Stelrad Group PLC ($SRAD)

Good morning, all. I'm Lee Wilcox, the Stelrad Group CFO; Trevor Harvey, our CEO, unfortunately, can't join us on the call today and send his apologies as he's recovering at home from a minor medical procedure. Rest assured, he's very much on the road to recovery and is in good spirits, and he's told me quite clearly not stand for any nonsense. The format of today's presentation is consistent with previous years. I'll do a brief overview of our results, we'll have a detailed review of Stelrad financial performance, followed by a business review. Following the summary and outlook, we'll then move into a Q&A session. I'd like to begin with a brief overview of the group and our performance over the last year. This slide will be familiar to you all, but it always bears repeating that we're Europe's market-leading radiator manufacturer and Europe's #1 steel panel radiator brand, serving over 500 customers across 40 countries. We hold the #1 position in both the hydronic heat emitter market overall and the steel panel radiator market in particular, with shares of 15.7% and 24.2%, respectively. And our growth to date has been driven by a clear strategic focus on the 10 core European markets where we operate via our 5 strong brands of Stelrad, Henrad, Termo Teknik, DL Radiators and Hudevad. I'm pleased to confirm that we continue to make good progress, despite ongoing challenges in the wider marketplace. During the year, we have continued to optimize the efficiency of our manufacturing base, allowing us to further increase our operating profit in a period of continuing market challenges. With our core KPI, contribution per radiator grew for the eighth consecutive year to GBP 20.50, close to our medium-term target of GBP 21. And we did this whilst maintaining our best-in-class customer service with an on-time delivery rate of 98% in the U.K. The penultimate point here is one I'll return to later to explore in more detail, which is that we remain the market leader in 6 of our 10 core territories with a top 3 position in 3 of the remaining 4, providing a solid platform for future market share growth. Lastly, we also saw continued progress in our strategies to drive the adoption of higher-margin value-added product ranges of designer and higher heat output radiators with a record level of premium panel steel mix of 6.4%. I'll now run through the group financial performance for the year. We start the financial review with our snapshot, with the overriding message here of strong progress across our KPIs despite the decline in revenue. Revenue declined by 3.8% in the year, led by a 4.3% reduction in sales volumes with ongoing macroeconomic uncertainty continuing to suppress both RMI and new build activity. There was more market stability in the second half, particularly in the U.K., which had a weak half 1, and there were some favorable year-on-year trends in core European geographies. These positive market trends were assisted by some price and mix benefits at revenue level, but offset by weak French DIY market in half 2. Despite the decline in revenue, adjusted operating profit has increased by GBP 1 million or 3% to GBP 32.5 million, and adjusted operating profit margin has increased by 0.8 percentage points to 11.6%. Return on capital employed improved by 3 percentage points to 30.1%. Operating cash flow conversion was favorable year-on-year despite investments made in working capital through our U.K. price realignment as the business effectively controlled working capital. Supported by an improvement in profitability and operating cash flow control, we saw an improvement in our leverage ratio, which has started to move towards the bottom end of our announced range. The dividend with strong cash flows in the year, the Board has reflected further on our progressive dividend policy and proposes to increase the final dividend by 5% from prior year, which again reflects balance sheet strength and confidence in the group's future growth prospects and cash generation potential. Following on from this overview, we will now explore our performance in more granularity. We now look through some of our group level KPIs before moving on to segmental level performance. As noted earlier, revenue year-on-year reduced by 3.8%, which is an improvement on half 1, which was down 4.6% year-on-year. The decline in revenue was largely market-driven with a 4.3% decrease in sales volume during the year, partially offset by selling price benefits. Selling prices continues to benefit from a positive U.K. radiator size trend in addition to an increase in the mix of premium panel products in the period and selling price increases applied. Supported by strong operational performance despite unhelpful market conditions, the group has delivered adjusted operating profit growth of GBP 1 million or 3% with operating profit rising to GBP 32.5 million with a 0.8 percentage point increase in margin. The key elements offsetting the adverse volume impact include favorable material prices with steel prices lower year-on-year, an increase in the average size of radiators sold in the U.K., strong premium panel mix, the early benefits of restructuring activities and structural currency benefits. The structural currency benefits arise from the way the group has structured its Turkish operations with again a factor of the devaluation of the Turkish lira against the euro, which will further benefit the cost base of our Turkish operations in the future. Adjusted earnings per share increased marginally with the increase in operating profit, partially offset by an increase in the group's effective tax rate. And the final chart shows proposed 2025 total dividend of 8.09p, representing a 3.9% increase. This chart shows we have maintained and lastly increased dividends despite the earnings reduction in 2022. A detailed income statement, which highlights the movement in interest and tax is included in the appendices. Continuing that KPIs. On this slide, we examine the volume and premium panel mix trends in more detail. In respect to volumes, we can see the 4.3% reduction year-on-year with high interest rates and inflation continuing to suppress both RMI and new build activity. Positively, the group has achieved year-on-year volume increases in Belgium, Poland, France and the Netherlands, supported by market trends and our sustainable competitive advantages. These favorable trends were offset by weaker market performance in the U.K., Italy, Sweden and the Baltics, although, as noted before, the U.K. market showed a more year-on-year stability in half 2. The group premium panel mix as a percentage of steel panel radiators increased by 0.1 percentage points in the year to 6.4%, despite a subdued market environment. The group continues to promote the sale of premium panel products into all of its markets, recognizing the additional margin that these products generate and has made tangible progress in its U.K. strategy in the year. We expect further progress in premium panel volumes as the markets recover. Supported by mix, price management and proactive cost initiatives, contribution per radiator grew by 1.7% to GBP 20.50 in the period. Our contribution margin provides the group with a very strong operating leverage that will drive profitability improvement as market recover, with more benefits expected in 2026 on the back of commercial and cost initiatives undertaken in 2025. Now we turn to revenue by operating segment. Despite a 6.9% decline in sales volumes, U.K. and Ireland revenue only fell by 4.4%. For the third successive year, the segment has benefited from an increase in the average size in terms of heat output for each radiator sold, which along with inflationary selling price increases helped to partially offset the volume decline. Within Europe, sales volume declined by 3.4% with a volume improvement in Belgium, France, Netherlands and Poland, offset by adverse volumes in Sweden, Italy and the Baltics. Sales in Turkey were strong, supported by market recovery. On this slide, we provided a bridge of the group's adjusted operating profit, given an overview of the key movements in the year. The bridge highlights the adverse impact of a 206,000 unit reduction in sales volumes, but more importantly, to how the volume effect has been more than offset by the strategic push for higher-margin premium panel radiators and cost management actions in the year. We believe that the improvements in the group profitability are now well embedded in a stronger per radiator contribution, leaving us well positioned for market recovery. Now we look at segmental adjusted operating profit. In U.K. and Ireland, profit increased by GBP 0.4 million with the benefit of increased average radiator size, favorable selling and material prices, structural currency benefits and gains from group structuring more than offsetting the decline in sales volume. Operating profit in Europe has fallen by GBP 0.6 million with a net volume decline and adverse product mix, partially offset by the positive impact of group restructuring and structural currency benefits. As noted during our interim results, the performance of Radiators SpA within the Europe segment has been impacted by the weakness of German and French markets in acquisition, which has led to a noncash impairment being recognized in the year. The group continues to focus on improving the margin of Radiators SpA sales with the exit from a significant loss-making contract at the end of 2025, providing renewed opportunity to focus business efforts on the product ranges, which are unique to Radiators SpA. We will cover the impairment and more importantly, the opportunity in more detail later on. Turkey and international operating profit grew by GBP 0.2 million with favorable volumes supported by restructuring initiatives. The central costs are reduced due to one-off consultancy costs related to the appraisal of premium panel strategies that were incurred in 2024. Moving to the cash flow statement and the group leverage position. Despite the cost of restructuring and the working capital impact of the proactive U.K. price realignment that erode in the period, there's been a strong increase in both operating cash flows and free cash flows. This is aided by strong working capital management and reduced capital expenditure. There's been an increase in tax payments as the group's U.K. business become cash tax paying in the period at fully utilizing historical tax losses. Interest payments have benefited from interest rate reductions and a lower debt position. Aided by strong free cash flow, leverage based on net debt before lease liabilities has fallen to 1.16x EBITDA, which is a strong improvement in the prior year, and we expect a further reduction in 2026. This slide gives further background on the exceptional items that have been recognized in the income statement during the period. Of the GBP 14.9 million, GBP 12.6 million are noncash impairment charges, predominantly related to the Radiators SpA business. In the table, the first 4 lines related to Radiators SpA business and specifically related to the impairment of goodwill of GBP 2.7 million, the impairment of customer relationships of GBP 1.4 million, the impairment of property, plant and equipment of GBP 5.8 million and a provision against inventory of GBP 2.3 million. As communicated at the time of our interim results, the Radiators SpA business has been exposed to declining market volumes in France and Germany since the acquisition in July 2022, resulting in deteriorating operating margins despite active fixed cost management. Since the acquisition, the business has also been impacted by a significant low-margin and laterally loss-making contract, the supplier of steel panel radiators, which has contributed to suppressed European operating margins. Negotiating during 2025 to reset the pricing in this contract were unsuccessful and in line with the group's focus on commercial discipline, decisive action was taken to terminate all supply under this contract effective at the end of 2025. Whilst the exit from this loss-making contract will negatively impact future revenue and volumes, it will result in improved contribution and the opportunity to reduce fixed costs. The exit from the contract presents an increased opportunity to focus attention on the electrical and designer product ranges, which are unique to this division and with a key strategic rationale for acquiring the business. The refocused business will be underpinned by a rationalized product profile that will provide greater operational efficiency. The remaining exceptional items of GBP 2.7 million, of which GBP 2.3 million will incur cash outflow are related to proactive margin management and cost reduction activities across our sites in Turkey, Denmark and Italy. The activities will reduce fixed costs across the group and also further improve our variable cost position as we have made manufacturing efficiency gains. There will be some benefits of the restructuring in 2025, but most will materialize in 2026 and beyond. Then we look at some of the key financial areas. The taxation, the effective tax rate increased year-on-year to 34% due to an increase -- a 5% increase on the withholding tax charges applied on dividends we received from Turkey and also the country mix of profits in the year. As noted previously, tax payments have increased as U.K. tax losses have now been fully utilized. For dividends, as mentioned in the overview, we reiterate our intention to increase our final dividend by 5%, in line with progressive dividend policy. Return on capital employed has increased by 3 percentage points to 30.1%. Measures benefited from the increased operating profit and the impairment recognized, but partially offset by the higher GBP value of European assets due to the weakening of the pound at the end of the year. And finally, the group credit facilities, we highlight our 2 facilities, which total GBP 100 million have now been extended with our existing banking partners, which includes a margin benefit over the previous facility. And at year-end, we have generous headroom on both the facility and cash. I now provide some technical guidance for use in analyst modeling. Steel prices are expected to rise in 2026, albeit from a historical low level. We currently expect other key input prices to remain stable, but we remain mindful of current global events and their potential to impact on pricing. Capital expenditure is expected to rise due to periodic investment in our Turkey facility and in U.K. IT infrastructure. And leverage based on net debt before lease liabilities is expected to fall further, providing investment optionality. Now we turn to our business review. The first slide outlines all the constituent parts that mean our business is well positioned for sustainable, profitable growth via our stated strategy. We have an attractive market opportunity with positive market dynamics and a significant installed base. I will note on this slide that in line with our market share disclosure, we have adjusted the market option statistics to trip out the Russian and Belarusian markets for obvious reasons. The 3 key structural growth drivers, replacement market recovery, increasing premiumization and the drive for decarbonization will ultimately drive volumes, improve our product mix and margin, thereby enabling above-market growth. And we have 3 sustainable competitive advantages that put us in a particularly strong position to benefit from these structural growth drivers. Firstly, the flexibility of our low-cost manufacturing facilities and processes; secondly, our leading levels of customer service and product availability; and finally, our market-leading competitive position. Our strategic objectives remain the same since our IPO and continue to provide focus and direction to the business. And taken together, the group's market opportunity, structural growth drivers and competitive advantages underpinned by a robust strategy translating into a set of ambitious medium-term targets, which deliver clear stakeholder value. We unveiled these to the market at our Capital Markets event in 2024, and they remain as outlined here on the slide. And as I'll outline more detail later on, the group is making good progress towards these medium-term targets. On this page, I wanted to spend a moment to talk about how our long-term focus on the 10 core markets where we operate and deliver significant share growth. Since 2019, we have grown share in 9 of the 10 core markets with double-digit growth in 6 of these markets, but we still believe there's plenty more growth to go for. The table shows how our market share percentage in this market and how this has moved since 2019. In some of the markets where our market share is higher, such as the U.K., Belgium, the Netherlands and Denmark, there's clearly less room to maneuver when it comes to market share gains. But we see particular opportunity in the markets where we have a #2 or #3 position and low market share relative to that we enjoy elsewhere. Markets such as Germany, Poland and Sweden have particularly attractive fundamentals given the solid platform we've already established in these countries for future targeted profitable market share growth. It's in markets such as these that we are particularly well placed to benefit from a market recovery given our ability to leverage our manufacturing capacity, coupled with our competitive advantages to make organic share gains. I'd now like to give some examples of our progress in 2025 towards improving our product mix by increasing premiumization. We continue to drive the adoption of premium and designer ranges and made good progress here through the continued execution of our strategy of leveraging Stelrad's trade strengths, optimizing distribution channels and boosting Stelrad consumer appeal. As a result, we remain confident in the opportunity that premiumization poses for us. And while volumes have been impacted by some of the headwinds we've already talked about for the last 2 years, our designer mix has remained broadly stable at 14.3% during this period. The premium mix of total steel panel volumes actually reached a record level of 6.4% during the period, with growth supported by gain in the Netherlands, Belgium and Germany. And when markets do recover, premiumization brings with it a clear opportunity to deliver increasing profitability given the higher margin these products command. As we've discussed before, a key pillar of our long-term growth strategy is ensuring our product portfolio is fully aligned with the accelerating shift towards decarbonized heating systems across Europe. Our approach here is very deliberate and focused, focused on key 3 levers, promoting higher output radiators, developing hybrid system for low -- solution for high-temperature systems and expanding electric heating ranges in our core markets. In the developing U.K. low-carbon heating market, we've seen strong uptake in the high output solutions like our K3 vertical and High 900 radiators with volumes in these ranges having grown by 128% in 2022. Electric heating is also becoming an increasing part of our product mix in the U.K. following the introduction of electric ranges into our portfolio in 2023. Since then, volumes have increased by 208%, a clear sign that electrification is an important and fast-growing part of the heating landscape. On the right, you can clearly see the acceleration of decarbonize aligned product ranges in the U.K. and the trend here underlines the key point. The shift to decarbonized heating systems isn't something that we're waiting for. It's already showing up in our volumes. And as the market continues to transition, we are well positioned to capture a disproportionate share of that growth. The final business review slide recapped our progress to date against the medium-term targets that we announced at our November 2024 Capital Markets event. Market share to date is stable, though it is important to note that a weak U.K. market where we are a significant market leader has diluted our progress elsewhere, and we remain active in looking at other opportunities. Contribution per radiator has made strong progress towards GBP 21 without significant upside from premiumization, which will give us further upside in the future. Operating profit margins have increased from 9.5% in 2023 to 11.6% in the year despite market volumes falling further since the targets were set, which is strong progress with the action taken in the year expected to give further gains in the future. Operating cash flow conversion is now in excess of the target, and we expect this to be sustainable above 90%. Similarly, we have now exceeded our return on capital employed target, and we expect this to measure to improve further with profitability growth. As we noted at our Capital Markets event, the enhancement of the operating margin in our medium-term targets is due to the impact of management actions and does not depend on market recovery. Since 2019, due to challenging macroeconomic conditions, steel panel radiator market volumes have fallen by over 25%. Market recovery and enhanced contribution per radiator levels will provide additional profit upside beyond that given by our strategic growth drivers. I'd now like to bring today's presentation to conclusion before we move on to the Q&A session. What's really important here is momentum. Even in a difficult market, we've strengthened the core of the business and underpinned our position as market leader, thanks to our relentless focus on operational excellence, which is evidenced by the further gains we've made in our contribution per radiator metric. We're getting more value out of every product we sell, which reflects smart commercial decisions, disciplined execution and a clearer focus on higher-margin ranges. The result of all of this is that we are well positioned for future growth. While we've all welcome a wider market recovery, as outlined on the earlier market share slide, we have a fast-tier platform to deliver market share gains regardless of this, particularly in those markets where we are top 3, but with an opportunity to kick on, become market leader. Alongside this, we continue to execute against our strategic priorities to drive the adoption of premium and higher output radiators. Our sales teams are executing well, making sure customers understand the performance benefits of these products, helping ensure that we're front of mind with any upgrade or replacement. This is a mix shift we're driving deliberately, and it's already showing up in our numbers. Trading so far this year is steady and exactly where we expect it to be. End markets are stable but subdued, and we aren't expecting any change in this for at least the first half of 2026. We're operating with discipline, and we're ready to flex as soon as demand starts to move. So in summary, we're not banking on a recovery in the market. We're focused on driving growth ourselves. But when the market does come back, we're positioned to capture share quickly and profitably. With that, I'll hand over to questions.

[Operator Instructions] Our very first question today is coming from Aynsley Lammin of Investec.

Just 3 for me, actually. First, just to confirm on the kind of -- obviously, you've done lots of restructuring last year. I'm just thinking about the kind of benefits, how that flows through to this year. If we assume a flat market and price covering cost, it's right to assume, therefore, that you'll still get some benefit from some of those cost savings flowing through and would expect profits to be up on the back of that first question? Second question, just if you could remind us your kind of visibility if steel prices go up and you obviously got the macro risk around energy prices feeding into that, your visibility of being able to -- and ability to pass that on into the market? And then the third question, obviously, deleveraging quite quickly. It gives you more scope for capital allocation and optionality. But just interested in your points around that kind of maybe drive a little bit more organic investment and growth in some of those markets where you're not market leader. Exactly what would that involve? Is it just more investment in working cap, pushing the kind of routes to market? How would you go about that?

Okay. Thanks, Aynsley. I think I got those down, I try and cover in turn. Yes. So I think the restructuring is something we're pleased about. It means we enter into this year despite kind of ongoing uncertainty with kind of what we think is our kind of a control of ability to drive growth. I think the bids we did last year was commercial decisions we've made, in particular, on contracts with key customers in Germany and also a bit of a different approach to our Turkish market. But that commercial discipline will bring with it more profitability independent of market volumes. So that's really positive. And the restructuring initiatives we've undertaken in Denmark and Turkey means that we've got lower fixed costs and higher efficiency in our manufacturing platform. So yes, ultimately, we'd love to see some more market volume, but we're confident of market growth in profits irrespective of that market situation. In terms of steel prices, we've got very good visibility in steel prices. We get monthly metrics that show where our steel price is going, and we probably have 3- or 4-months visibility before it actually hits us. We've got protection in terms of index-linked mechanisms, obviously, steel stocks and finished goods stocks, which we have more than ample time to make sure we reflect any cost increase into our selling prices. It's something as a business; we're very well versed in dealing with. The current steel prices at GBP 600 a tonne are significantly lower than they were back in '21, '22 when they were up GBP 1,200, GBP 1,300 a tonne. And in those -- when prices have increased before, we've been able to get price increases in a very orderly fashion to the market. And finally, for deleveraging, I think we have more optionality. I think from a group perspective, we've looked to support investors in the first instance with higher dividends, and that's why we increased our dividend by 5% above the normal 2%, which we've done in the last few periods. But then it's very much a focus on what we can do. From a -- we think there's other opportunities out there in the market. We've got the capacity to utilize that within the existing business -- we've got capacity we can utilize in the existing business to take advantage of those opportunities. So very much it's going to be an organic approach to sensible investment using some of that spare capital to -- across key strategic geographies. It's something we're working on, but it's an opportunity we're excited about.

Next question will be coming from Greg Poulton calling from Singer Capital Markets.

Just 3 for me, please. On the margin target of 13%, it looks like that's sort of on the horizon already in the numbers without assuming material market recovery. So just where do you think that margin could get to in the case of a market recovery? Could we get 15%? Or is that a bit punchy? It'd be good to get your thoughts on that. And then in terms of growing market share in Poland, Germany and Sweden, can you talk a bit about the strategy there with regards to how fragmented is the market? Are there any dominant players in the market? How do you expect to enter that market or build out in those markets, sorry? And then lastly, I know [indiscernible] asked about the balance sheet deleveraging and you're talking about an organic approach at this stage, but would you ever consider sort of M&A to broaden out in those markets? And are there any obvious targets against that?

Thanks, Greg. Yes, the margin is difficult to put me on the spot about calling a margin target. But yes, I agree. We're kind of moving very quickly towards that 13%. I think the good thing about the progress to date is that since we set the target, actual markets have gone backwards in terms of volume. So we're still making good progress despite that. In terms of the opportunity, it depends on the mix of recovery, depends on where things grow when it grows. So there is an element of kind of -- it's difficult to call it exactly. But what I will say is we're pretty confident in our contribution per radiator measure at GBP 21. And that's a 33% kind of gross margin figure. So good drop-through into the bottom line. So any growth with market recovery at 33% will give a significant operating profit benefit in the future. And we believe that the business is well invested in terms of fixed cost and infrastructure that all we need to grow is additional variable labor. So we're pretty happy with that metric, and we think there's opportunities, particularly with market recovery for that to grow further. In terms of those markets, I think what we call out Poland, Sweden and Germany is that we already have a reasonable presence in those markets. So it's not -- we're not a new entrant, but not -- it's not [indiscernible] we're starting from scratch. So it's very much developing what we have organically. Now what '25 has taught us is we made a low-cost base asset even lower in terms of that restructuring of Turkey. So we're even more confident in our kind of competitive advantages. So it gives us the opportunity to build. Those markets have traditionally been dominated by our competitors. But I think with changing strategies over time and our focus on delivering what we do well in terms of core radiator market, I think potentially -- we think there's potential opportunity to take advantage. And in terms of M&A, we very much view opportunities still out there in terms of the steel panel radiator market. We've got the capacity to do it. So in terms of organic share gains, we think we're very well placed to take them. M&A, especially in adjacencies is something we still consider, but probably be a slightly lower focus in the minute than the organic route but on the table, nonetheless.

We now go to Sam Cullen of Peel Hunt.

I've got 2. I think you sold 4.6 million rads last year. How should we think about capacity utilization in that context? Is that -- I think you alluded to broadly a 75% figure in some of your comments. Is that correct? Or do we need to think about bits of capacity coming out given the restructuring and the contracts you've essentially walked away from? That's the first question. And then the second one is back to the marginal contribution per radiator. Is there scope to move that figure up in the future? Or would in the event of a market recovery, do you think the mix would work against [indiscernible] in that front and you do more with lower contribution rads as markets recovered?

Yes. So in terms of 4.6 million radiators, the capacity across the group is well set. We've got sufficient capacity. I mean I think what we don't want to do is take capacity out. We're very keen to make sure we're well set for the future and that take capacity out now would harm the ability to take advantage of any recovery. And we've got -- we want to make sure we have sufficient capacity to do that. But what we have done, and we've done this in '23, we've done that to an extent during the last year is to really refine that capacity and make sure that it's operating efficiently. And that's the benefit of a standardized production platform across all of our facilities. We've made sure that when volumes have been down, our U.K., our Western European facilities have produced less, optimize their fixed cost, and we've really kind of utilized that Turkey asset. That's something we'll continue to do. And that basically gives us ultimate flexibility to go up or down as the market demands it. But the key thing for us now is that we think there's opportunity with market recovery, with ongoing share growth, and we want to make sure we've got the capacity to take advantage of that. In terms of contribution per radiator, I think we expect what we did in '25 commercially and operationally to improve that measure further. So exiting a loss-making contract by nature will improve contribution per radiator, focusing on more profitable Turkey business will improve contribution per radiator and having a more efficient manufacturing facility improved contribution per radiator. Your point is valid. What -- it's a form of a market recovery will distort that number in a balanced market recovery, across new build, RMI geographies, different geographies, we'd expect that to be sustainable. We think we've worked very hard to make sure that's embedded with the sustainable measures, whether that's low-cost Turkey or a good mix of products. But obviously, to caveat that, if new build to reach very high levels, which obviously is in some doubt, then that could have a dilution on that number, but we still grow profits all the same.

Our next question will be coming from Toby Thorrington of Equity Development.

I've just got a couple of questions left, I think. First of all, on the Rads SpA contract exit. Could you just confirm in volume terms broadly what that is or was? Did that contribute to the sort of volume reduction '25 over '24? I'm just trying to get a feel for what the impact will be in '26 as well. So that's the first sort of little bundle. And the second question is good performance on working capital, particularly inventory. I think I know there's probably a seasonal element to that as well, and you didn't call it out as being unusual. But could you just confirm the sort of working capital movement or working capital at the end of the year was sort of normal expected positions or nothing unusual in that?

Yes. Okay. Thanks, Toby. Yes, in terms of Rads SpA, there may be a modest impact in '25, but not significant. We'd expect most of that volume value bridge to come through '25 to '26. In terms of the quantum, it's probably about EUR 13 million to EUR 14 million and around 175,000 rads. So when we're looking at volumes and sales values for '26, there will be a negative impact on volume and sales value, probably a bit of market share in Germany as well. But for us, the positive thing is on a contribution on a gross margin basis, we'll have an improvement as a result of exiting that contract. In terms of working capital, yes, you are right, there is a seasonal element to working capital from half year to the full year. But year-on-year, we don't expect that. Generally, December is our low sales month. So we do have a reduction in debtors in December. I think from my point of view, there is no real one-off in the working capital. In terms of there will be some natural timing differences, but there's nothing to call out that's unusual, just good working capital management and active working capital management across the business. I think when you look towards '26, could there be some reversals, possibly slightly due to timing differences, but nothing significant.

Sure. Okay. Just a quick supplementary on the Rads one. Did you say that, that volume was relevant to the German market?

Yes. Germany.

Okay. Yes. Okay. Sorry, an additional one, I think I missed it in the presentation. But what's your tax guidance for -- tax rate guidance, I should say, for FY '26, please?

Yes. On an adjusted basis, we said 34%.

As we have no further audio questions, I turn the call over to Christina to take questions submitted through the web. Thank you.

Thank you, George. Our first question comes from Rob Chantry at Berenberg. Could you highlight any specific freight, cost of goods sold or energy price risk you have been focusing on since the start of the Middle East conflict?

I mean, obviously, the key one for us, when you look at the kind of cost of sales that we have across the business, raw materials probably make up 50% of our cost of sales. So obviously, steel is something we're very focused on. Obviously, distribution, probably 6% of our cost of sale and energy, relatively modest at 2.5% to 3% of our cost of sales. So we focus on a lot, but predominantly steel. But as we've covered before, I think with Amy's question, we've got good visibility on that, a good relationship with our suppliers, which means we're kind of very well focused and we have opportunities to pass on to our customers. For energy, I think actually across our U.K. and Europe and Western European facilities, we've got reasonably strong hedges in place on those energy for the next year or so. So that kind of gives some protection on that one. But as I say, that's relatively modest. I think from a point of view of steel is the key one we've been looking at.

Thank you. And another question from Rob. Can you run through a bit more detail on market share potential in those areas where you don't currently hold market-leading positions, for example, Germany, France or Poland?

Yes. So I mean, in terms of those positions, we've enjoyed across the U.K., for example, where across the market where we're #1, we have a very strong position. So U.K., we're 50%; France, 33%; Belgium, 43%; Netherlands, 49%. And when you look across Poland, Sweden and Germany, whilst we have double-digit market share, it's nowhere near. And I think if you look at the market leader in those countries, they do have probably closer to kind of 35% plus, which gives some opportunities. And the marketplace is still kind of very much fragmented and our kind of single focus on steel panel radiators with a low-cost base, I think, puts us in a very strong position.

Thank you. Final question from Rob. Could you comment on the shape of the M&A pipeline even if not actionable short term?

I think from our point of view, we've got to a position now when we've got some optionality. Again, as we've said before, I think kind of organic growth is probably the key focus and possibly investing in some further infrastructure to support that. M&A pipeline is something we're looking at. It would -- to us, we want to make sure we're focused and let's say, kind of aligned to our existing kind of platform. So it would be kind of very much kind of adjacent products and closely aligned products that would fit well with our existing routes to market.

Thank you. Our next question is from Flor O'Donoghue at Davy. What is the current outlook for new build and RMI markets?

I think when we looked at '26, obviously, things changed. So apologies we probably out of day. When we look at '26, we looked at kind of new build being 4% to 5%, I think, on the year, possibly but more second half loaded and RMI recovering slightly 1.5%, again, second half loaded. So that was what we were focused on, which is modest in the context of profitable impact with new build generally being less lucrative in the margin. So it's very pleasing for us that we've got those natural kind of drivers to kind of grow profits independent of market performance.

Thank you. And the next one from Florence is, would you mind reminding us how you define what a premium radiator is?

So premium radiator for us will be one that is decorative in style. So you almost have to design a radiator, which will be things like the column radiator or a tow warmer or electrical radiator. For the premium radiator is a standard radiator that has an aesthetic feature. So either a flat facia on the front, a designer facia, it will be possibly a colored radiator where standard radiator has been -- had a unique color applied to it other than white, obviously, or a vertical radiator.

Okay. Thank you.

The key differential there is one that adds significantly more margin than a standard radiator.

Thank you very much. And our final question from the webcast is from Charlie Campbell at Stifel. Is the warm home plan a significant opportunity in the U.K.? And how are the activities levels on the public housing side in the U.K.?

This is where I could do with Trevor in the room. But I think from my kind of -- my read in the warm home standard is that around kind of regulations on kind of decarbonized heating, et cetera. I think ultimately, what we benefit from with changing heating systems is that kind of lower temperature systems involve -- it require more surface area from radiators, which gives an opportunity to sell bigger radiators into existing kind of -- into the kind of housing market, which ultimately is a higher-margin product for us. And we've focused our product ranges to take advantage of this in terms of having higher, deeper, wider radiators plus electrical and hybrid radiators. So kind of any government development is something that effectively will change the dynamic of our product portfolio and one we're well placed to take advantage of.

Thank you very much. As there are no further questions on the webcast, I'd like to hand back to you, Lee, for closing remarks.

Okay. Thank you all for joining. I look forward to speaking to you all in the future. Obviously, Trevor will be back with us, no doubt in the not-too-distant future. Thank you very much.