Stelrad Group PLC (SRAD) Earnings Call Transcript & Summary

Good morning, and welcome to this presentation by Stelrad Group PLC. Today, we will be covering the interim results for the period to the 30th of June 2023. My name is Trevor Harvey. I'm the Group CEO; and I'm joined today by George Letham, our Group CFO. Our agenda is shown there on the left of the slide. We will commence with a quick overview, moving into a more detailed financial review, a business review and in with a similar outlook and an opportunity for Q&A. In the face of challenging market conditions, Stelrad Group performed strongly in the first half of 2023. Stelrad delivered record first half revenue this year, benefiting from additional sales from the DL Radiators business acquisition in July last year. Although on a like-for-like basis, revenue decreased relative to a strong comparative period in 2022. Encouragingly, the group delivered increased contribution per radiator in the first 6 months of the year, driven by a combination of prudent cost management, coupled with further optimization of our operational facilities. As a result of our first year -- first half performance, we are confident that we will achieve full year consensus expectations and were recommended an interim dividend of 2.92p per share. Despite the short-term macroeconomic challenges, Stelrad remains well positioned. The group has market leadership in European steel panel radiators, and operates from a position of scale and geographical diversity in the wider heat emitter market. In addition, decarbonization trends and continuing concerns around energy security will drive increased market demand for more energy-efficient treatment solutions for the benefit of Stelrad Group over the longer term.

Good morning. I'm George Letham, the CFO of Stelrad. I'm today pleased to be presenting results for the group in line with consensus expectations despite challenging market conditions in many of our markets. Revenue was 6.2% higher than in the same period in 2022, but declined by 12.7% on a like-for-like basis, excluding the impact of the acquisition of DL Radiators. Sales volumes in the first half of 2023 decreased by 3.2% compared to prior year, but like-for-like were 15.7% lower against a very strong first half comparative in 2022. Over 10% improvement in contribution per radiator was generated by proactive margin management and operational improvements. Adjusted operating profit of GBP 14 million was GBP 5 million lower than prior year, with lower sales volumes and significantly increased depreciation charges. These impacts were only partially mitigated by price and cost benefits. Leverage at June 2023 was 1.76x EBITDA, with working capital at a seasonal high point during the summer months prior to the heating season in the autumn. The Board is recommending holding the internal dividend at the same level as last of 2.92p per share. If we now look at the more detail with sales volumes and contribution per radiator, the total radiator volumes reduced 3.2% to 2.6% to 2 million radiators against a very strong comparative in 2022, with like-for-like sales volumes 15.7% lower. Premium panel sales volumes 154,000 units mirrored overall market trends, with penetration levels of premium panel slightly up on prior year. Now this was achieved despite several European countries with the highest premium panel penetration levels recording the most significant market volume declines. Contribution per radiator continued to increase and showed the full year benefit of selling price increases applied in 2022 to recover increasing steel and energy costs and ongoing operational improvements. So the group continues to benefit from operational efficiencies derived from our standardized design low-cost and flexible manufacturing platform and best-in-class product availability and customer service. This slide analyzes our revenue figures. So group sales totaled GBP 157 million in the first half of 2023, with a diverse geographic spread. The split is 49% Europe, 45% U.K. and Ireland and 6% Turkey and other. The 6.2% revenue growth in the first half of 2023 includes sales from our Italian subsidiary, DL Radiators, acquired in July 2022. Now the 6.2% growth in the first half '23 revenue is analyzed by territory on the slide. Europe was up 20.3%, U.K. and Ireland down 0.7% and Turkey and International down 23.5%. But like-for-like revenue in Europe declined by 22.1%, excluding the impact of DL Radiators. Sales volumes in most Western and European countries were more severely impacted by the challenging market conditions than U.K. sales volumes. The market share data for 2023 is not yet available, but based on our own reliable internal information, we're confident that we will have gained further share in the U.K., France, Germany and Italy. This slide analyzes adjusted operating profit, which was delivered in line with expectations. Group adjusted operating profit of GBP 14 million was GBP 5 million lower than prior year, with a 15.7% decrease in like-for-like sales volumes due to weaker market conditions, a significant GBP 2.2 million increase in depreciation charges. Contribution per radiator improved across all territories due to selling price increases and operational improvements. Lower sales volumes adversely affected the fixed cost and depreciation cost absorption, resulting in operating margin decreasing from 12.9% to 8.9%. Looking at adjusted operating profit by geography. It shows the U.K. and Ireland operating profit decreased by 7% to GBP 11.5 million. Europe operating profit decreased by 35% to GBP 4.9 million and Turkey and International operating profit decreased by about 65% to GBP 0.7 million, with further significant reductions in sales volumes to China. Central costs increased by GBP 0.3 million as a result of inflation. Now turning to look at the group's strong cash generation. Adjusted free cash flow for the period was GBP 3.4 million compared to an outflow of GBP 3.6 million in the first half of 2022. The GBP 7 million improvement in free cash flow was largely due to management actions of working capital to mitigate the seasonal high point. Our capacity reconfiguration has facilitated more stable inventory management prior to the commencement of the traditional heating season in the autumn. Higher interest and tax payments have partially offset the working capital improvement, with increased interest rates and withholding tax on dividends remitted from Turkey. This slide looks at the group's stable net debt position. Despite the seasonal working capital demands, net debt, excluding finance leases, was GBP 70.4 million at June 2023 compared to GBP 68.4 million in December 2022. Half year, the group had cash of GBP 20.6 million and undrawn available facilities of GBP 9.3 million. And the group's net leverage increased to 1.76x EBITDA at June 2023 compared to 1.62x EBITDA at December 2022. Turning to the financial outlook. I'll give the following technical guidance. Sales volumes are anticipated to remain subdued in the remainder of 2023 in both new build and renovation sectors. We anticipate a further improvement in contribution per radiator benefiting from lower steel and energy costs. And leverage is expected to reduce below 1.5x EBITDA by the end of '23 after the seasonal increase in half 1 2023. The group effective tax rate is forecast around 23% for '23 that will rise to 25% from 2024 onwards due to withholding tax and dividends from our Turkey subsidiary. The group intends to maintain the 2023 dividend at 2022 levels, reflecting the Board's confidence in its long-term strategy and financial position.

Thanks for that, George. Can we now move on to business review? Underpinning the group's progress to date are the 4 key objectives providing our strategic direction: growing market share; improving product mix; optimizing routes to market; and positioning effectively for decarbonization. I shared the strategic approach with you previously, I wanted to update you on the progress that we are making. In terms of growing market share, I'm proud to say that the 2022 data recently published by BRG Building Solutions shows that Stelrad gained European market leadership and steel panel radiators for the first time in our history. Over the last 3 years, our share has risen from 16.3% to 18.5%, an increase of 2.2 percentage points growth, unmatched by any of the other top 5 players. Although we would have been #1 in 2022 even without the additional volume gained through DL Radiators, the acquisition has placed us in a -- into a clear leadership position with a stronger, more diverse footprint in terms of geography and routes to market. Only 1 other player demonstrated share growth over the same period, with our traditional Western European competitors experiencing year-on-year share decline. We continue to leverage our strong brands, long-established relationships and low-cost operations to build on this position into 2023 and beyond. Beyond our traditional core markets such as the U.K., the Netherlands, Belgium and Ireland, the group continues to gain traction and increased penetration of a broader geographic base. In BRG's recently published data for 2022, Stelrad moved from #5 to #3 position in Germany, Europe's fourth largest steel panel radiator market, growth of 4.1 percentage points took our overall market share above 10%, and we anticipate further gains in 2023 as the group realizes the full year benefit of the DL Radiators acquisition. In addition to share growth, we also gained access to [indiscernible] direct-to-installer model, fully in line with our objective of optimizing routes to market. Following strong share gains in 2021, driven by our development business with leading European distributor, Saint-Gobain, Stelrad further consolidated its Swedish #2 position in 2022 with an additional 2.7 percentage points organic growth delivering 22.5% market share overall. In France, we gained market leadership over taking 2 long-established Western European competitors, growth of 4.2 percentage points from 2021 took Stelrad's 2022 share to 30.6%. This came from a combination of organic growth and post-acquisition [ DL Radiators ] volume. As in Germany, access to the French market benefited from the integration of DL Radiators' routes to market. In this case, a more retail-oriented customer base. Another key strategic objective for the group is to increase the proportion of higher added value products sold. I'm pleased to report that despite the challenging economic climate, Stelrad successfully improved product mix in the first half of 2023, with all indicators shown positive year-on-year progress since 2021. Looking firstly, our premium steel panel radiator mix as a percent of Stelrad's total volume, this reached 5.9% in the first half of 2023, a 0.4 percentage point increase since 2021 and an increase of 0.2 percentage points compared to the same period last year. When considered a percentage of all steel panel radiator volume, premium steel panel mix rose to 6.4% in 2023, a 0.7 percentage points improvement since 2021 and representing a growth of 0.5 percentage points compared to 2022. Combining treatment steel panel and all other higher added-value design radiators, the 2023 mix of total volume was 14.3%. This represents an increase of 5.8 percentage points over the last 2 years and an increase of 5.6% versus 2022. These gains were driven primarily by the strategic acquisition of DL Radiators, which, as expected, has provided the group with a more design-oriented product portfolio and access to a wider range of distribution channels. Stelrad's market-leading levels of product availability and customer service continue to drive our competitive advantage, particularly in the current economic climate as distributors review and adapt their inventory management policies. Our customers benefit from having access for the largest distribution centers in both the U.K. and Mainland Europe, supported by regional distribution hubs in Poland and Denmark and by the group's recent investment, an additional warehousing capability at our low-cost Turkish facility. This also enables us to further optimize our operational efficiency. When we last spoke 6 months ago, on time and full delivery in the U.K. was 95%. Since then, it has risen to an even more impressive 98%. Stelrad has now also introduced a 48-hour delivery option as an additional cost for premium steel panels and other design radiators. This gives both distributors and consumers improved access to Stelrad's significant stocks of these higher added value products. To ensure the group is positioned effectively for decarbonization, Stelrad is innovate to meet the growing demand for products compatible with low and zero heating system -- zero carbon heating systems. We are continuing to develop and expand our portfolio of higher heat output products and are leveraging our long-standing position of credibility and influence with specifiers to deliver mutually beneficial solutions for the low and zero-carbon heating system in the future. We have extended our range of K3 triple panel, triple convector radiators, a further 900-millimeter high steel panel radiator variance. In support of increasing demand, we are now producing higher heat output vertical radiators at our lower-cost Turkish facility. We have also introduced the ventral range of standard and premium steel panel radiators with an additional electrical convection to deliver higher output from lower-temperature systems. In the second half of 2023, Stelrad will launch its first range of electrical red ease. This will be an innovative range of 64 heater meters, including towel warmers, aluminum and other design radiators targeting a market segment with clear opportunities for future growth. Stelrad's prelaunch activity in the second quarter of this year was well received by specifiers and distributors in both new build and replacement mortgage segments. As a result, we have been able to secure initial specifications by a leading house builder and have received strong commitments from leading electrical distributors. Extending Stelrad brand into new channels was possible due to our ability to leverage Stelrad's strong brand and long-established customer relationships in combination with DL Radiator's know-how in electrical radiators. As a result, the group has positioned effectively for growth in a segment with significant long-term potential driven by decarbonization trend. As I outlined earlier, Stelrad's strategy is unchanged. And our 4 key strategic objectives of growing market share, improving product mix, optimizing routes to market and positioning effectively for decarbonization continue to provide the business with clear direction. Stelrad's full year outlook remains unchanged and we are confident in our growth plans for the long term. In the first half of 2023, we delivered a robust performance despite the challenging macroeconomic conditions benefiting from our resilient business model, monument experience and navigating previous market downturns and a favorable business -- geographic business mix. Stelrad adopted quickly and effectively to these challenges, taken proactive steps to manage margin, engaged on a cost reduction program and continuing to optimize the benefits of our flexible and low-cost operations. Looking beyond the current climate, the group remains well positioned for growth once market conditions improve. With the integration of DL Radiators providing clear market share and revenue growth and the support of legislation driving a long-term trend for decarbonized heating systems. In summary, regardless of the near-term headwinds facing the wider sector, the continued resilience of our business model, coupled with an increasing need for energy-efficient heating, underpins our confidence in our ability to drive shareholder value over the longer term. Thanks, everyone. There's now an opportunity I think for questions.

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

Great H1 [ moat on ] given the backdrop and circumstances. Just have a few questions, please. Interested to hear a little bit more about the electrical radiators, where you see that going over the next few years? I know no one has a crystal ball, but just how you're thinking about that internally and what customers have said already? Second question is a little bit more sort of detail on the market out performance and market share gains. If you can just give us a few more anecdotes there, that would be fantastic. And 1 for George. Just -- what you're doing in particular for that impressive working capital management and how you see that playing out through the second half and into next year.

I'll answer the first question, George.

Yes, sure.

I think in terms of the electric range, this clearly is an addition to our traditional portfolio and was possible by the DL Radiators acquisition in July last year. Now we have clearly analyzed the market opportunities that exist within our existing businesses, and the U.K. offers us the most significant opportunity in the short term. We are -- we have selected a range of 64 products from the existing long range, which we have prelaunched in the U.K. in quarter 2. These have been extremely well received. We have already secured a specification with 1 of the top 4 national house builders in the U.K. for these products, and we will see initial sales of these products into the new build sector in the second half of this year, notwithstanding the back of the new build sector has its own challenges in the short and medium term. But in addition to that, we have been in discussions with the leading electrical distributors in the U.K., and we have secured a strong commitment from 1 of the largest U.K. electrical distributors in the U.K., which is a really positive step for Stelrad going forward. Now clearly, beyond the U.K., there are further opportunities geographically. But we'll see some traction develop in the second half of this year, and we'll then roll out the -- a similar strategy in other geography -- geographies where Stelrad is strong.

Will I jump in Trevor, deal with the working capital management and then you can talk about the market outperformance. So the working capital management improvement largely relates to inventory management. Historically, we've had to build stocks in the summer months to be able to hit the demand of the heating season, with the heating season generally runs September, October, November, when sales volumes tick up quite significantly. But in the last couple of years, we've introduced 2 new lines into Turkey, and we've also invested in the warehousing facilities in Turkey, and we're now in a position where we actually can manufacture products when required to meet the demand. So we don't need to build the stocks in the summer months. So it's a whole reconfiguration of our manufacturing platform and the warehousing and distribution facilities. So we're able to do that. And as Trevor pointed out, our onetime infill delivery has never been higher. It's an extremely high level. So we're able to do that. And -- so I really don't think our stocks will fluctuate that much throughout the year. So they're fairly stable. They have been like that probably since the back end of last year, and we think we can just hold them at that level. So we won't have the uptick in the future that we have because of inventories in the half year.

In terms of market share gain, Scott, you will see that we have benefited significantly from the acquisition of DL Radiators but notwithstanding the DL Radiators benefit to the group. We have made organic gains in most of the markets that we operate in. I think you're aware that we are a market leader in 6 of the main markets around Europe. And we are continuing to grow our market share by following a very clear strategic path, offering very high levels of customer service, and very -- plus leading levels of delivery performance. These are significant barriers to entry and are difficult for our competitors to match.

I think the market share data, Scott, largely only comes out once a year, which is in the middle of the year. That's why we just reported back in '22. So we don't have authoritative data for '23 yet. But clearly, we see our competitors reporting their results. We speak to our customers a lot, and they tell us what's happening in the market. And we think there's no doubt in several of the main markets, our volumes are outperforming the market.

We'll now take our next question from Andrea Collins from Davy.

Trevor, George, hopefully, you can both hear me.

Yes.

Yes.

Great. So just congratulations on strong set of results this morning. Just 3 questions, if that's okay. So just in terms of maintaining your [ actual ] volume in premium radiators, I mean, they're pretty much in line with H1 last year. Was there any sort of company initiatives used to support this? So do you have an increased marketing spend? Or were there any discounts given to customers? The second 1 then is on the new electrical products in the U.K. I guess I'm wondering what sort of premium can be achieved on these sales? And then in terms of house builders satisfaction, would you expect other house builders to follow? And I guess, how many of these being used in-house are they replacing? Your kind of normal steel panel radiators? Or are they kind of incremental radiator sales? And then my third question, if that's okay, is in terms of your sales through the retail market. Would you have any idea of how much retail sales are now contributing to overall sales?

The first question, George, was about premium panel sales?

Yes. I mean, I think that -- I don't think there's any specific initiatives in the last 6 months of premium panel. All of that was sorry -- it's really a continuation of all the things we have been doing. So particularly around [Audio gap] It's just an initiative, which has been going on for several years now. We've got our brand specialist sales force, which are focused on increasing that. But that's something we've had in place. So it really is just more of the same, rather than any new initiatives, unless you can think of any, Trevor. I guess more on the online sales and the brand specialists through the merchants that are focused on improving premium panel. So it's a tick up, Trevor showed the figures on slide, which the slide was -- which shows from 5.7% to 5.9%. But I think you could be concerned in -- with cost-of-living crisis and might have impacted it negatively. But generally, it has followed the wider market trends. As I said, probably because Western Europe, for instance, Belgium, the penetration is 20%, 25%. And that's one of the markets that's been heaviest hit by the [indiscernible] economic crisis. So that -- we follow the market down there. But -- so that has a disproportionate impact. So to grow our penetration against that backdrop, I think, is something we're quite proud of.

I think we [indiscernible], Andrea, that we changed our commercial policy as long ago as 2015, and we introduced a good-better-best approach to promote our products. And that policy has been developed on a year-on-year basis with increasing success. So this is a journey we've been on for a few years now. And our focus on premium panels will continue. I think you hinted at the cost of living prices clearly has -- had some impact. Well it's very pleased and despite the high interest rate and high inflation that we're now faced with across Europe, that we're still able to increase our penetration of these premium products. Moving on to the electric range. I think your questions were all around what was the premium and what was the specification. Now, when we launched this product range or when we planned the launch of this product range in the first half of this year, our product management team done an extensive market benchmark and exercise. And we have priced our products, as you would expect, competitively compared to the long-established existing players that are in the marketplace, particularly in the U.K. But despite your price in these products at a competitive level, these products will be value enhanced and they will enhance our contribution and the contribution per product that we anticipate from these is significantly higher than we currently enjoy from the vast range of our standard steel panel radiators. The last question, what was retail market sales? Do you want to comment on that?

And the REIT -- well, there's probably 2 elements for us was retail. There's a consumer sales through online, which you're probably better person to comment on, Trevor. But the other one, the retail sales, the acquisition of DL Radiators has really given us significant access to the retail channels, particularly in places like France and Italy. It's largely through the DIY through some -- the major players in the DIY market. And again, we're using the De’Longhi brand on that product in France. And that's very -- it's very important, this -- the De’Longhi brand is much -- is more seen as a retail brand. And so the sales into DIY in France, have certainly increased significantly.

And we'll now take our next question from Edward Prest from Liberum.

I guess the first 1 -- my first question relation to volumes. What sort of potential volumes do you expect to see when given the post the DL acquisition, when volumes do recover, how high can you go? And secondly, would you -- I mean, you'd obviously expect operating margin to improve, but how high would you expect that to go, especially with the increased contribution per radiator?

Well, we're really, I guess, talking about longer-term targets here as when things recover. We're not making any predictions as to how quickly things will recover. But we -- I mean prior to De’Longhi, we were selling -- prior to the acquisition, we were selling about 6 million radiators a year, and De’Longhi would have added about 1 million radiators to that. So that's starting. But clearly, we expect volumes are going to be probably down at 5.2 million this year. So -- the -- I would imagine when the markets recover, we'll certainly be getting back up in excess of 6 million radiators per year. And operating margin, we've always regarded of 15 -- I was thinking the EBITDA here, EBITDA margin or an EBIT margin. But certainly, we'd be talking about sort of margins in excess of 12%, operating profit margins in excess of 12% when things get back to normal.

There are no further questions in phone queue, I will hand the call back over to Daniel for any web questions.

Thank you. Good morning. Sam Cullen from Peel Hunt has 2 questions. What do you think is driving premium panel adoption? Is it coming from your own marketing or showroom adoption in the distribution channel? Or is it broadly based on increases across geographies? Or are there 1 or 2 regions seeing much more rapid growth? And the second is on pricing. How will you manage pricing going forward? Is there scope for any price deflation?

Well, we kind of have answered the first question already regarding sort of premium panel. The premium panel has probably suffered a little bit in the Western European markets where there's high penetration. I don't think there's any markets where there's been a sea change. The U.K. did improve its penetration in the first half of the year, but it's still relatively modest numbers. U.K. is running about 3%, and it's ticked up a bit. Some of the major markets like in Western Europe, a 20%, 15% sort of penetration levels. They've maintained those levels, but on much lower volumes. So it is really the continuation, I think, of our own marketing efforts, as we discussed, partly the online sales, which largely focus on premium panel radiators. But also the selling effort we're putting in with our brand specialists. Another factor that will help us there, we recently introduced a hybrid line in Turkey in 2022, which makes vertical radiators. So we'll actually now have a better cost position on vertical radiators, which we can use if we see fit. Pricing, I mean, I think the 1 thing to say about pricing, it's -- the change in pricing aren't as dramatic as we've seen in '21 and '22. So the uplift we see in pricing in this year, in the first half, is probably largely related to the full year impact of '22. We have actually put further increases in selected markets in '23, but we have rolled back on a couple of these. Clearly, steel costs are an interesting dynamic. So having had a number of years of rising steel costs this year, we actually started with steel costs falling in the first quarter, but then they rose again in the second quarter, and now they appear to be falling again. I think we've managed to resist price pressure very -- right through the last 18 months, but it has been a little bit more pressure recently. But on the back of falling steel costs and falling energy costs, we may have to give a little bit back on the pricing.

Thank you. The next 2 questions come from Clyde Lewis at Peel Hunt. Could you please talk a little bit about how you see costs evolving through H2 into 2024? And are there -- are your major competitors doing anything to try and recoup their lost market shares?

I'll take the first part, Trevor, and you can maybe talk about the competitors. I just kind of refer to in answering Sam's question there. We are -- at the moment, we are anticipating in the second half of the year, steel costs and energy costs falling. Clearly, we -- labor costs were something which rose probably in the first half of the year with inflation being at higher levels than we expected, albeit in Turkey, which is our main labor market, the devaluation of the Turkish lira completely offsets the high inflationary wage increases we're giving there. And the main thing we've been doing in cost is just reconfiguring. We've got quite a lot of operational agility in terms of our own manufacturing footprint. So we are trying to make sure that we manufacture -- we move products around to get the lowest-cost manufacturer. So we think costs will actually probably overall trend downwards in the next -- in the short term because of steel and energy, which are the main contributors to that. And you want to talk about what the competitors are doing, Trevor?

Yes, of course. Everyone will be aware that we have 2 quite major competitors who have bought themselves PLCs. And the question is, is there any increased competitive intensity because of the reductions in market sizes? I think the 2 comments I'd make here is that when you actually look at our major competitors' current behavior and actions, they tend to be very internally focused. 4 of 2 major PLC competitors are currently trying to very quickly rightsize their businesses. They don't enjoy the flexible operational footprint that Stelrad enjoys, neither do either of them enjoy the cost leadership that Stelrad enjoys. So I'm very pleased to advise that we haven't seen a significant increase in competitive activity, as our major competitors tend to be internally focused on trying to sort out their business model.

Thank you. Next question comes from Toby Thorrington at Equity Development. He has a couple. The first 1 is on DL Radiators. Are all revenues reported under Europe? Did it make a profit contribution in H1 '23? And what operational actions have been taken since acquisition?

What was -- what was the third one? Could you repeat the third question?

Sorry. So this is with regard to DL Radiators, what operational actions have been taken since the acquisition?

The first question, George, was, are all the revenues...

Probably the best answer that, no, they're not. They have a small amount in the U.K. and a small amount in Turkey and other. It's relative obviously, 90% to 95% are in Europe and -- but a small amount in the U.K. and a small amount in Turkey and International.

The second question George, was the business profitable in H1 '23?

That's a yes.

[indiscernible] one, George. I'm not an accountant. The third one was, which operational actions have been taken? Well, I'll answer this one. I mean there has been a considerable amount of activity in terms of operations. Within Stelrad, we have a well-established methodology in terms of ensuring best-in-class performance for all of our operations. De’Longhi has been embraced in that process. We have taken firm action to control costs in De’Longhi. There has been some reductions in terms of headcount. We've also -- De’Longhi have also benefited from sharing some of our procurement advantages. And we will see that De’Longhi business restructured during -- ended 2023, early 2024 to make it more efficient.

And secondly, from Toby on gross margins. Good to see an uplift in H1 '23. Was this a function of input price recovery or mix? And what is a reasonable medium-term gross margin percentage target for the business now?

George?

Okay. Well, gross margin, slightly different definition to what we tend to refer the contribution per radiator, which is slightly different with the production overheads. So let me just -- which is what we tend to use as an internal benchmark. Let me just look at where you're picking up the gross margin figure 4 from, because it is -- there's 3 elements to prove what's is contribution on gross margin. There's 3 elements to it. It is a recovery of input costs. We have had steel price and energy price inflation, and we've put price increases to cover them. We are now seeing them start to trend down. So as they trend down, we hold on to our selling prices, we're getting that benefit. The second part of it is the reconfiguration of our manufacturing footprint, which we did a lot of work around about the summer, autumn last year in terms of reducing the number of crews in our U.K. and our new factory and utilizing the 2 new lines we put into Turkey. So we have migrated some production volume from Western Europe to Eastern Europe, which also helps us. I mean, I think the contribution levels and the gross margin levels that we're seeing just now, I think they're probably as high as they have been. And although in the short term, I expect them to get even higher, I think we are probably approaching the peak of those margins, and we really -- it's the volume recovery when it comes, will be what we'll improve the result. We're always striving to improve it. But I think the strength we've made in the last 3 years in terms of improving gross margins and contributions is -- can't go on indefinitely. And I think we are getting towards the peak of that.

Thank you. That's all the questions from the webcast. So Trevor, I'll hand back to you for closing remarks.

I'd just like to restate. I mean, we've had a challenging first half. We have actually performed strongly. We've delivered in line with our expectations. And we remain very confident that we will deliver the full year result in line with the current consensus.