international increased revenue by 6.4% but recorded a 29% decrease in operating profit with volumes and profits in China down significantly due to the impact of the zero COVID policy there. Adjusted free cash flow continued to be strong but was adversely impacted by our actions to reduce production input in the second half of 2022 to rightsize the operations to the current market conditions. Looking in more detail at sales volumes and contribution per radiator. Total radiator volumes reduced 9.2% against a strong comparative in 2021. Now volumes in 2022 was split 53% first half, 47% second half with rapidly changing market conditions in the second half. But the seasonal pattern in our business is usually slightly stronger in the second half with a busy annual season -- heating season from September to November each year. Premium panel sales trends mirrored the total sales volumes with overall penetration levels of premium panel slightly down. Penetration did increase in several Western European markets but declined in some of the more price-conscious markets. And contribution per radiator continued to increase and showed the full benefit of several selling price increases applied in 2021 and additional increases applied in 2022 to fully recover rising energy costs. Now the lower sales volumes increased the group's focus on operational efficiencies to maximize the benefits we can get from our standardized design low-cost manufacturing platform and best-in-class product availability. We acted quickly and decisively to reconfigure and reduce shifts and crews at all plants, and that was facilitated by our flexible manufacturing footprint. This was largely achieved by a reduction in temporary workers but we also had a low-cost redundancy exercise in Turkey, involving about 100 employees. And significant improvements have also been made in warehousing facilities and inventory management systems to maximize product availability and customer service while maintaining inventories at the optimum level. This slide analyzes our revenue growth. Group sales totaled GBP 312.1 million in 2022 with a diverse geographic spread. The split is 47% Europe, 45% U.K. and Ireland and 8% Turkey and other. The 14.6% revenue growth in 2022 includes 5 months sales from our new acquisition in Italy with DL Radiators. All territories recorded growth in 2022, Europe up 25.3%; U.K. and Ireland, up 6.5%; and Turkey International, up 6.4%. But like-for-like revenue growth was 3%. With like-for-like sales volumes down 15.3%, that indicates that selling price and mix accounted for just over 18% of revenue growth with the full year impact of 4 price increases in 2021 flowing through into 2022. Now 2022 market share is not yet available -- normally available until the middle of 2023. But based on our own reliable internal information, we are confident we'll have gained further share in France, Germany, Italy and Scandinavia with the U.K. market share likely to be roughly stable. The next slide analyzes adjusted operating profit. Group adjusted operating profit margin increased to GBP 34 million despite significant decreases in sales volumes due to the weaker market conditions. The increase of GBP 0.8 million represents a 2.4% increase over 2021. The operating profit margin percentage decreased from 12.2% to 10.9% as the significant selling price increases were aimed at recovering cost increases rather than maintaining the percentage margins. But operating profit margin per radiator improved across all the territories due to the selling price increases and the operational improvements I referred to earlier. The adjusted operating profit by geography shows U.K. and Ireland operating profit increased by 5% to GBP 22.7 million. Europe increased operating profit by 7% to GBP 13.9 million, and Turkey and international operating profit decreased 29% to GBP 2.1 million with a 55% reduction in the high-margin sales volumes to China. Central costs increased by GBP 0.5 million following the IPO in late 2021. Now turning to the group's strong cash generation. Adjusted free cash flow in 2022 was GBP 17.2 million, and this was GBP 4 million lower than 2021 despite the increased profits for 2 main reasons. The trade creditors were lower by GBP 10 million at year-end as a result of our actions to reduce production output in the second half of 2022. And the consequent reduction of steel purchases in Turkey had a disproportionate impact on working capital due to the competitive credit terms enjoyed on these purchases in Turkey. GBP 3.6 million was also invested in a new production line in DL Rad in the final quarter of 2022, and this investment was committed before the acquisition and the new line will be operational this month in March 2023. This slide looks to the group's net debt position. Our existing bank facilities would increase from GBP 80 million to GBP 100 million by exercising an accordion option in order to partially finance the acquisition of DL Radiators. The group's net leverage, therefore, increased post acquisition in July '22 but has since reduced to 1.6x at 31st December 2022. Net debt, excluding finance leases, was GBP 68.4 million at 31st December '22. At the same date, the group had cash of GBP 22.6 million and undrawn available facilities of GBP 10.1 million. Turning to the financial outlook. I give the following technical guidance. I already mentioned in an earlier slide that sales volumes in 2022 were much stronger in the first half as market conditions changed rapidly in the second half of the year. Sales volumes are anticipated to return to the usual seasonal trends in 2023, reflecting the heating season in the second half of the year in autumn through winter. We anticipate a further improvement in contribution per radiator arising from a decrease in lower-margin new build volumes. Energy and steel costs are expected to reduce from the peak levels experienced in quarter 2, quarter 3 2022. Capital expenditure, excluding finance leases, is expected to reduce to around GBP 6.5 million in 2023 following the one-off spend at DL Radiators in 2022. Leverage is expected to reduce to 1.4x EBITDA at the end of 2023 after a seasonal increase in the first half of 2023. The functional currency of our Turkish subsidiary changed from Turkish lira to euro on the 1st of January 2023, and IAS 29 will not therefore apply from that date. Consequently, the currency gains and losses will reduce significantly and will cease to be eliminated in arriving at our adjusted operating profit. The increased fixed asset value in our Turkish subsidiary arising from the application of IAS 29 in 2002 will, however, give rise to a higher depreciation charge of around GBP 1.5 million from 2023 onwards. And the group effective tax rate is forecast at around 23% for the next few years. Business overview. Next slide. Stelrad is a leading player in the heat emitter market with an effective multi-brand strategy. Stelrad Group is one of the leading players in the European heat emitter market with a multi-brand approach that has been central to our strategy for many years. Stelrad is Europe's #1 steel panel radiator brand and is complemented by our Henrad, Termo Teknik and Hudevad brands depending on the route to market and geography. To this portfolio of strong brands, we can now add DL Radiators. The group's head office is in Newcastle at the time, and we have state-of-the-art operational facilities at Mexborough in the U.K., Moimacco in Italy, Nuth in the Netherlands and Corlu in Turkey as well as local distribution operations in Krakow, Poland and Kolding, Denmark. Stelrad has 10 core markets, and in 2021, the latest year for which data is available, the group was #1 in 5 of those, the U.K., Ireland, the Netherlands, Belgium and Denmark. Stelrad continues to develop share in France and Sweden and now holds #2 positions in both of these markets. Stelrad's historic market outperformance demonstrates the group's long-term resilience. Over the last 22 years, Stelrad robust business model has outperformed the market, gaining market share and growing profitability through some testing periods in recent history, including the global financial crisis and the COVID-19 pandemic. With an average tenure of around 18 years, Stelrad's experienced senior management team has considerable experience in successfully navigating macroeconomic challenges. Combined share in our 10 largest markets has increased by 7.3 percentage points since 2000, rising from 17.6% in to 24.9% in 2021. And share gain has not been achieved at the expense of profitability. Contribution per radiator has more than doubled between 2024 and 2022, rising from GBP 7.95 per radiator to over GBP 16 per radiator in the period. Our long-term resilience is driven by our robust business model, notably our long-standing customer relationships, flexible, low-cost manufacturing capability and market-leading availability and customer service. Our focus is defined by 4 clear strategic objectives: growing market share, improving product mix, optimizing routes to market and positioning the group effectively for decarbonization. Strong, long-lasting customer relationships are key to our success. We have been working in partnership with many of our customers for over 20 years, and these durable close relationships provide a strong foundation for growth both now and in the future. In 2022, we continued to leverage our preferred supplier status at leading Pan-European distributor, Saint-Gobain. And relative to 2021, grew our volume with them by 7% in France, Sweden and Denmark. Following Saint-Gobain's sale of the Graham heat and employment business to U.K. Plumbing Supplies midway through 2021. Last year, we successfully introduced the Stelrad branded Vita Series across the entire U.K. Plumbing Supplies organization, displays and competitors, including Purmo and Kartell. Our long-standing relationship with leading U.K. independent merchant buying group, PHG has been extended for 2 more years as we secured the supply deal with our Henrad brand. 2022 also saw successful contract renewals with leading U.K. housebuilders, Barrett, Persimmon and Taylor Wimpey with the resulting specification pull-through, reinforcing our market-leading position. Flexible low-cost manufacturing drives the group's competitive advantage. Between 2015 and 2021, we implemented a GBP 25 million program of investment to upgrade our 3 main operational facilities. We continue to invest for cost leadership and in 2022, completed further production line transfers to our Corlu facility in Turkey, which last year was responsible for manufacturing 72% of total group volume, over 8% more than in 2018. Flexibility to optimize operational efficiency across our long-established state-of-the-art steel panel radiator manufacturing facilities is driven by our standardized steel panel radiator design coming to all 3 sites. Stelrad provides market-leading product availability and customer service performance. Another key competitive advantage is Stelrad market-leading product availability, particularly during the period when distributors are seeking to reduce and minimize inventory levels. In our Mexborough and [ Herlin ] facilities, the group has the 2 largest radiator distribution centers in the U.K. and Europe with respective capacities of 350,000 and 250,000 units. These are effectively complemented by regional distribution hubs to support the additional 2 key territories of Poland and Denmark. With over 95% of U.K. orders consistently supplied On Time In Full, our customers can relay on us. On Time In Full performance in Mainland Europe has historically been around 90%, but following our recent investments is now closer to our U.K. figure. With 72% of manufactured volume coming from our lower cost Turkish facility in 2022, we invested in additional local warehousing to enable further improvements in customer service in the Turkish domestic market and across the group as a whole. Stelrad's resilient business model has enabled market share growth. Informed by clear strategic objectives, the combination of durable customer relationships, low-cost manufacturing capability and market-leading product availability has enabled Stelrad to continuously improve its market position. Since 2018, we have outperformed our peers, increasing market share by 0.7 percentage points to achieve 18.4% across the U.K., Europe and Turkey in 2021. Over the same time period, our traditional European competitors have experienced market share loss. Having made the strategic acquisition of DL Radiators in 2022, Stelrad will be in a strong position to challenge for overall market leadership in the near future. In addition, our scale and our resilient business model positions Stelrad to product from healthy long-term market fundamentals. DL Radiators provides attractive growth and synergies. Following our acquisition in July 2022, we are working to integrate the DL Radiators business into the Stelrad Group. One immediate benefit is a significant improvement in our position in Germany, a key radiator market, where we will move into the #3 position and benefit from access to the Bosch Buderus network. In support of this business, we are commissioning a new state-of-the-art steel panel production line at the Moimacco in Italy, now our lowest-cost mainland European operation. Our sales teams are working with DL Radiators to identify the best opportunities to leverage the group's strong brands and leading access to market channels. With a focus on cross-selling in core territories, notably with multi-column and electric design radiators. DL Radiators' electric radiator offer reinforces Stelrad's position for the decarbonized heating systems of the future. A significant replacement market offers growth potential in premium design radiators. Radiator market demand in Europe and the U.K. is driven by replacement, which represents 69% of steel panel radiator volume in Europe and rises to 75% in the U.K., providing insulation from new build cyclicality. The market for premium steel radiators in Western Europe is more mature than the U.K. Depending on the country, premium panel market penetration ranges between 7% and 20%. In contrast, the U.K., the largest steel panel radiator market and one in which Stelrad has over 50% market share, has premium panel penetration of just 3%. This represents a clear opportunity for profitable growth. Between 2015 and 2022, we improved our premium panel mix as a percentage of the group's total volume from 4% to 6%. We remained fully committed to continuing this positive trend developing the market by leveraging our strong brands, leading levels of product availability and unrivaled access to distribution channels. The regulatory backdrop for decarbonization remains supportive. Our business benefits from a supportive regulatory backdrop characterized by a clear road map towards decarbonization in both the EU and the U.K. The conflict in Ukraine has also heightened awareness of the energy security issues relating to fossil fuel supply, providing additional motivation to achieve net zero transition. I am conscious that there is a lot of detail on this slide, so I will leave you to read through it at your leisure. However, I want to draw your attention to 2 key points. Firstly, in the European Union, all new build construction since 2021 must be constructed to nearly zero energy standards, and there is now increased focus on build and renovation. The goal is to achieve climate neutrality by 2050, a key milestone being a 60% reduction in emissions from buildings by 2030 relative to 2015 levels. This is more ambitious than the EU's overall target to reduce net greenhouse gases by 55%. Secondly, in the U.K., the aim is to reduce net greenhouse gas emissions by over 78% by 2035. One element of this program is the boiler upgrade scheme launched last year, whilst 2025's future home standard is anticipated to mandate lower carbon heating and world-leading energy efficiency levels. With a growing portfolio of products adapted to the requirements of low and zero carbon heating systems, Stelrad is well positioned to capitalize on this transition. Stelrad is innovating to meet growing demand for low and zero carbon heating systems. To ensure that our heat emitters continue to meet our customers' needs when used in low-temperature heating systems, such as those with a heat pump as the heat source, in 2022, we continue to expand our product range and reducing further high output radiators. Leveraging our trusted position with U.K. house builders where Stelrad share is around 60%, we are working with specifiers to support the transition to air source heat pumps, combined with higher output emitters. The acquisition of DL Radiators provides further opportunities with ranges of hybrid and electric products [indiscernible] for low and zero-carbon heating systems already available in our portfolio. An R&D team comprised of Stelrad and DL Radiators engineers is now evaluating the potential of further electric radiator developments. Sustainability is increasingly at the heart of Stelrad's business model. During 2022, Stelrad developed its Fit for the Future sustainability framework, which builds on our well established ways of working and reflects our vision of the significant role that we can play in facilitating the transition to a low and zero carbon heating industry and achieving our core purpose of helping to heat homes sustainably. Taking into account our stakeholders' most material issues, Fit for the Future has 2 strategic pillars: driving better environmental performance and enabling an exceptional workforce. These strategic pillars are underpinned by our commitment to conduct business responsibly and shown strong governance, effective oversight of supply chain management and exceptional safety standards. Last year, we made sound progress. Renewable energy purchases rose from 9% in 2021 to represent 52% of 2022's total. We reduced our Scope 1 and 2 carbon emissions intensity per ton by 61%, and our Netherlands facility gained ISO energy management certification. With an ultimate goal of zero harm, we recorded 26% fewer lost time accidents in 2022. And at the end of February 2023, our U.K. site had achieved a record 942 days without a lost time accident. Summery and outlook. Stelrad's 4 key strategic objectives provide a clear direction. Our penultimate slide today is simply a reminder of what we outlined at the time of our IPO. Our strategy remains unchanged and is centered on 4 key objectives: growing market share, improving our product mix, optimizing our routes to market and positioning the group effectively for decarbonization. Our acquisition of DL Radiators was an excellent illustration of this strategy, bringing opportunities for progress in each of these areas. Together, our 4 key objectives provide us with a clear direction for the future, ensuring that we are well placed to build on what has been a strong year as a plc. In 2022, Stelrad delivered record results in a challenging macroeconomic environment. In summary, I am very pleased with our performance in 2022. These exceptional results were underpinned by Stelrad's resilient and sustainable business model. Based on our powerful brands, strong long-lasting relationships, and flexible low-cost manufacturing, supported by market-leading product availability and customer service, clear strategic objectives and a leading position of scale. The future outlook for the group is positive, as we integrate the strategically highly complementary acquisition of DL Radiators, maximize the potential for longer-term growth in the premium design radiator category and benefit from the ongoing regulatory focus on low and zero carbon heating systems. In short, our business is in excellent shape, and I'm excited about our future. Questions. I'm sure there will be many.

[Operator Instructions] I will now take our first question from Scott Cagehin from Investec.

And thank you, chaps, for the solid presentation and good set of results. And first question I had is just in terms of competitive market share. Is it fair to say that some of the key competitors, such as Purmo reducing their focus on radiators and clearly, that should present an opportunity. So if you could just talk a bit about that environment? And then secondly, how you see the mix involving through the year, i.e., premium radiators. Will they sort of return to a higher percentage? Or how do you see that playing out through the year? .

I'll take those 2, George, shall I?

Yes, fine.

I think it would be inappropriate for me to say too much on our competitor, Scott. But I think your question has quite significant strategic relevance. Our main European competitor, you're right to identify, is Purmo. And Purmo in recent years have been pursuing a strategy of diversification. Their focus on steel panel radiators has certainly reduced in recent years as they switch management's attention to new product areas, specifically their solutions business and heat pumps in particular. I wouldn't say that the competitive intensity of the marketplace has reduced significantly. But one of our key strengths is our focus in terms of our core competence, which is in the heater emitter sector. In terms of your second question, which is about premium products, again, a very key driver for future growth and profitability. Clearly, we have seen some impact of the cost of living prices impacting our customers' ability and propensity to purchase premium products in the second half of 2022. That is likely to continue in the first half of '23. But I expect as we get over the cost of living crisis for the premium panel sales radiator sales in terms of their importance to increase proportionately.

And our next question comes from Sam Cullen from Peel Hunt.

I've got 4, I think, if possible. Do you want them one at a time? Or should I leave them all at once?

Just do them all at once and then we will split them up between us?

Okay. So all at once. So the first one is kind of an extension on that on the premium panel question. In terms of -- how do you think about the desire to keep the delta between a standard panel and the premium panel that the pricing delta and the desire to increase penetration of premium. Would you close that delta kind of temporarily to drive premium panel penetration a bit further given the cost of living backdrop in terms of make them more attractive to consumers and still trying to kind of push that trend forward? That's question one. Question two is about the scale of destocking. I think, Trevor, you mentioned it in one of your slides kind of the distribution channel seeing some destocking. So if you can give some details on that. And then probably the last one is about the capacity for further deals or bolt-ons and whether vendor expectations have changed at all

Well, it was 3 questions.

I will maybe do the middle one, Trevor, if you want to do this question...

I'll do the 2. Premium panels, the question you raised is, is the marriage in reducing the price gap are improving panels, more price-competitive. I think the answer to that is that there are opportunities, but you need to be alive to the fact that what you do not want to do is to devalue your potential. Now we do operate a direct-to-the-consumer online business through our website, Stelrad Direct. And we have experimented and trialed various promotional activity, and it does have a beneficial -- it does benefit volume sales but not to the extent that I'd want to devalue the commercial policy overall. So the answer is that, tactically, we would use some discount codes in terms of our online activity, but I wouldn't wish to change the price differentials between the -- that's currently embedded in the commercial policy. Is that an adequate response?

Yes. No, that's really helpful.

Scale of destocking, George?

Yes. Well, I mean we definitely saw some destocking in the channels in 2022. I think the area we have the best information on is the U.K. largely because all the major customers actually send us the stock levels every month. So we know exactly what's happening. So in the U.K., I would say, around 100,000 units, were taking out of stock in the merchant and the distribution channel in 2022. And I would say in the U.K., particularly, that's -- it started quite early in the U.K. So we saw that throughout the year. They were very decisive and quick to make those changes, about, say, 100,000. In Europe, these changes, any destocking tended to happen in quarter 4 2022 and a little bit is continued in 2023. So whereas our U.K. market volumes are actually much better than we expected as we move into '23. In Europe, they have stayed where they were in quarter 4 largely because of destocking. And I would estimate we're only talking about 50,000 units in 2022 in Europe. So probably in total, about 150,000 units came out of stock. And there's not really much scope for it going much further. As I said, in Europe a little bit, there's an odd customer who might take a 5,000, 10,000 out of the stock, but there's -- I think we're through the worst part of that.

I think the last question was in terms of our capacity and capability to make further acquisitions. I think there's 2 points I'd like to make here. The first 1 is that in our first year as a plc, we were faced with far more challenging macroeconomic conditions than we'd anticipated. The cost of living prices, the subsequent rise in interest rates has really put a squeeze on all businesses, particularly those operating in the building product sector. In terms of the appetite, management's appetite for acquisitions, we could see this as a very attractive time and period to consider further acquisitions, but it would be a very finally balanced decision in terms of financial prudence and making a further acquisition. But the management appetite continues to be very high.

Next question comes from Clyde Lewis from Peel Hunt.

Hopefully, you can hear me loud and clear.

Yes.

I've got 2, if I may. One was on China. I'm just sort of wondering if you've actually started to see sort of a bit of a normalization in that market? And if not, when are you hoping that's going to change. And the other one was really around the building regs experience [indiscernible], particularly in the U.K. And I suppose what are the housebuilders experimenting with? Because when we talk to them, they're still not quite sure in terms of sort of what routes they're going to go down. And I'm sort of -- again, it's that heat pump with the bigger radiators versus maybe on the floor versus the other options that are out there. It'd be interesting to hear a bit about your experience when you're dealing with the bigger housebuilders.

Shall I deal the second one first, George, then you get...

Yes. And I'll get this. Fine.

You'll get the first. Build regulations are very important topic, Clyde, one that we are very close to. I think I alluded to in my presentation that we currently enjoy about 60% market share in the new build category. In terms of our relationships, we have very close relationships with all the major housebuilders. And we do provide them with a very comprehensive design service, whereby in partnership with Ideal Heating. We would provide a complete heat and plumbing design service for them, checking the responsibility of their shoulders. That design service because this is very close technical relationship with the new build guys. And I think I would probably say at this stage that 95% of the field trials that we're doing in terms of anticipation of the change in standards in 2025 involve air source heat pumps and larger steel panel radiators. People often ask me the question about underfloor heating. And we recently undertook a survey of the new build sector in terms of both designs and current practice, and underfloor heating was being considered for less than 5% of all new installations and where it was being considered, it was generally on the ground floor only. I'm aware that most of the builders are considering a vast range of low and zero carbon alternatives, not just air source heat pumps. But at this early stage, air source heat pumps seem to be the likely default system of choice for the new build sector. Is that adequate, Clyde?

Yes. Perfect.

And just regarding China, just to put into context, I mean, China is about 1% of our sales volume. So in 2021, we sold 130,000 units into China. And last year in 2022, that fell to 60,000 units. So it's not a big market for us. And yes, we would expect it to come back, but it is pretty early days since the end of the zero COVID policy. So I'm probably not close enough to it to say exactly when. I would expect that to increase, but we are expecting some increase in our budget for 2023.

There are no further questions in the phone queue. I'll hand it over to Jack for any web questions.

Thank you. As there have been a number of questions on the webcast, we'll start with those from Toby Thorrington from Equity Development. The first question is, is there any commonality in the SKUs between the different regional markets.

Shall I take that one, George?

Yes.

Despite the fact that we have tens of thousands of SKUs in a range, there is considerable commonality across the various ranges and the various geographies. We have been operating a pan-European manufacturing strategy now for over 20 years. And all of our facilities manufacture the same design of core product. We are considerable -- we are very active in terms of lead process differentiation in terms of grills, panels and design features, which are the main differentiation between our range, but we do have considerable commonality and it is a great advantage to us.

The second question from Toby is what are the mix differences in routes to market in the major countries served.

I think at the highest level, I think I alluded in my presentation that some of mainland European heating markets enjoy premium panel representation of up to 21%, whereas in the U.K., it's currently down at circa 3%. That provides a great opportunity for growth in the U.K. But even in those markets where we have high pre-panel penetration, we're seeing those markets continue to grow in '21 and 2022. Additionally, there are some markets in Europe, which are more advanced in terms of the lower temperature heating systems, decarbonization agenda. We see some markets where sales of vertical products and larger output triple products, triple-panel products have a higher penetration than others. And I've been thinking more in the context of Belgium, Holland and Germany in that respect. But all of the markets are very, very similar when taken overall.

The next couple of questions come from Andrea Collins at Davy. Have there been any surprises with the acquisition of DL Radiators either positive or negative?

George?

Yes. Well, I think DL Radiators, if I deal with a couple of negatives, a couple of positives. DL Radiators really, on the steel panel side, is heavily biased towards the German market on the steel panel product group they have. And clearly, the German market has been one of the worst affected. So when we were acquiring it in the middle of 2022, we were not anticipating the big drop in the German market. I think also we make a big play that -- in our group that we are a price leader and we are very much on the front foot in terms of applying selling price increases when we have cost pressures. I think that's not been the case for DL Radiators in the past, and that's something where you -- in terms of moving quickly to do that. They probably didn't do -- haven't done that as well as we have. On the positive side, as I mentioned in the presentation, we had committed to a new line that was due to be installed in quarter 4 2022, quarter 1, 2023. I was actually over in Italy and myself about 2 weeks ago. In that line, they're already trialing production when I was there at the end of February. So that is looking very positive in terms of being able to get that new production line up and running and decommission some of the their lines, which will give us a cost advantage.

And just a follow-up. You've also stated that Scope 1 and 2 carbon emissions intensity per tonne was reduced by 61%. How has this been achieved?

I'll answer that, George. One of the most important aspects of that was our purchase of renewable electricity across the group. As part of our investigation and take on board some of the stakeholders' material issues, we realized there was an opportunity to switch electric electricity supplies into renewable sources, and that was the key driver.

The next question comes from Charlie Campbell at Liberum. What are the opportunities to Stelrad from the changes in the structure of the U.K. plumbing and heating distribution sector?

I'll answer that one. It's a complicated question, and I think there was a great insight behind that question, but I'll try and be as concise as I can. One of the big differentiators of the U.K. plumbing and heat market as the dominance of national housebuilders and national distributors. If I look across most of the European markets that we operate in, there aren't the same dominance of national distributors and national housebuilders, which tends to determine and limit the product ranges that are stocked. Some of the major distributors, Wolseley, PTS and CPS recently, in 2021, 2022, changed ownership structures. They are now in private ownership structures supported by PE houses and I have already seen a change in approach of the management teams of those 2 businesses. We are certainly more alive to the upselling opportunity and the value creation opportunity of premium products, both in the plumbing and heating space, and I see that as a very positive tailwind to help support and promote the future sales of premium products into the U.K. marketplace.

We have a follow-up question from Toby Thorrington from Equity Development. Can you touch upon the routes to market, i.e., channels, please?

If I go back probably only 20 years, the U.K. marketplace, in particular, was doubled by national trade distributors. What we have seen in the last 15 -- 10 to 15 years is the emergence of the retail operators, the lower cost operators. Now these were led by Kingfisher. The Plumbfix, Screwfix commercial organizations I think have changed the landscape of the U.K. plumbing and heating market for distribution. And I think they have brought some fresh eyes to it. What we've seen more recently is the further development of pure online play operators, and I'm thinking now people like BestHeating and Toolstation. So I mean, 20 years ago, it was traditionally a marketplace dominant by traders and distributors. We've then seen some low-cost operators like Plumbfix, Screwfix come on the scene with net priced business models. And luckily, we've seen some pure play online operators, Toolstation and BestHeating or the 2 that come to mind. So we've seen some quite challenging developments. We in Stelrad have acknowledged the changing status of the marketplace. We have quickly adapted our business model to accommodate them, and our multi-brand strategy has allowed us to access all of these routes to market with minimal conflict.

We have a number of questions submitted by Graeme Kyle at Shore Capital. What sort of competition is Stelrad facing in the premium segment? And how does Stelrad establish its competitive advantage in this market?

I think the premium segment is probably one of the least competitive that we operate in. We -- because of our scale, we leverage our #1 position very well. We have the most competitive range of premium panel products available today in the marketplace. And tied to our scale and plus lean logistics, we're able to offer a level of customer service and On Time In Full that most of our competitors cannot compete with.

I think just to add to that, Trevor, I mean, the premium panel, you can't actually make premium panel without making -- having a steel panel plant. So that very much reduces the competition. And on the other design-type radiators, I think the acquisition of DL Rads very much helps us. There are products we previously bought in that we can now manufacture because we have the different processes with DL Rads. So I think both of these factors, they put us in a very strong competitive position.

The final question from Graeme, what is Stelrad's strategy to grow market share in Germany. And can you touch upon any specific barriers that you may face in increasing this market share?

Germany has been a challenging market for Stelrad for many, many years. We have some very loyal and long-serving customer relationships in the German market, but we haven't been able to make significant market penetration into Germany. One of the attractions of the DL Radiator acquisition was that we established a far more significant footprint in the German market and significantly increased our market presence. DL Radiators has further opportunities to extend that position in the German market, and we'll be looking to take advantage of those opportunities in the coming months and years.

I mean the DL Rads, just the acquisition should move us to about 15% market share in Germany on a full year basis.

Thank you both. As there appear to be no further questions online, I'd like to hand back for any closing remarks.

I think I'd just like to quickly summarize by thanking everyone will take the time to join us today. The first year as a plc has been a challenge for Stelrad. I'm very pleased to be able to perform -- to be reporting record results in such challenging market conditions. And as I've already said, the future for us is bright.