Stelrad Group PLC (SRAD) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to this 2023 year-end presentation for Stelrad Group PLC. My name is Trevor Harvey. I am Group CEO, and I am accompanied by Annette Borén, our Group CFO. Annette, would you like to introduce yourself?

Yes. Good morning. I'm Annette Borén, the CFO of Stelrad since 1st of November 2023. My background is most recently 10 years with Hilti as CFO and Head of Sustainability for Northern Europe; before that, as CFO and Vice President at Doro, listed on Nasdaq OMX Stockholm; and prior to that, banking and insurance experience from Skandia, Länsförsäkringar and also as a Board member at Sparbanken Öresund. And I started my career with Atlas Copco, and I'm very excited to be here.

Thanks, Annette. Today's agenda is shown on the slide. After a brief overview of our results, we will have a detailed review of the financials, followed by a business review. We will end with a summary and outlook, followed by a Q&A session. Slide 3, Slide 4. Our strong performance in 2023 is testament to the resilience and flexibility of our business model, the strength of our market positioning and the robustness of our strategy, combined with management experience of successfully navigating previous market cycles. Adjusted operating profit was fully in line with expectations despite persistent macroeconomic headwinds, and Stelrad delivered improved contribution per radiator for the sixth year running. After challenging for many years, Stelrad is now a market leader in both the steel panel radiator category and the hydronic heat emitter market in total across the combined market of Europe, the U.K. and Turkey. Achieving the #1 position further reinforces the group's long-term position of scale. During the second half of 2023, we optimized production across Western European heating facilities, with increased volumes transferred to a lower-cost facility in Çorlu, Turkey. In addition, we reduced fixed costs in Western Europe. This program of cost saving initiatives will benefit the group from 2024 onwards. In combination with our focused strategy, this positions Stelrad effectively for a sustained period of profitable growth when markets recover, with the group well placed to benefit from strong underlying replacement demand across Europe and long-term regulatory tailwinds for decarbonized, energy-efficient heating systems. Slide 5. I believe we can summarize our position by seeing that in 2023, we delivered a robust financial performance in challenging conditions. I would like -- I would now like to hand over to Annette, who will give you a more detailed analysis of our results, but I would like to highlight the unchanged dividend, reflecting our confidence in Stelrad's ongoing resilience. Annette, please.

Thank you, Trevor. Can we go to the next slide, please? And to the next slide. Thank you. So we had a very robust and resilient performance in 2023, and this performance positions the Stelrad Group well for growth when the markets start to recover. This slide highlights the trends in our key financial measures since 2019. Revenue decreased year-on-year to GBP 308.2 million in 2023, a decline of 2.6%. We reported adjusted operating profit of GBP 29.3 million in 2023, a 13.8% decline versus 2022 driven mainly by higher depreciations related to our change in functional currency in Turkey. We also show a strong cash generation, with free cash flow of GBP 17.8 million, thanks to working capital management and more normal levels of capital expenditure. Adjusted EPS was at 13.62p versus 19.11p 2022, a reduction of 5.49p due to fall in adjusted profit driven by higher depreciations and interest offset by lower tax, which I will explain on the next slide. This results in a recommendation from the Board of a total dividend for the year of 7.64p, representing a payout of 56% of EPS. And this demonstrates our commitment despite lower earning due to short-term trading headwinds to support our shareholders. If we can go to the next slide, please. Thank you. So I would like to just further clarify the bridge in operating profit and EPS between 2022 and 2023. The adjusted operating profit of GBP 29.3 million was only impacted by GBP 1 million lower EBITDA despite a volume decline of 5.2% and a 12.5% like-for-like decline, which really demonstrates the robustness of our business and how efficiently we have managed the operations and the margins. The main impact comes from additional depreciations driven by the change in functional currency in Turkey as of Jan 1, 2023, and the revaluation of the asset base there, leading to higher depreciation, something we have emphasized in previous presentations. We also have GBP 200,000 coming from amortizations on some R&D and software in Radiators SpA due to full year's charge, and Radiators SpA is the business we acquired 2022 previously referred to as DL Radiators. The main driver of the decline in adjusted EPS is coming from lower adjusted operating profit, where the main driver is increased depreciations as described above. The second biggest driver is higher interest on our loan due to market conditions. Interest charges in 2023 increased by GBP 3 million. This is then mitigated by a bit lower tax charge during 2023. Adjusting for exceptional items, this is lower by GBP 700,000. If we can go to the next slide, please, Slide 9. This slide analyzes our revenue, and it's important to put this into the relation to the 5.2% volume decline, 2023, and the like-for-like decline of 12.5% in volumes. Group sales totaled GBP 308.2 million in 2023, and that is 2.6% less than 2022 and a like-for-like decline of 12.9%. Average selling price for the group increased by GBP 1.64 per radiator supported by a selling price increase and also supported by Radiators SpA. We have a diverse geographic spread. The split is 48.4% from Europe, 45.2% from UK & Ireland and 6.4% from Turkey & International. And we're really pleased with the performance in the UK & Ireland. Despite a 4.9% volume decrease, sales is broadly flat, supported by a sales price increase. With this performance, we expect some market share gains. Europe declined 0.4% in sales, supported by the full year impact from 2023 from Radiators SpA. Volume fell 3.6% and, like-for-like, 22.7%. And we saw the toughest decline in Belgium, the Netherlands, Poland and Germany. But with the support of Radiators SpA, France is now our biggest -- is now our second biggest market after the UK & Ireland. Turkey & International declined 25.8% in sales on a small proportion impacted by lower volumes to China due to difficult conditions. And on a like-for-like basis, the decline was 30.5%. If we can go to the bank slide, please, Slide 10. Thank you. Looking in more details at sales volumes and contribution per radiator. As already mentioned, total radiator volumes reduced by 5.2% to 5.1 million radiators in a challenging macro environment. Volumes in 2023 was split 51% in the first half and 49% in the second half with further challenging market conditions in the second half. Premium panel sales decreased slightly less than total sales volumes, and we managed to keep the penetration consistent with last year at 5.6%. Contribution per radiator, which is an important KPI for us, continued to increase and showed the benefit of the price increase 2022 and 2023 as well as efficient cost and margin management across all our divisions. In 2023, we delivered a contribution per radiator of GBP 18.09, an increase of 13% versus 2022 and an impressive development since 2019, where we had a contribution per radiator of GBP 11.16. The lower sales volumes last year increased our focus on further operational efficiencies to maximize the benefit from our standardized design, our low-cost manufacturing platform and our best-in-class product availability. And we have, again, acted quickly and decisively to optimize production, and this was largely achieved by fine-tuning capacity and shifting capacity from Europe to Turkey, whilst retaining our infrastructure. If we can go to the next slide, please. This slide analyzes adjusted operating profit by geography. And adjusted operating profit by geography shows a really nice improvement in the UK & Ireland of GBP 1.8 million or 7.8% despite a challenging macro situation. And this was driven by good margin management, leading to an increase in contribution per radiator. The biggest decline in absolute terms was in Europe, a decline of GBP 4.8 million, driven by lower-than-expected profitability on the incremental sales from Radiators SpA and a shortfall in demand in our European markets, which enjoy a high proportion of premium panel sales. Turkey declined by GBP 800,000, driven by the 54% lower sales volumes to China with higher margin. Central costs increased by GBP 900,000, driven by higher bonus costs 2023, but we remain tightly focused on operational costs. If we can go to Slide 12, please. We generated GBP 17.8 million free cash flow in 2023. We had cash flow from operations of GBP 31.5 million, which gives a cash flow from operations conversion of 107.8% versus 57.9% in 2022. Free cash flow was GBP 5.1 million better than 2022, driven by better cash flow from operations by GBP 11.8 million coming from a slight reduction in working capital in 2023 compared to an outflow in 2022 linked to reduced production, also combined with lower CapEx spend. This improvement was slightly offset by the higher tax paid, especially in Turkey and also withholding tax linked to Turkey. We also paid higher interest on our loan facility compared to 2022. The exceptional items of GBP 2.5 million is related to the cost optimization activity that was undertaken in Q4 2023 to protect our financial position going forward. And finally, GBP 3.7 million was invested in a new production line in Radiators SpA that concluded in Q1 2023. And we then concluded an investment program that has continued since 2015. If we can go to the next slide, Slide 13. This slide looks at the group's net debt position. In November last year, we extended our facilities with 2 years until November 2026. We have bank facilities of approximately GBP 100 million, and by the end of the year, we had undrawn headroom of GBP 18.7 million and cash in our bank of GBP 21.4 million. Net debt, excluding finance leases, was GBP 60.4 million end of 2023 compared to GBP 68.4 million end of 2022. And the group's net leverage, therefore, improved to 1.47 from 1.62 end of 2022. And this is in line with what we said in the half year update. If we can go to the next slide, Slide 14. And turning to the financial outlook. I will leave with the following guidance. In 2024, we've not factored in any market improvements. But we anticipate a further improvement in contribution per radiator benefiting from our reorganization, but we also expect continued cost pressure. We expect some benefits from steel purchased during autumn 2023, but we see prices overall starting to go up now. I will also deal with the following technical guidance. Capital expenditure, excluding the finance leases, is expected to reduce to GBP 6.5 million in 2024, following the completion of a capital investment program from 2015 up to 2023. We expect a small investment in working capital in 2024. Leverage is expected to remain below approximately 1.5x EBITDA by -- at the end of 2024 after a seasonal increase the first half 2024. And finally, the group's effective tax rate is forecasted at approximately 29% for the next few years, driven by dividend from our Turkish entity, leading to withholding tax, and we also see a higher tax rate in the U.K. That concludes the financial update, and I now hand over to you, Trevor.

Thanks. Slide 15 and Slide 16, please. As I'm sure many of you will remember, at the heart of the group's progress are 4 strategic key objectives, which provide our strategic direction going forward: growing market share, improving product mix, optimizing routes to market and positioning effectively for decarbonization. The following slides will expand on the progress we have made driven by these objectives. Slide 17. Stelrad Group is the leading player 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, Hudevad and DL Radiators brands depending on route to market and geography. In 2022, the latest year for which data is available, Stelrad gained market leadership in steel panel radiators and in hydronic heat emitters overall for the first time in our history. Over the last 5 years, our steel panel market share has increased by 1.1 percentage points to 18.8%, whilst traditional Western European heating competitors have experienced share decline. In addition to our focus on 4 key strategic objectives, we have also concentrated on 10 core steel panel radiator markets. These markets have driven our share growth and represented over 90% of our total steel panel radiator volume. We are now #1 in 6 of those 10, with over 50% share in the U.K.; over 40% share in the Netherlands, Ireland and Denmark; and over 30% share in France and Belgium. In Poland, in 2022, we moved into the #2 position despite challenging market conditions. When 2023 share data was published, we expect to extend our leadership position, benefiting from a full year of Radiators SpA volume and the U.K. market's strong performance relative to the rest of Europe. Slide 18. Beyond our traditional core markets, such as the U.K., the Netherlands and Belgium, the group continues to gain traction and is increasing penetration of a broader geographic base. In 2022, driven by the Radiators SpA acquisition, Stelrad moved from #5 to #3 in Germany, Europe's fourth largest market. Growth of 4.1 percentage points took our overall share above 10%. And in addition to share growth, we also gained access to Bosch Buderus-branded direct-to-installer sales channel, in line with our key objective of optimizing routes to market. Following strong share gains in 2021 driven by our relationship 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, overtaking both Purmo and BDR Thermea, 2 very long-established competitors. Growth of 4.2 percentage points took Stelrad's share to 30.6% in 2022. This came from a combination of organic growth and post-acquisition volume from Radiators SpA. Slide 19. This slide shows just how far Stelrad has come in terms of product mix improvement over recent years. The group have grown design radiator volume by 264% since 2015. We define design radiators as higher added value products with higher margins than standard steel panel heat emitters. These include premium steel panel radiators, towel warmers, multi-column, decorative steel tubular and aluminum electric radiators. We have successfully grown design radiator volume every single year since 2015, clearly, driven in 2022 and 2023 by the acquisition of Radiators SpA. In 2023, design radiators represented 14% of our total volume, a 2.5 percentage points improvement versus 2022 and an increase of 9.7 percentage points since 2015. We have grown design radiator volume between 2015 and 2023 at a rate of nearly 13% each year. Over the past 2 years, macroeconomic conditions have impacted the design radiator category more significantly than the standard steel panel market. But as markets recover, we are confident that we are well positioned to benefit from the underlying long-term growth trend in this very profitable category. Slide 20. An important KPI for Stelrad is the volume mix of premium steel panel radiators, which represented 5.6% of the group's total in 2023. Due to its more diverse product portfolio, the acquisition of Radiators SpA marginally diluted premium steel panel mix of the total group volume in 2022 and 2023. However, as a percentage of all steel panel radiators sold, premium steel panel mix was 6.2% in 2023, up 0.2 percentage points versus the prior year despite challenging market conditions in some core markets. Encouragingly, this was in line with the previous peak level recorded during 2020 when the COVID-19 pandemic was driving significant home improvement spend. Steel panel radiators have a significant installed base across Europe, and the private replacement market offers important growth potential for premium steel panel products. Despite market headwinds in 2022 and 2023, premium steel panel radiator volume has grown at an average of 4.4% per annum since 2015. The market for premium steel panel radiators in Western Europe is more mature than the U.K. Depending on the country, premium panel market penetration ranges between 7% and 21%. 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%. For the group, this clearly represents an opportunity for profitable future growth. We remain fully committed to developing this market through leveraging our extensive premium steel panel range, our low-cost manufacturing facilities and our market-leading product availability. These strengths combine to provide Stelrad with sustainable competitive advantage in this product category. Slide 21. We also believe that decarbonization will provide Stelrad with profitable growth opportunities. Across Europe, hydronic heating systems have represented around 80% of the market for many years, and renovation and replacement will be key drivers of future demand. We are continuing to develop and expand our portfolio of higher heat output products suitable for lower temperature systems 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 systems of the future. In support of increasing demand, we are now producing an extended range of higher heat output vertical radiators at our low-cost Turkish facility. We also extended our range of K3 triple-panel, triple-convector radiators, which offer around 38% higher heat output than a comparably sized double-panel alternative. In 2023, U.K. market volume increased by 33% relative to the prior year and was 175% higher than in 2019. In the U.K., we introduced 900-millimeter high steel panel radiator variants. These products also offer a higher output alternative, with around a 36% increase compared to a comparably sized 600-millimeter high radiator. 900-millimeter high products are common in Mainland Europe but are little known in the U.K. market, enabling Stelrad to leverage its comprehensive Pan-European product portfolio and leading U.K. market share position. Slide 22. To ensure the group is positioned effectively, Stelrad is innovating to meet the growing demand for low- and zero-carbon heating systems. We recently introduced the Vento range of standard and premium panel low-temperature radiators, which feature additional electrical fan convection to deliver higher heat output. In addition, we are developing a new lower-temperature radiator with a key Radiators SpA customer for introduction during 2024. Stelrad launched its first U.K. range of electrical radiators in the second half of 2023, benefiting from Radiators SpA's comprehensive electric portfolio to introduce an innovative and targeted range of heat emitters into the small but growing U.K. electrical radiator market. The introduction was well received in both new build and replacement market segments, generating specification by a leading U.K. housebuilder and stocking commitments from leading electrical distributors. The electric series leverages Radiators SpA's know-how and Stelrad's strong customer relationships, positioning Stelrad effectively in a segment with significant decarbonization growth potential. Additionally, in 2024, we are preparing to launch the Stelrad Green Series, our first radiator range produced in the U.K., which uses steel manufactured with 90% lower embodied CO2 emissions. Using no plastic packaging materials further enhances the Green Series' sustainability credentials. Slide 23. Our Fit for the Future sustainability framework developed in 2022 focuses on stakeholders' material issues and is underpinned by strong governance, exceptional safety standards and effective oversight of supply chain management. In 2023, the Fit for the Future framework enabled a year of important advances on ESG issues, with a notable highlight being safety, where we achieved a 7% reduction in all incidents across the group. 24 and 25, please. I would now like to conclude today's presentation with a brief summary of Stelrad's position. In 2023, the group delivered a resilient performance, fully in line with expectations but with some notable highlights: our sixth consecutive year-on-year increase in contribution per radiator, a considerably improved product mix in design radiator, thanks to our Radiators SpA acquisition; and confirmation that Stelrad now leads the market in hydronic heat emitters. Although we expect macroeconomic headwinds to continue in 2024, the outlook for Stelrad is positive. Full year '24 trend to date is in line with our expectations, and management's considerable experience of monitoring previous challenging market cycles will enable us to navigate current conditions and deliver another robust financial performance. The group is well positioned to benefit from its 2023 cost saving initiatives, its strong competitive position of a player of scale in all key markets and its expanded product portfolio suitable for low- and zero-carbon heating systems. Over the longer-term, trends remain favorable, with strong underlying replacement demand across mature European markets providing opportunities for growth in design radiators, notably the premium steel panel products where Stelrad has sustainable competitive advantage. Legislation favoring decarbonized heating systems is the other key driver for profitable growth in the heat emitter market. I am confident that Stelrad's proven and flexible business model, coupled with a robust and focused strategy and our clear market leadership position will enable the group's profitable growth over the coming years. That's the end of today's presentation. Thanks ever so much.

[Operator Instructions]. Our first question comes from Scott Cagehin from Investec.

Can you hear me?

We can.

Congratulations on a great performance, particularly given the market backdrop. Just a couple of things from me. Contribution per radiator, if all was equal in '24 and we put in the additional cost benefits and the higher store price, where does that sort of -- where would you see the contribution per radiator trend? I understand that's completely hypothetical, but just to get a sense for the balance between pricing cost actions versus higher costs, please?

Is that a question you're comfortable answering, Annette?

Yes. Yes. I'll start. Thanks for the question, Scott. We expect contribution per radiator to continue to develop slightly up. We don't see a major increase 2024, but we still see a little bit of an uplift 2024. But we need to be mindful about cost inflation is there and we also see steel prices going up a bit, and that will have an impact on the contribution per radiator for this year.

So we can take comfort that pricing plus your actions will offset higher cost broadly. And then just second, on a recovered radiator volume scenario, I assume there'll be a bigger uplift of standard steel panel radiators. Does that create a little bit of a headwind to your contribution per radiator that the mix changes a bit? I just wondered what your thoughts were on that, please.

I'll answer that one. It's an interesting view to take, Scott, that when the markets do recover, I think we have seen possibly the headwinds impact more on our higher-valued design products. I would expect in more favorable economic times that our design and premium steel panel radiators will recover at least in line with the steel panel volumes. And you've got to bear in mind that within the steel panel category, there is a lot of specified work in that, which is it relatively reduced margins compared to the overall. So when markets recover, I wouldn't expect that this would negatively impact the contribution per radiator.

Very comforting to hear. And one last one for me. Just the competitive landscape. And it's clear that you're doing an amazing job at taking lots of market share, #1 in many countries now. I mean where does that go from here? Is it a combination of just having a better offering and Purmo being less focused on radiators? Or does Germany get to #1 market share for you? Or do you -- is there another country that you need to target? How are you thinking about that?

I think you've got to look at this on a geography-by-geography basis. In the U.K., you're aware that we are a dominant market leader. And we have levels of service that are very difficult for our competitors to replicate. In the U.K., we operate at very high on-time and full-service levels on the back of a 5-day lead time. Across Europe, lead times are longer, 14 to 21 days, and all 3 main players have good levels of service. I'm talking about Stelrad, Purmo and Arbonia. However, it's well known that Purmo and Arbonia have recently closed factories in Western Europe, which, over time, will compromise their service levels. So I mean I don't see any -- we're not complacent by any stretch of imagination. But we don't see any emerging threats that would challenge us in that respect.

Our next question comes from Aynsley Lammin from Investec.

Just 2 from me, actually. One, I appreciate a bit more color on kind of recent trading. You said it's been in line with expectations. But just your view of kind of maybe where some of the key markets are in the cycle, where you would expect to see the first signs of improvement or if anything has actually got a bit worse. And then secondly, just on the kind of pipeline, the kind of backdrop for M&A, obviously, you held the dividend, balance sheet is still very comfortable. Should we expect any kind of M&A? And what's the pipeline and your appetite looking in that context?

Okay. I'll take the first question, Aynsley, in terms of trading in 2024. Clearly, we're sitting here early in March. We do have January in detail available, and we have the initial view of February available to us. I think I would typify what we've experienced so far is some slight changes in market trends. Clearly, from our perspective, in the U.K., U.K. continues to be relatively weak on the back of new build. But hopefully, 2024, we'll see the new build sector show some signs of improvement. But more pleasingly, in several mainland European markets, and I'm talking now about Belgium, Netherlands and France, we've seen slightly more favorable trends develop after a very challenging 2023 in those markets. I mean there are some slightly more positive lead indicators, but of course, at this stage, sitting here on the 8th of March, very difficult to call out more firmly than the signs are looking slightly better. In terms of your second question about M&A activity, clearly, we are the lead consolidator in the sector at this moment in time. It's good that we've been able to reduce our leverage down to below 1.5x, and that positions us well to take advantage of any further M&A opportunities. We do have a watching brief on many of our competitors, although I would be -- it would be remiss of me not to state that I don't, at this moment time, see any M&A activity in 2024. We will be, however, far stronger in 2025 to take advantage of M&A opportunities that come our way.

And we'll take our next question from Sam Cullen from Peel Hunt.

Yes, just a couple really. Just first one, a clarification on -- you mentioned the new build trends in the U.K. Can you remind us how much of your sales go into the new build market in the U.K. firstly? And then the second one is, can you walk us through, if you did see the market worsen or not recover this year, the possible cost actions you'd take in '24?

The first question is how important is new build. New build is important in terms of reinforcing our market position within the U.K. marketplace. But in an overall volume terms, my team will correct me if I get this wrong, it's about 15% to 18% of our total volume. But it's slightly less important in financial terms because clearly, the new build margins are slightly below the group average. Anyone? Leigh, Annette, is that [ at the end of ] -- correct, is it financially?

Yes.

Yes. The second part of your question is -- Sam, can you just clarify your second question again?

Just in terms of if we didn't see the market recover or we saw it drop off further, what sort of cost actions could the group take?

Well, the actions that we took in 2023 were to rightsize the business to the level that we saw the market towards the end of 2023. Those actions appear to be appropriate to the market that we see in 2024. So I don't, at this stage, see any further market weakness, and I don't, therefore, see any further need to take any further cost actions. The actions that we took in 2023 did not reduce the overall potential capacity of the group. And if and -- not if, but when markets recover, which -- let's hope they do recover and we see signs of that in 2024, then the actions that will be required by management will be simply actions to bring some more blue collar workers into our Turkish facility, which is not a difficult thing to do. So we're well positioned for a market recovery. There is no further capital investment or requirements to upscale our production volumes. We maintained our production capability whilst achieving a restructure in 2023.

[Operator Instructions] Our next question comes from Andrea Collins from Davy.

Hopefully, you can hear me okay, and congratulations on the results this morning. Just 2 questions for me, if that's okay. The first question, I know you've kind of touched on steel costs into 2024. But just in terms of other cost pressures, would you see any kind of pressure coming from the labor side? I guess most increasingly interested in R&D spend, and would you expect to see any kind of higher R&D costs moving into 2024, [ just as ] your products becoming a lot more innovative? And then my second question then is on that H1-H2 split. So this year, I think you guys have said generally that the trend is a higher sales in H2. Would you expect that kind of return to, I guess, kind of historical norms this year? Or is it still a bit, I guess, early in the year to give an answer? That would be great.

Can you answer those questions, Annette?

Yes. I'll start with the second one, Andrea. So the plan this year, we actually expect it to turn around. So 2023, we saw 51% of the sales in the first half and 49% in the second half. And we expect to shift. So we expect the first half to be 49% and the second half, 51%, which we think is a more normal pattern for us even though both 2022 and 2023 was a little bit the opposite. And the first question around cost pressure. I mean the cost pressure that we see is general inflation, labor inflation and the steel prices as well. We still benefit a bit from steel purchased during autumn 2023, but prices, we see that starting to go up already now. When it comes to R&D and investments in general, we expect that to stabilize around GBP 6.5 million per year now. That's the CapEx in general. So no major R&D expenditure right now.

And since there are currently no further questions in the phone queue, I'd like to hand the call back over to [ Rachel ] for any webcast questions. Apologies, I have a follow-up question from Scott Cagehin from Investec.

Just a follow-up. I've got cut off a little bit there. If you've answered this already, I apologize. But at the current operating footprint you have, what capacity -- do you have capacity to meet what you see as recovered volume? So you could deal with volumes getting back to historical peaks and beyond, and the only incremental cost is putting in, I imagine, additional workers or the variable costs, please.

Okay, Scott, I'll answer that. In the past, Scott, you will be aware that we have sold slightly in excess of 6 million radiators per annum. Last year, we sold just over 5.1 million, including half year contribution from our Radiators SpA acquisition. In terms of the asset base, we have maintained the overall potential capability of the asset base. The asset base as currently configured is capable of well in excess of 7 million units per annum. Now that, you're absolutely correct to state is -- would require only the addition of some blue collar workers across the group, mainly in Turkey. But of course, we have 4 manufacturing facilities. All were optimized for cost during the restructure in 2023. And they all have additional volume capability when the markets recover. So we're in a very, very good and favorable position for when these markets do recover.

That's great to hear. And just one very quick last question. In terms of where you do sell through merchants or distributors, any comments on stock levels? Are they down to bare bones where you're seeing more sort of just-in-time orders? Or do you have any stock to unwind? Anything that's different, anything that we should be thinking about, please?

Well, I mean, I think as you are aware, we do get stock data from our merchants in the U.K. on a monthly basis. What analysis suggests that whilst there has, in previous years, been some significant movements in stock levels, both up and down during 2023, stock levels were relatively consistent. Merchants during 2023 did manage their stocks in a very responsible way. Evidence from Mainland Europe across our Mainland European customers would suggest a similar story, and I don't anticipate any significant market disruption due to merchant stock movements in '24.

And now we have no further questions in the phone queue. With this, I'd like to hand the call back over to Rachel for any web questions. Over to you, [ Rachel ].

We have a few web questions. The first webcast question comes from Toby Thorrington from Equity Development. His first question is around supply chain. Have there been any changes in the last 6 months?

I think the answer to that is that clearly, we are a significant purchaser of steel. We do purchase some of our steel from the Far East, and we have seen some disruption to deliveries where shipments from the Far East have been delayed by typically 8 to 10 days. Whilst these disruptions are unwelcome, clearly, it hasn't caused us any operational difficulties or challenges. But other than steel and logistics in terms of from the Far East, we have no other supply chain challenges at this moment in time.

Thank you. Toby's next question is surrounding steel prices. What is the prevailing cost today versus FY '23 average? And does Stelrad cover forward?

I think I'll ask Annette and Leigh to work out what the averages are today compared to last year's average. But in terms of steel, I think most people on this call will recognize our position in relation to steel. We see steel volatility as more of an opportunity than a threat. We have 3 months notice of steel price increases coming into the business. We would typically hold 1 to 1.5 months of stock in raw materials. We'd also have some finished goods stock. So we have plenty of time to implement market price increases before the cost pressure hits us. In terms of steel, we would always lead the market in terms of we will be very quick to recognize cost increases coming through the supply pipeline. And as I say, we see steel volatility because of our business model as being more of an opportunity than a threat. In terms of current prices, current prices have been a little bit volatile. And the recent announcement of the closure of Port Talbot has introduced an additional level of uncertainty. It doesn't concern us greatly. We have extensive steel contacts with a vast range of steel manufacturers. So I mean I don't anticipate any problems in supply chain terms, but price has been more volatile recently than we were anticipating. Can Annette or Leigh tell me what the current average price is compared to last year's average?

Thank you very much. Just had a look at that. We -- and last year, we bought on average -- we're probably about 3% or 4% up on what we bought -- buying steel at the moment on what we bought steel for an average during '23 in our Western European side. Currently, I think we're below what we bought steel for in '23 in Turkey, but we enjoyed a favorable price recovery in Turkey versus last year.

Does that answer the questions?

Great. That's perfect. Toby's last question is surrounding U.K. volumes. LFL volumes appear to have improved in H2. Is that due to the electric radiator launch and/or other market share gains?

Well, electric radiator launch was launched in September 2023, been very, very well received. As I mentioned in the presentation, we have gained a specification from one of our new build customers, and we have gained stocking commitments from some leading distributors. The volumes, however, in 2023 were very, very modest, very, very small, more hundreds -- more in the hundreds than the thousands. The introduction of a new product range takes a long time for that product to get launched in the marketplace, specified and for those specifications to result in firm orders. I wouldn't anticipate any significant electric radiator volumes until the second half of 2024. And even then, they'll be very modest compared to the steel panel market, which is the dominant product category. In terms of improvements in the second half, I would ask Annette and Leigh to comment on that, please.

I think in terms of the second half, I think all markets actually were better like-for-like than they were in half 1 and U.K. with a modest improvement on half 1 in the second half.

Right. Thank you very much. The next few questions come from [ Charlie Campbell ] from Stifel. His first question is, how much of the increased contribution per radiator in 2023 was mixed in, i.e., more premium? And how much was the underlying improvement?

That's a very complex question. Can Leigh and Annette give some insight?

Leigh, are you okay to take that question?

Okay. I mean I think Annette said earlier on that the premium panel penetration was broadly flat in the year. I think it was up -- I think it was 5.6% versus 5.6% in the prior year. So with respect to contribution, there's not really been much benefit from there. With product mix, obviously, there's a little bit in terms of the design and [ rads ] coming through from [ Rads SpA ], and they enjoy slightly higher margins. But I think the majority of the increased contribution per radiator was a factor of good cost management and good price management and not benefiting from mix. So we feel that there's obviously, as Trevor mentioned earlier, a potential upside from that in the future as we kind of see -- continue the agenda of pushing premium panel into the marketplace.

Thank you. And [ Charlie's ] next question is, how do you see customer inventory levels? Did they destock at any point in 2023?

I think I sort of answered that question a few minutes ago. I mean, just to recap, in previous years, we have seen merchant stocking activity slightly disrupt markets. That was -- there was no evidence of that in 2023. We do get the data from our main U.K. merchants that confirm that there hasn't been any material change in their stock levels. They have been managing their stocks in a very responsible way. And all the evidence that we have from Mainland Europe suggests that our customers in Mainland Europe also behave very responsibly without any significant stock increase or decreases disrupting any sales patterns.

Great. Thank you for that. And the final question from the webcast is from [ Charlie ] again, saying, should we think that 2025 CapEx would be similar to the 2024 guidance?

A question for you, Annette.

Yes. Yes, we can assume that.

Thank you very much. In that case, I will hand over to Trevor for any closing remarks.

Thanks so much. Well, I think what I'd like to say in terms of closing comments are that despite challenging market conditions in 2023, Stelrad delivered a robust financial performance, reinforcing the strength and resilience of our business. Whilst the macroeconomic backdrop is likely to remain challenging in 2024, we have taken action to ensure that Stelrad is well positioned for another successful year and to benefit from the longer-term market recovery. Our market-leading position, resilient business model and clear focused strategy gives me confidence in Stelrad's future in 2024 and beyond.