Stelrad Group H2 2025 Earnings Call Transcript

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Provided by Quartr
March 13, 2026

Key Takeaways

  • Positive Sentiment: Adjusted operating profit rose 3% to £32.5m and margin improved 0.8ppt to 11.6%, while contribution per radiator increased to £20.50, showing operational leverage despite weaker volumes.
  • Negative Sentiment: Revenue fell 3.8% and sales volumes were down 4.3% as high interest rates and inflation suppressed RMI and new‑build activity, and management expects subdued end‑markets into at least H1 2026.
  • Neutral Sentiment: The group recognised £14.9m of exceptional items (≈£12.6m impairments) mainly at DL Radiators S.p.A. and will exit a low‑margin contract (c.175k radiators, ~€13–14m revenue), which reduces near‑term volumes but is intended to improve future margins and focus the business on higher‑value ranges.
  • Positive Sentiment: Net debt/EBITDA fell to 1.16x, operating and free cash flow strengthened, and the board proposed a 5% increase in the final dividend, giving the group greater capital allocation optionality.
  • Positive Sentiment: Product premiumization and decarbonization trends are accelerating—premium panel mix hit a record 6.4% and electric/high‑output radiator volumes have grown materially—positioning Stelrad to capture higher‑margin, long‑term demand.
AI Generated. May Contain Errors.
Earnings Conference Call
Stelrad Group H2 2025
00:00 / 00:00

Transcript Sections

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Leigh Wilcox
CFO at Stelrad Group

Good morning, all. I'm Leigh Wilcox, the Stelrad Group CFO. Trevor Harvey, our CEO, unfortunately, can't join us on the call today and sends 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 he's in good spirits and he's told me quite clearly not to stand for any nonsense. The format of today's presentation is consistent with previous years. After a brief overview of our results, we'll have a detailed review of Stelrad's 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.

Leigh Wilcox
CFO at Stelrad Group

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 number one steel panel radiator brand, serving over 500 customers across 40 countries. We hold the number one 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. Our growth to date has been driven by a clear strategic focus on the 10 core European markets where we operate by our five strong brands of Stelrad, Henrad, Termo Teknik, DL Radiators and Hudevad. I'm pleased to confirm that we have continued to make good progress despite ongoing challenges in the wider marketplace.

Leigh Wilcox
CFO at Stelrad Group

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 growing for the eighth consecutive year to GBP 20.50, close to our medium-term target of GBP 21. 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 six of our 10 core territories, with a top three position in three of the remaining four, providing a solid platform for future market share growth.

Leigh Wilcox
CFO at Stelrad Group

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 a 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 one and there were some favorable year-on-year trends in core European geographies.

Leigh Wilcox
CFO at Stelrad Group

These positive market trends were assisted by some price and mix benefit at revenue level but offset by a weak French DIY market in half two. 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.

Leigh Wilcox
CFO at Stelrad Group

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 one, which was down 4%, 4.6% year-on-year. The decline in revenue is largely market driven, with a 4.3% decrease in sales volume during the year, partially offset by selling price benefits.

Leigh Wilcox
CFO at Stelrad Group

Selling prices continued 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 radiator sold in the U.K., strong premium panel mix, the early benefits of restructuring activities and structural currency benefits.

Leigh Wilcox
CFO at Stelrad Group

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. The final chart shows proposed 2025 total dividend of GBP 0.0809, representing a 3.9% increase. This chart shows we have maintained and latterly increased dividends despite the earnings reduction since 2022. A detailed income statement which highlights the movement in interest and tax is included in the appendices. Continuing with our KPIs, on this slide, we examine the volume and premium panel mix trends in more detail.

Leigh Wilcox
CFO at Stelrad Group

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 more year-on-year stability in H2. The group premium panel mix as a percentage of steel panel radiators increased by 0.1 percentage points on the year to 6.4% despite a subdued market environment.

Leigh Wilcox
CFO at Stelrad Group

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 £20.50 in the period. Our contribution margin provides the group with a very strong operating leverage that will provide, drive profitability improvement as markets 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%.

Leigh Wilcox
CFO at Stelrad Group

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 a market recovery. On this slide, we provided a bridge of the group's adjusted operating profit, giving 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, shows 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.

Leigh Wilcox
CFO at Stelrad Group

We believe the improvements in the group's 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 restructuring 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.

Leigh Wilcox
CFO at Stelrad Group

As noted during our interim results, the performance of DL Radiators S.p.A. within the Europe segment has been impacted by the weakness of German and French markets since acquisition, which has led to a non-cash impairment being recognized in the year. The group continues to focus on improving the margin of DL Radiators S.p.A. 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 DL Radiators S.p.A. 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. Central costs are reduced due to one-off consultancy costs related to the appraisal of premium panel strategies that were incurred in 2024.

Leigh Wilcox
CFO at Stelrad Group

Moving to the cash flow statement and the group leverage position. Despite the cost of restructuring and the working capital impact of a 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. It's aided by strong working capital management and reduced capital expenditure. There's been an increase in tax payments, the group's U.K. business become cash taxpaying in the period after 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 on prior year and we expect a further reduction in 2026.

Leigh Wilcox
CFO at Stelrad Group

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 non-cash impairment charges, predominantly related to the DL Radiators S.p.A. business. In the table, the first four lines are related to DL Radiators S.p.A. business and specifically relate 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 DL Radiators S.p.A. business has been exposed to declining market volumes in France and Germany since acquisition in July 2022, resulting in deteriorating operating margins despite active fixed cost management.

Leigh Wilcox
CFO at Stelrad Group

Since the acquisition, the business has also been impacted by a significant low margin and latterly loss-making contract, this supply of steel panel radiators, which has contributed to suppressed European operating margins. Negotiations during 2025 to reset the price 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. While 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 were the key strategic rationale for acquiring the business.

Leigh Wilcox
CFO at Stelrad Group

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 deployed in cost activity. 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 would note in this slide that in line with our market share disclosure, we have adjusted the market opportunity statistics to strip out the Russian and Belarusian markets for obvious reasons.

Leigh Wilcox
CFO at Stelrad Group

The three key structural growth drivers, replacement market recovery, increase in premiumization and the drive for decarbonization, will ultimately drive volumes, improve our product mix and margin, thereby enabling above market growth. We have three 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. 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. Taken together, the group's market opportunity, structural growth drivers and competitive advantages underpinned by a robust strategy translate into a set of ambitious medium-term targets which deliver clear stakeholder value.

Leigh Wilcox
CFO at Stelrad Group

We unveiled these to the market at our capital markets event in 2024 and they remain as outlined here on the slide. As I'll outline in 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 delivers significant share growth. Since 2019, we have grown share in 9 of the 10 core markets, with double-digit growth in six of these markets but we still believe there's plenty more to growth to go for. The table shows how our market share percentages in these markets and how this has moved since 2019.

Leigh Wilcox
CFO at Stelrad Group

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. We see particular opportunity in those markets where we have a number two or three 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.

Leigh Wilcox
CFO at Stelrad Group

I'd now like to give some examples of our progress in 2025 towards improving our product mix via increasing premiumization. We continue to drive the adoption of premium and designer ranges and have made good progress here through the continued execution of our strategy of leveraging Stelrad's trade strengths, optimizing distribution channels and boosting Stelrad's consumer appeal. As a result, we remain confident in the opportunity that premiumization poses for us. While volumes have been impacted by some of the headwinds we've already talked about for the last two 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 gains in the Netherlands, Belgium and Germany.

Leigh Wilcox
CFO at Stelrad Group

When markets do recover, premiumization brings with it a clear opportunity to deliver increase in 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 three levers of promoting higher output radiators, developing solution for higher temperature systems and expanding electric heating ranges in our core markets. In the developing U.K. low carbon heating market, we're seeing strong uptake in the higher output solutions like our K3 Vertical and High 900 radiators. , with volumes in these ranges having grown by 128% since 2022.

Leigh Wilcox
CFO at Stelrad Group

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 our decarbonized aligned product ranges in the U.K. The trend here underlined a key point. The shift to decarbonized heating systems isn't something that we're waiting for. It's already showing up in our volumes. As the market continues to transition, we're well-positioned to capture a disproportionate share of that growth. The final business review slide, we kept our progress to date against the medium term targets that we announced at our November 2024 capital markets event.

Leigh Wilcox
CFO at Stelrad Group

Market share to date is stable, though it is important to note that the 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 toward GBP 21 without significant upside from premiumization, which will give a 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%.

Leigh Wilcox
CFO at Stelrad Group

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 would 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.

Leigh Wilcox
CFO at Stelrad Group

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'll all welcome a wider market recovery, as outlined on the earlier market share slide, we have a faster platform to deliver market share gains regardless of this, particularly in those markets where we're top three but with an opportunity to kick on and become market leader.

Leigh Wilcox
CFO at Stelrad Group

Alongside this, we're continuing to execute against our strategic priorities to drive the uptake 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 is 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. In summary, we're not banking on a recovery in the market.

Leigh Wilcox
CFO at Stelrad Group

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

Thank you very much, sir. Ladies and gentlemen, if you would like to ask an audio question, please press star one on your telephone keypad and just make sure that your line is not muted till I signal with your equipment. Our very first question today is coming from Aynsley Lammin of Investec. Please go ahead. Your line is open.

Aynsley Lammin
Aynsley Lammin
Equity Research Analyst at Investec

Thanks very much. Morning, Leigh. Just three from me, actually. First of all, 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 then, you know, price covering cost, it's right to assume therefore that, you know, 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 put in and ability to pass that on into the market.

Aynsley Lammin
Aynsley Lammin
Equity Research Analyst at Investec

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 driving a bit more organic investment and growth in some of those markets where you're not market leader. You know, exactly what would that involve? Is it just more investment in working cap, you know, pushing the kind of routes to market? How would you go about that? Thanks.

Leigh Wilcox
CFO at Stelrad Group

Okay. Thanks, Aynsley. I think I've got those down. Try and cover, try and go to them in turn. 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 over ability to drive growth. I think the bits we did last year was commercial decisions we made in particular on contracts with key customers in Germany and also a bit of a different approach to our Turkish market. That commercial discipline will bring with it more profitability independent of market volume. That's really positive. 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.

Leigh Wilcox
CFO at Stelrad Group

Yes, ultimately, we'd love to see some more market volume but we're confident of market growth and 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 three or four months visibility before it actually hits us. We've got protection in terms of index link 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 ton are significantly lower than they were back in 2021, 2022 when they were up 1,200, 1,300 GBP a ton.

Leigh Wilcox
CFO at Stelrad Group

In those when prices have increased before, we've been able to get price increases in a very orderly fashion to the market. Finally, for de-leveraging, 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've increased our dividend by 5% above the normal 2%, which we've done for the last few periods. Then it's very much a focus on what we can do. 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. Very much it's gonna be an organic approach to sensible investment using some of that spare capital across key strategic geographies.

Leigh Wilcox
CFO at Stelrad Group

It's something we're working on but it's an opportunity we're excited about.

Aynsley Lammin
Aynsley Lammin
Equity Research Analyst at Investec

That's great. Very helpful. Thanks very much, Leigh.

Leigh Wilcox
CFO at Stelrad Group

Thanks, Aynsley.

Operator

Thanks, sir. Next question will be coming from Greg Poulton, calling from Singer Capital Markets. Please go ahead, your line is open, Greg.

Greg Poulton
Senior Equity Research Analyst at Singer Capital Markets

Morning, Leigh. Thanks for taking the questions. Just three from me, please. On the margin target of 13%, it looks like that's sort of on the horizon already in the numbers without assuming, you know, material market recovery. You know, just where do you think that margin could get to in the case of a market recovery? You know, is it good to get a 15% or, you know, is that a bit punchy? Be good to get your thoughts on that. Then in terms of growing market share in Poland, Germany and Sweden, can you talk a bit about the strategy there with regards to, you know, how fragmented is the market? Are there any dominant players in the market? How do you expect to enter that market build out in those markets? Sorry.

Greg Poulton
Senior Equity Research Analyst at Singer Capital Markets

Lastly, I know Andy asked about the balance sheet deleveraging and you're talking about an organic approach at this stage. Would you ever consider sort of M&A to broaden out in those markets? Are there any obvious targets against that?

Leigh Wilcox
CFO at Stelrad Group

No. Thanks, Greg. Yeah, the margin is, you know, difficult to put me on the spot about calling a margin target. Yeah, 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, depend on where we, where things grow, when it grows. There is an element of, you know, 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. That's a 33% kind of growth margin figure.

Leigh Wilcox
CFO at Stelrad Group

It could drop through into the bottom line. Any growth, the market recovery at 33% will give a significant operating profit benefit in the future. We believe that the business is well invested in terms of fixed costs and infrastructure, that all we need to grow is additional variable labor. 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. It's not, we're not a new entrant, we're not, it's not something we're starting from scratch. It's very much developing what we have organically.

Leigh Wilcox
CFO at Stelrad Group

Now, what 2025 has taught us is we've made a low cost base asset even lower in terms of that restructuring of Turkey. We're even more confident now in our competitive advantages. It gives us the opportunity to build. Those markets have traditionally been dominated by our competitors. I think, you know, with changing strategies over time and our focus on delivering what we do well in terms of core radiator market, we think there's potentially an opportunity to take advantage. 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. In terms of organic share gains, we think we're very well placed to take them.

Leigh Wilcox
CFO at Stelrad Group

M&A, especially in adjacencies is something we still consider but probably a slightly lower focus at the minute than the organic route but on the table nonetheless.

Greg Poulton
Senior Equity Research Analyst at Singer Capital Markets

Thanks. Very clear. That's great.

Leigh Wilcox
CFO at Stelrad Group

Thanks, Greg.

Operator

Thank you. We'll now go to Sam Cullen of Peel Hunt. Please go ahead.

Sam Cullen
Sam Cullen
Equity Research Analyst at Peel Hunt

Hi. Morning, Leigh. I've got two. Thank you. I think you sold 4.6 million rads last year. How should we think about capacity utilization in that context? Is it, 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. 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, you think the mix would work against you in that front and you do more with lower contribution rads as markets recovered?

Leigh Wilcox
CFO at Stelrad Group

Yeah. 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 wanna 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. We've got what we wanna make sure is to make sure we have sufficient capacity to do that. But what we have done and we've done this in 2023, 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. That's the benefit of a standardized production platform across all of our facilities.

Leigh Wilcox
CFO at Stelrad Group

We've made sure that when volumes have been down, our U.K., our Western European facilities have produced less, optimized their fixed cost and we've really kind of utilized that Turkey asset. That's something we'll continue to do. That basically gives us ultimate flexibility to go up or down in, as the market demands it. The key thing for us now is that we think there's opportunity with market recovery, with ongoing share growth and we wanna 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. Exiting a loss-making contract, by nature, will improve contribution per radiator.

Leigh Wilcox
CFO at Stelrad Group

Focusing on a more profitable Turkish business will improve contribution per radiator and having a more efficient manufacturing facility improve contribution per radiator. Your point is valid. What, in 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. Obviously, to caveat that, if new build was to reach very high levels, which obviously is in some doubt, then that could have a dilution on that number but we'd still grow profits, all the same.

Sam Cullen
Sam Cullen
Equity Research Analyst at Peel Hunt

Great. Thank you.

Leigh Wilcox
CFO at Stelrad Group

Thanks, Sam.

Operator

Our next question will be coming from Toby Thorrington of Equity Development. Please go ahead. Your line is open, sir.

Toby Thorrington
Equity Research Analyst at Equity Development

Thank you. Morning, Leigh. I've just got a couple of questions left, I think. First of all, on the DL Radiators S.p.A. contract exit, could you just confirm in volume terms broadly what that is or was? Did that contribute to the sort of volume reduction 2025 over 2024? Just trying to get a feel for what the impact will be in 2026 as well. 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 movements or working capital at the end of the year was sort of normal expected positions so nothing unusual in that?

Leigh Wilcox
CFO at Stelrad Group

Yeah. Okay. Thanks, Toby. In terms of DL Radiators S.p.A., there may be a modest impact in 2025 but not significant. We'd expect most of that volume value bridge to come through 2025-2026. In terms of the quantum, it's probably about EUR 13-14 million and around 175,000 RAD. When we're looking at volumes and sales values for 2026, there will be a negative impact on volume and sales values, probably a bit of market share in Germany as well. 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, you are right, there is a seasonal element to working capital, from half year to the full year. Year on year, we don't expect that.

Leigh Wilcox
CFO at Stelrad Group

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 wear 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 2026, could there be some reversals possibly slightly due to timing differences but nothing significant.

Toby Thorrington
Equity Research Analyst at Equity Development

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

Leigh Wilcox
CFO at Stelrad Group

Yes. Germany.

Toby Thorrington
Equity Research Analyst at Equity Development

Okay. Yeah. Okay. Thank you. Sorry, an additional one, I think I missed it in the presentation. What's your tax rate guidance, I should say, for FY 2026, please?

Leigh Wilcox
CFO at Stelrad Group

On an adjusted basis, we've said 34%.

Toby Thorrington
Equity Research Analyst at Equity Development

34%. Yeah. Lovely. Great. Thanks very much.

Leigh Wilcox
CFO at Stelrad Group

No problem.

Operator

Thank you for your question. Sorry for that, sir. Thank you for your question, sir, Toby. As we have no further audio questions, I turn the call over to Christina to take questions submitted through the web. Thank you. Christina, please take any questions sent through web. Thank you.

Company Representative at Stelrad Group

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?

Leigh Wilcox
CFO at Stelrad Group

I mean, obviously the key one for us when you look at the kind of costs of sales that we have across the business, you know, raw materials probably make up 50% of our cost of sales. Obviously steel is something we're very focused on. Obviously distribution probably 6% of our cost of sales and energy relatively modest at 2.5%-3% of our cost of sales. We focus on a lot but predominantly steel. As we covered before, I think with Aynsley Lammin'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.

Leigh Wilcox
CFO at Stelrad Group

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 energies for the next year or so. That kind of gives some protection on that one. 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.

Company Representative at Stelrad Group

Thank you. Another question from Rob Chantry. 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?

Leigh Wilcox
CFO at Stelrad Group

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

Company Representative at Stelrad Group

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

Leigh Wilcox
CFO at Stelrad Group

I think from our point of view, you know, 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 for us, we want to make sure we're focused and let's say kind of aligned to our existing kind of platform. 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.

Company Representative at Stelrad Group

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

Leigh Wilcox
CFO at Stelrad Group

I think when we looked at 2026, obviously things change, so apologies if I'm probably out of date. When we looked at 2026, we looked at kind of new build being 4%-5%, I think year on year, possibly but more second half loaded and RMI recovering slightly 1.5%, again, second half loaded. That was what we were focused on, which is modest in the context of profitable impact with new build generally being less lucrative and in the margin. It's very pleasing for us that we've got those natural kind of drivers to kind of grow profits independent of market performance.

Company Representative at Stelrad Group

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

Leigh Wilcox
CFO at Stelrad Group

A premium radiator for us would be one that is decorative in style. You always have designer radiators, which will be things like the column radiator or a towel warmer or electrical radiator. For us, a premium radiator is a standard radiator that has an aesthetic feature, either a flat fascia on the front, a designer fascia, it would be possibly a colored radiator where a standard radiator that's had a unique color applied to it other than white, obviously or a vertical radiator.

Company Representative at Stelrad Group

Great. Thank you.

Leigh Wilcox
CFO at Stelrad Group

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

Company Representative at Stelrad Group

Thank you very much. Our final question from the webcast is from Charlie Campbell at Stifel. Is the Warm Homes Plan a significant opportunity in the U.K. and how are the activity levels on the public housing side in the U.K.?

Leigh Wilcox
CFO at Stelrad Group

This is where I could do with Trevor being in the room. No, I think from my read into the Future Homes Standard is that around regulations on decarbonized heating, et cetera. I think ultimately what we benefit from with changing heating systems is that lower temperature systems require more surface area from radiators, which gives us an opportunity to sell bigger radiators into existing into the housing market, which ultimately is a higher margin product for us. We've focused our product ranges to take advantage of this in terms of having higher, deeper, wider radiators plus electrical and hybrid radiators. 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.

Company Representative at Stelrad Group

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

Leigh Wilcox
CFO at Stelrad Group

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

Executives
    • Leigh Wilcox
      CFO
    • Company Representative
Analysts
    • Aynsley Lammin
      Equity Research Analyst at Investec
    • Greg Poulton
      Senior Equity Research Analyst at Singer Capital Markets
    • Sam Cullen
      Equity Research Analyst at Peel Hunt
    • Toby Thorrington
      Equity Research Analyst at Equity Development
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