REG - Stelrad Group PLC - Preliminary announcement of final results
08/03/2024 07:00
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RNS Number : 0764G Stelrad Group PLC 08 March 2024
Stelrad Group plc - preliminary announcement of final results for the year
ended 31 December 2023
Resilient performance, strategically positioned for market improvement
Stelrad Group plc ("Stelrad" or "the Group" or "the Company", LSE: SRAD), a
leading specialist manufacturer and distributor of steel panel and other
designer radiators in the UK, Europe and Turkey, today announces its audited
financial results for the year ended 31 December 2023.
Results summary Increase/ (decrease) %
2023 2022
Revenue, £m 308.2 316.3 (2.6)
Operating profit, £m 26.7 22.6 17.9
Profit for the year, £m 15.4 4.3 257.9
Earnings per share - basic, pence 12.11 3.38 257.9
Adjusted operating profit, £m ((1)) 29.3 34.0 (13.8)
Adjusted profit for the year, £m ((1)) 17.3 24.3 (28.7)
Adjusted earnings per share - basic, pence ((1)) 13.62 19.11 (28.7)
Free cash flow, £m ((1)) 17.8 12.7 40.7
Net debt before finance leases, £m 60.4 68.4 (11.7)
Total dividend per share, pence 7.64 7.64 -
(1) The Group uses some alternative performance measures to track and
assess the underlying performance of the business. Alternative performance
measures are defined in the glossary of terms and reconciled to the
appropriate financial statements line item at the end of this announcement.
Financial and operational highlights
· Revenue down 2.6%, 12.9% on a like-for-like basis, to £308.2
million, driven by subdued new build and renovation activity due to high
inflation and interest rate environment.
o UK & Ireland: revenue down 0.5% (0.6% like-for-like) broadly flat
despite market headwinds.
o Europe: revenue down 0.4% (21.2% like-for-like) as a result of depressed
levels of RMI activity.
o Turkey & International: revenue down 25.8% (30.5% like-for-like)
driven primarily by volume decline in China.
· 13.0% rise in contribution per radiator, the sixth consecutive
year on year increase, driven by proactive price and cost management.
· Volume mix of higher added-value premium steel panel radiators
maintained despite challenging market backdrop.
· Operating profit rose to £26.7 million, an increase of £4.1
million, benefiting from foreign exchange gains and the discontinuation of IAS
29 accounting, partially offset by adverse sales volumes and higher
depreciation charges.
· Adjusted operating profit of £29.3 million was adversely
impacted by a 5.2% volume decline and a £3.7 million increase in depreciation
and amortisation charges, partially offset by proactive margin management and
cost reduction initiatives.
· Cost base management initiatives implemented in the second half
of 2023, resulting in an exceptional charge of £2.9 million in the current
year, with benefits to be realised from 2024 onwards.
· Strong cash flow performance driven by working capital management
and a return to a maintenance level of capital spend.
· Leverage at 31 December 2023 was 1.47x (2022: 1.62x), based on
net debt before finance leases.
· Recommended unchanged final dividend of 4.72 pence per share
(2022 final dividend: 4.72 pence per share), to be paid on 29 May 2024,
reflecting the Board's confidence in the Group's prospects and balance sheet.
Current trading and outlook
· Despite the headwinds impacting volumes in new build and RMI
during 2023, the robust performance delivered by the Group has continued
into 2024 with trading during the initial weeks of the current financial year
remaining in line with management's expectations.
· Although we expect these headwinds to continue throughout 2024,
Stelrad believes that management's considerable experience of successfully
navigating other challenging market cycles will enable the business to
navigate this turbulence and deliver another encouraging year of progress.
· The cost saving initiatives implemented in the second half of
2023 will be realised from 2024 onwards and will further strengthen the
Group's resilience to challenging conditions, while ensuring that Stelrad
remains well positioned for a sustained period of profitable growth when
markets recover.
· As a result, our outlook for the current financial year remains
unchanged thanks to the resilience and flexibility of our business model, the
strength of our market positioning and the robustness of our strategy.
· Longer term, Stelrad will benefit from strong underlying
replacement demand combined with regulatory tailwinds for decarbonised, energy
efficient heating systems.
Commenting on the Group's performance, Trevor Harvey, Chief Executive Officer,
said:
"Our 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 that continues to see us focus on our four key strategic
objectives of growing market share, improving product mix, optimising routes
to market and positioning effectively for decarbonisation.
"After many years as challenger, Stelrad has now gained market leadership of
both the steel panel radiator category and the hydronic heat emitter market in
total, across the combined market of Europe, the UK and Turkey, taking market
share from our competitors during a prolonged period of wider market
uncertainty.
"Although we expect these macroeconomic headwinds to continue during 2024,
management's considerable experience of managing through numerous other
challenging market cycles will enable us to navigate current market conditions
to deliver another robust financial performance. In combination with our
focused strategy, this positions Stelrad well 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 the long-term
regulatory tailwinds for decarbonised energy efficient heating systems."
For further information:
Media enquiries
Stelrad Group plc +44 (0)191 261 3301
Trevor Harvey, Chief Executive Officer
Annette Borén, Chief Financial Officer
Powerscourt stelrad@powerscourt-group.com (mailto:stelrad@powerscourt-group.com)
James White / Pete Lambie +44 (0)7855 432 699
Notes to Editors
Stelrad Group plc is Europe's leading specialist radiator manufacturer,
selling an extensive range of hydronic, hybrid, dual fuel and electrical heat
emitters to more than 500 customers in over 40 countries. These include
standard, premium and low surface temperature (LST) steel panel radiators,
towel warmers, decorative steel tubular, steel multicolumn and aluminium
radiators.
The Group has five core brands: Stelrad, Henrad, Termo Teknik, DL Radiators
and Hudevad. In the data reported by BRG Building Solutions for 2022,
Stelrad moved into a market leadership position, with 18.8% share by volume of
the combined UK, European and Turkish steel panel radiator market. The Group
is now market leader in seven countries - the UK, Ireland, France, the
Netherlands, Belgium, Denmark and Greece, with a top 3 position in a further
nine territories.
Stelrad is headquartered in Newcastle upon Tyne in the UK and in 2023 employed
1,400+ people, with manufacturing and distribution facilities in Çorlu
(Turkey), Mexborough (UK), Moimacco (Italy) and Nuth (Netherlands), with
further commercial and distribution operations in Kolding (Denmark) and Krakow
(Poland).
The Group's origins date back to the 1930s and Stelrad enjoys long established
commercial relationships with many of its customers, having served each of its
top five current customers for over twenty years.
Further information can be found at: https://stelradplc.com/
(https://stelradplc.com/) .
Chair's statement
Overview
Stelrad has delivered another extremely robust financial performance during
2023, despite challenging macroeconomic conditions. Inflationary pressures,
higher interest rates and the resulting pressure on household budgets over the
past year negatively impacted the housing market and constrained investment in
renovation. Our performance in this environment is testament to the
resilience and flexibility of the Group's business model, the strength of
Stelrad's market positioning and the robustness of its strategy.
In the face of these challenges, management's considerable experience of
trading through numerous other challenging market cycles enabled the business
to navigate wider market conditions successfully and deliver another robust
financial performance during the period with proactive price and cost
management leading to a 13.0% increase in contribution per radiator.
Although the Group is not anticipating an improvement in macroeconomic
conditions during 2024, Stelrad is confident that it is well positioned for a
sustained period of profitable growth when markets recover.
Performance and results
Operating profit was £26.7 million, after exceptional items of £2.5 million
and amortisation of customer relationships of £0.1 million. After adjustment
for these items, Stelrad's adjusted operating profit of £29.3 million was in
line with market expectations, despite a 5.2% reduction in volume and a 2.6%
revenue reduction. The Group responded quickly and effectively to 2023's
difficult trading environment, leveraging its market leadership position and
maintaining clear focus on its key strategic objectives.
Purpose
Stelrad's purpose is helping to heat homes sustainably. Through its evolving
product range, its relationships with both suppliers and channels to market
and its influence on heating system specifiers, the Group has a pivotal role
to play in the transition to low - and ultimately zero - carbon
heating systems. Meaningful progress was made in 2023, through an enhanced and
expanded product portfolio and the publication of Stelrad's first
Environmental Product Declarations ("EPDs").
Environmental, social and governance ("ESG") objectives
Achieving our purpose, helping to heat homes sustainably, demands relentless
focus on reducing Stelrad's own environmental impact, a consistently high
level of employee engagement and high standards of corporate governance. These
elements are at the heart of Stelrad's culture and values.
Our sustainability framework, Fit for the Future, is consistent with that core
purpose, setting out our approach to delivering both our business strategy and
our sustainability commitments to stakeholders and the environment. It
reflects Stelrad's vision of the significant role the Group can play in the
transition to a low - and ultimately zero - carbon heating industry.
People
George Letham, Chief Financial Officer and Executive Director of the Company,
stepped down from the Board on 22 November 2023. George joined in 2003 and has
played an instrumental role in improving Stelrad's market position and
financial performance. He has been retained on a part-time
basis for a six-month period, in the capacity of Strategic Adviser to the
Chief Executive Officer.
Following a rigorous recruitment process supported by an external search firm,
George has been succeeded by Annette Borén, a highly experienced CFO who
brings with her a proven track record in delivering financial leadership,
operational excellence and strategic growth across different geographies and
sectors. Most recently, she was CFO for Northern Europe at Hilti, a world
leader in the manufacture of construction tools. Annette brings with her a
wealth of experience which will enable her to make a significant contribution
to the continued growth and success of the Group.
During the period, Terry Miller, Non-Executive Director and Senior Independent
Director, stepped down from the Board and its Committees on 31 December
2023. She was replaced by Katherine Innes Ker as Senior Independent
Director, who joined the Board on 1 February 2024 and brings significant
listed company board experience in a Non-Executive capacity.
Dividend
The Board is recommending an unchanged final dividend of 4.72 pence per share.
The final dividend will be paid on 29 May 2024 to shareholders on the register
on 26 April 2024, subject to approval by shareholders at the Annual General
Meeting on 22 May 2024.
Summary
Stelrad's management strength and experience, in combination with a robust
strategy and a resilient business model, enabled the Group to deliver a strong
financial performance in 2023 despite the significant headwinds impacting
market demand.
Although these headwinds are set to continue into 2024, Stelrad is
well-positioned to capitalise as markets recover.
The flexibility of the Group's business model, market leading positions, and
the strength and breadth of the customer and supplier relationships means that
the Group looks forward with confidence to achieving its key strategic
objectives.
Bob Ellis
Chair
8 March 2024
Chief Executive Officer's review
Overview
2023 saw a continuation of the macroeconomic headwinds and challenging trading
conditions that persisted throughout 2022. Nevertheless, our strong
performance in the year 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.
This experience meant that we were able to proactively leverage the
flexibility of our well-invested operational platform, implementing
cost-saving initiatives in the second half of 2023 that will lead to tangible
benefits from 2024 onwards.
We made significant progress over the course of 2023, integrating the
Radiators SpA acquisition and expanding our product portfolio compatible with
low and zero carbon heating systems - including the launch of our first UK
electric heat emitter range - and we continue to leverage our scale and market
leadership to ensure Stelrad is well-positioned for market recovery.
Strong financial performance, proactive response to market headwinds
In 2023, Stelrad's revenue fell by 2.6% versus the prior year to £308.2
million, including the full year benefit of the Radiators SpA acquisition and
equating to 12.9% like-for-like reduction. Operating profit was £26.7 million
(2022: £22.6 million), an increase of £4.1 million, whilst adjusted
operating profit was £29.3 million (2022: £34.0 million), in line with
market expectations.
In the UK & Ireland, 2023 revenue was 0.5% lower than in 2022, a strong
performance given the wider market uncertainty during the period, whilst
adjusted operating profit increased by 7.8%. In Europe, 0.4% decline in
revenue resulted in an adjusted operating profit reduction of 34.7%,
reflecting lower volumes, low margins in Radiators SpA and a mix shift. In
Turkey & International markets, driven by volume decline in China, revenue
and adjusted operating profit fell by 25.8% and 34.4% respectively.
Market conditions in 2023 remained extremely challenging, with a combination
of high inflation and high interest rates suppressing both housebuilding and
renovation demand and driving continued distributor focus on inventory
reduction, notably across mainland Europe.
Despite this market backdrop, Stelrad improved contribution per radiator for
the sixth year running, delivering a further 13.0% increase relative to 2022.
This contribution growth countered a 5.2% decrease in volume over the same
period, which represented a reduction of 12.5% on a like-for-like basis.
Operational flexibility
Our flexible operational platform, based on Stelrad's standardised core heat
emitter design and with our long-established, low-cost Turkish facility at its
core, continues to provide significant competitive advantage. In combination
with proactive price management, this has driven consistent year on year
contribution improvement.
During the second half of 2023, we further optimised our operational
facilities to enable a programme of cost-saving initiatives which will benefit
the Group from 2024 onwards. The Group has optimised production across its
Western European facilities with increased volumes transferred to our low cost
facility in Corlu, Turkey. In addition, we have reduced fixed costs in Western
Europe. The Group expects market environments to remain challenging in 2024
with the continuation of cost and wage inflation, and this reorganisation
positions the Group well to mitigate these adverse factors.
Improved product mix
The Radiators SpA acquisition brought a considerable improvement in Stelrad's
product mix in 2023. Higher added-value premium steel panel and other design
radiators accounted for 8.9% of the Group's sales by volume in 2021, rising to
12.5% in 2022. This increased to 14.9% in 2023, a 6.0 percentage points
improvement versus 2021 and up 2.4 percentage points relative to the prior
year.
Total volume of the design radiator category, including premium steel panel
products, rose by 13.2% in 2023 relative to 2022 and was 43.8% higher than in
2021, the year before the Radiators SpA acquisition took place. As markets
recover, the underlying long-term growth trend for all design radiators and
notably premium steel panel products, means that Stelrad is well placed to
capitalise on its improved market share position and enhanced product
portfolio.
Within the design radiator category, premium steel panel radiator volume
represents a key performance indicator for Stelrad. Although volume in 2023
declined by 4.9%, premium steel panel mix of total steel panel radiator volume
increased by 0.2 percentage points, from 6.0% to 6.2%
Radiators SpA
The strategic acquisition case for Radiators SpA is compelling, with the
business already providing the Group with market share growth, increased
access to key territories and channels to market and a product range
orientated towards higher added-value designs, including those suitable for
decarbonised heating systems. A combination of challenging market conditions
and low levels of profitability with a major customer meant that 2023
financial performance was below expectations. Whilst macroeconomic headwinds
will continue into 2024, improved product mix through new product introduction
at that key account is anticipated to deliver improved profitability overall.
New products for decarbonised home heating
Stelrad launched its first UK 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, including towel
warmer, aluminium and designer ranges, into the small but growing UK
electrical radiator market. The introduction was well received in both
new build and replacement market segments, generating specification by a
leading UK 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 decarbonisation growth potential.
Outlook
Stelrad's resilience in the face of significant macroeconomic headwinds
demonstrates the robustness and flexibility of the Group's business model and
the effectiveness of our long-term strategy, driven by our four key strategic
objectives: growing market share, improving product mix, optimising routes to
market and positioning effectively for decarbonisation.
After challenging for many years, Stelrad has now gained market leadership of
both the steel panel radiator category and the hydronic heat emitter market in
total, across the combined market of Europe, the UK and Turkey.
Across our core markets, Stelrad is leveraging its strong brands and Radiators
SpA's wider product portfolio to improve our positioning for decarbonisation,
as evidenced by the launch of our first range of electric radiators into the
small but growing UK market.
We continue to expand our range of higher heat output emitters, fully
compatible with the low-temperature hydronic systems heated by low and zero
carbon sources. In 2024, we are preparing to launch Stelrad Green Series, our
first radiator range using steel manufactured with 90% lower embodied CO2
emissions.
Although we expect macroeconomic headwinds to continue into 2024, our
considerable management experience through other challenging market cycles
will enable us to navigate this turbulence to deliver a robust financial
performance.
In combination with our focused strategy, this positions Stelrad effectively
for a sustained period of profitable growth as markets recover, benefiting
from strong underlying replacement demand across Europe and the long-term
regulatory tailwinds for decarbonised energy efficient heating systems.
Trevor Harvey
Chief Executive Officer
8 March 2024
Finance and business review
Group overview
The following table summarises the Group's results for the years ended 31
December 2023 and 31 December 2022.
Increase/ Increase/ (decrease)
2023 2022 (decrease)
£m £m £m %
Revenue 308.2 316.3 (8.1) (2.6)
EBITDA((1)) 41.2 42.2 (1.0) (2.2)
Adjusted operating profit((1)) 29.3 34.0 (4.7) (13.8)
Exceptional items (2.5) (1.8) (0.7) (36.3)
Amortisation of customer relationships (0.1) (0.1) - (147.4)
Foreign exchange differences (2022 only) - (3.5) 3.5 n/a
Impact of IAS 29 (2022 only) - (6.0) 6.0 n/a
Operating profit 26.7 22.6 4.1 17.9
Net finance costs (7.5) (4.5) (3.0) (65.8)
Monetary losses - net (IAS 29) - (7.9) 7.9 n/a
Profit before tax 19.2 10.2 9.0 87.2
Income tax expense (3.8) (5.9) 2.1 36.7
Profit for the year 15.4 4.3 11.1 257.9
Earnings per share (p) 12.11 3.38 8.73 257.9
Adjusted profit for the year((1)) 17.3 24.3 (7.0) (28.7)
Adjusted earnings per share - basic (p)((1)) 13.62 19.11 (5.49) (28.7)
Total dividend per share (p) 7.64 7.64 - -
(1) The Group uses some alternative performance measures to track and
assess the underlying performance of the business. Alternative performance
measures are defined in the glossary of terms and reconciled to the
appropriate financial statements line item at the end of this announcement.
Financial overview
Business performance was negatively impacted by a reduction in demand during
2023. Renovation activity across the majority of European countries remained
weak throughout the year, driven by a challenging macroeconomic environment
related to high inflation and increasing interest rates. The impact of volume
decline varied by operating segment, with the UK & Ireland being more
robust than Europe and Turkey & International.
Revenue for the year was £308.2 million, a decrease of £8.1 million, or
2.6%, on last year (2022: £316.3 million). The decline in revenue was due to
a 5.2% decrease in sales volumes during the year, partially offset by higher
selling prices. Higher selling prices primarily represent the full year impact
of 2022 price increases, in addition to 2023 price increases, which were
applied to recover steel and other inflationary cost increases. The benefit of
price increases implemented was reduced slightly by a decline in like-for-like
volumes in Europe where average selling prices are higher. Revenue fell by
12.9% on a like-for-like basis.
Operating profit for the year was £26.7 million, an increase of £4.1
million, or 17.9%, compared to last year (2022: £22.6 million). The
improvement in operating profit arises despite a small decline in EBITDA of
£1.0 million. EBITDA was adversely impacted by the 5.2% year on year
reduction in sales volumes (12.5% on a like-for-like basis) and, further, the
additional volumes generated by Radiators SpA in the year were at lower
margins which diluted overall Group margins. The impact of lower sales volumes
and lower Radiators SpA margins was partially offset by proactive selling
price and cost management and foreign currency gains. Cost management
initiatives included operational improvements mainly relating to increased
efficiencies at plants, with the Group fully utilising the flexibility of its
manufacturing footprint. The proactive price and cost management have driven a
13.0% rise in contribution per radiator, which is the Group's key measure of
variable profitability.
The Group continues to push the sale of premium panel radiators throughout its
markets, recognising the additional margin that these products generate.
Despite these efforts, the proportion of premium panel sales to total volumes
was flat in the year at 5.6% with progress limited due to weakness in our
European markets, where penetration levels are higher, and growth in designer
radiator categories. Pleasingly, the proportion of premium steel panel to
total steel panel volume increased by 0.2 percentage points, from 6.0% to
6.2%, and the proportion of premium sales in the UK showed a marginal
improvement in the year. Premium panel products remain an integral part of the
Group's strategy, with these products being underrepresented in several of the
Group's key markets.
In 2022, the Group's results included foreign exchange losses of £3.5
million, which were not included in EBITDA. As a consequence of the change in
functional currency of the Group's Turkish business these are now reported as
part of EBITDA. In addition, following the change in functional currency of
the Turkish business, the Group no longer applied IAS 29 in the year ended 31
December 2023, which resulted in a £4.4 million improvement in operating
profit, excluding the 2022 impact of IAS 29 on depreciation of £1.6 million
which remains in 2023.
Depreciation and amortisation increased by £1.9 million in the year, which is
due to the inclusion of a full year's charge for Radiators SpA and additional
charges following the completion of significant capital projects.
Exceptional items in the year were £2.5 million, an increase of £0.7 million
compared to the prior year (2022: £1.8 million), representing exceptional
costs of £2.9 million and exceptional income of £0.4 million. The
exceptional costs in 2023 relate largely to a restructuring exercise
undertaken in quarter four of the year in order to drive cost savings for
future periods. The exceptional costs incurred in 2022 related to
restructuring costs to reconfigure and optimise production, acquisition costs
and the reversal of the IFRS 3 uplift on finished goods and work in progress
required as part of business combination accounting.
Adjusted operating profit for the year was £29.3 million, a decrease of
£4.7 million, or 13.8%, compared to last year (2022: £34.0 million).
Adjusted operating profit was impacted by the decrease in EBITDA of £1.0
million noted earlier. Additionally, depreciation and amortisation reported
within adjusted operating profit increased by £3.7 million in the year. The
depreciation and amortisation increase was mainly due to the 2022 IAS 29-led
revaluation of Turkish fixed assets and a full year's charge for Radiators
SpA.
Profit for the year increased by £11.1 million, or 257.9%, to £15.4 million
(2022: £4.3 million). Adjusted profit for the year decreased by
£7.0 million, or 28.7%, to £17.3 million (2022: £24.3 million) due to a
reduction in adjusted operating profit and increased interest charges
partially offset by a reduction in tax charges. Earnings per share was 12.11
pence (2022: 3.38 pence), with the 2022 earnings per share impacted by IAS 29.
Adjusted earnings per share was 13.62 pence (2022: 19.11 pence).
At 31 December 2023 the Group had cash of £21.4 million (2022:
£22.6 million) and undrawn available facilities of £18.7 million (2022:
£10.1 million), with net debt before finance leases of £60.4 million
(2022: £68.4 million).
Revenue by geographical market
The table below sets out the Group's revenue by geographical market.
Revenue by geographical market Increase / (decrease) Increase / (decrease)
2023 2022
£m £m £m %
UK & Ireland 139.4 140.0 (0.6) (0.5)
Europe 149.1 149.7 (0.6) (0.4)
Turkey & International 19.7 26.6 (6.9) (25.8)
Total 308.2 316.3 (8.1) (2.6)
UK & Ireland
The Group's revenue in UK & Ireland for the year was £139.4 million
(2022: £140.0 million), a decrease of £0.6 million, or 0.5%. This was
principally a result of a decrease in sales volumes partially offset by the
impact of selling price increases implemented to mitigate the impact of
inflationary costs. On a like-for-like basis, adjusting for the acquisition of
Radiators SpA, the Group's revenue in UK & Ireland for the year was
£139.2 million, a decrease of £0.8 million, or 0.6% from 2022.
Europe
The Group's revenue in Europe for the year was £149.1 million (2022:
£149.7 million), a decrease of £0.6 million, or 0.4%. The decline is
primarily due to a decline in like-for-like volumes, partially offset by the
full year impact of the acquisition of Radiators SpA and selling price
increases implemented to mitigate the impact of inflationary costs. On a
like-for-like basis, adjusting for the acquisition of Radiators SpA, the
Group's revenue in Europe for the year was £117.9 million, a decrease of
£31.8 million, or 21.2% from 2022. Our European markets have been most
affected by the weak demand experienced in the year, giving rise to a
significant reduction in like-for-like sales. All markets across Europe have
suffered a significant decline, most notably Germany, Poland and Belgium.
Turkey & International
The Group's revenue in Turkey & International for the year was
£19.7 million (2022: £26.6 million), a decrease of £6.9 million, or
25.8%. This was principally a result of significantly lower sales volumes to
China. On a like-for-like basis, adjusting for the acquisition of Radiators
SpA, the Group's revenue in Turkey & International for the year was £18.5
million, a decrease of £8.1 million, or 30.5% from 2022.
Adjusted operating profit by geographical market
The table below sets out the Group's adjusted operating profit by geographical
market.
Adjusted operating profit by geographical market *
Increase/ (decrease) Increase/
2023 2022 (decrease)
£m £m £m %
UK & Ireland 24.5 22.7 1.8 7.8
Europe 9.1 13.9 (4.8) (34.7)
Turkey & International 1.3 2.1 (0.8) (34.4)
Central costs (5.6) (4.7) (0.9) (20.1)
Total 29.3 34.0 (4.7) (13.8)
* Adjusted operating profit is a key performance indicator of the Group and is
used by management when analysing performance by geographical market.
UK & Ireland
The Group's adjusted operating profit in UK & Ireland for the year was
£24.5 million (2022: £22.7 million), an increase of £1.8 million, or
7.8%. This was principally as a result of proactive margin management leading
to increased contribution per radiator, partially offset by lower sales
volumes and higher post-IAS 29 depreciation.
Europe
The Group's adjusted operating profit in Europe for the year was
£9.1 million (2022: £13.9 million), a decrease of £4.8 million, or
34.7%. The additional volumes generated from Radiators SpA, following the
acquisition in July 2022, have only partially offset a significant
like-for-like decline in sales volumes. Additionally, the sales volumes from
Radiators SpA are at lower margins. Like-for-like sales volumes have fallen
significantly due to a weak macroeconomic environment which, in addition to
higher post-IAS 29 depreciation, has reduced adjusted operating profit,
partially compensated for by proactive margin management.
Turkey & International
The Group's adjusted operating profit in Turkey & International for the
year was £1.3 million (2022: £2.1 million), a reduction of £0.8 million,
or 34.4%. This was principally as a result of lower sales volumes and higher
post-IAS 29 depreciation.
Central costs
Central costs for the year were £5.6 million (2022: £4.7 million), an
increase of £0.9 million, or 20.1%, partially as a result of additional
provisions for bonuses and ongoing inflation.
Exceptional items
During the year the charge for exceptional items was £2.5 million (2022:
£1.8 million).
The exceptional items in 2023 mainly relate to a £2.9 million restructuring
exercise undertaken in quarter four of the year in order to drive cost savings
for future periods, partially offset by exceptional income related to the
acquisition of Radiators SpA of £0.4 million.
The exceptional items in 2022 related to restructuring costs to reconfigure
and optimise production, acquisition costs and the reversal of the IFRS 3
uplift on finished goods and work in progress required as part of business
combination accounting.
These costs are one-off in nature and disclosing these costs as exceptional
allows the true underlying performance of the Group to be better understood.
Finance costs
The Group's net finance costs for the year were £7.5 million (2022:
£4.5 million). The increase of £3.0 million is due to an increase in the
interest rate of the Group's debt (blended 6.3%, including a margin of 2.25%)
during 2023 and a higher average level of debt due to the acquisition of
Radiators SpA in July 2022.
Income tax expense
The Group's income tax expense for the year was £3.8 million (2022:
£5.9 million), a decrease of £2.1 million, or 36.7%. The 2022 charge was
increased by £1.9 million due to the impact of IAS 29. The 2023 tax charge
has benefited from a deferred tax credit associated with higher tax asset
values allowed by the Turkish government due to hyperinflation, partially
offset by increased withholding tax charges associated with the repatriation
of cash from Turkey. The Group's 2023 effective tax rate of 19.6% was low
because of the deferred tax credit. In 2024, the Group's effective tax rate is
expected to be higher at around 29% because of the full impact of the increase
in the UK corporation tax rate and ongoing withholding tax charges.
Earnings per share and adjusted earnings per share
Profit for the year increased by £11.1 million, or 257.9%, to
£15.4 million (2022: £4.3 million) and basic earnings per share was 12.11
pence (2022: 3.38 pence). The weighted average number of shares was
127.4 million (2022: 127.4 million). Adjusted profit for the year decreased
by £7.0 million, or 28.7%, to £17.3 million (2022: £24.3 million) and,
consequently, basic adjusted earnings per share was 13.62 pence (2022: 19.11
pence).
Dividends and reserves
The Group is committed to delivering returns for its shareholders. It adopted
a progressive dividend policy at the time of IPO, targeting an initial pay-out
of approximately 40% of adjusted earnings, with capital allocation focused on
reinvestment for growth. The Group intends to split dividend payments
approximately 33% and 67% between the Group's interim and final dividend
payments respectively across the fiscal year.
The Group paid an interim dividend in respect of the year ended 31 December
2023 of 2.92 pence per share (2022: 2.92 pence). The Board has recommended a
final dividend of 4.72 pence per share (2022: 4.72 pence) at a cost of £6.0
million to the Group. The total dividend in respect of the year ended 31
December 2023 will be 7.64 pence per share (2022: 7.64 pence).
The Group's intention to maintain the 2023 dividend at the same level as the
2022 dividend, despite lower earnings due to short term trading headwinds,
reflects the Board's prudent view on the current commercial and strategic
position of the business, confidence in the Group's financial position and
cash generation, and the intention to support shareholder returns through the
cycle.
Functional currency
On 1 January 2023, the functional currency of the Group's Turkish business was
changed from Turkish Lira to Euro. The functional currency change has arisen
due to an evolution in the strategic focus of the Turkish business, which led
to the Directors confirming that the Turkish business would be operated
primarily as an export company going forward.
Further details on the changes to the relevant underlying transactions, events
and conditions that led the Directors to consider whether the functional
currency for the Turkish business should be changed are outlined in note 2 of
this announcement. Note 2 of this announcement also includes the analysis of
the functional currency of the Turkish business, by reference to the key
indicators outlined in IAS 21 The Effects of Changes in Foreign Exchange
Rates, which led the Directors to confirm that the functional currency of the
Turkish business is Euro.
IAS 29 Financial Reporting in Hyperinflationary Economies
As a result of inflation in Turkey exceeding 100% over a three-year period,
the Group was required to adopt IAS 29 in respect of its Turkish subsidiary
for the first time in the financial statements for the year ended 31 December
2022. On 1 January 2023, the functional currency of the Turkish business was
changed from Turkish Lira to Euro and, as a result, IAS 29 is no longer being
applied after this date.
Cash flow
The following table summarises the Group's cash flow for the years ended 31
December 2023 and 31 December 2022.
Increase/
2023 2022 (decrease)
£m £m £m
EBITDA 41.2 42.2 (1.0)
Exceptional items (2.5) (1.8) (0.7)
Gain on disposal of property, plant and equipment - (0.2) 0.2
Share-based payment charge 0.5 0.3 0.2
Working capital (adjusted for foreign exchange 2022) 1.6 (9.2) 10.8
Net capital expenditure (9.3) (11.6) 2.3
Cash flow from operations 31.5 19.7 11.8
Income tax paid (7.5) (3.8) (3.7)
Net interest paid (6.2) (3.2) (3.0)
Free cash flow 17.8 12.7 5.1
Increase/
2023 2022 (decrease)
Cash flow from operations (£m) 31.5 19.7 11.8
Adjusted operating profit (£m) 29.3 34.0 (4.7)
Cash flow from operations conversion (%) 107.6 57.9 49.7
The Group's free cash flow for the year was £17.8 million (2022:
£12.7 million), an increase of £5.1 million. This reflects an improvement
in cash flow from operations offset by higher income tax and interest
payments.
The Group's cash flow from operations for the year was £31.5 million (2022:
£19.7 million), an increase of £11.8 million. This was principally as a
result of a slight reduction in working capital in 2023, compared to an
outflow in 2022 linked to reduced production, combined with a return to
lower levels of capital spend in 2023. Adjusted operating profit for the
period was £29.3 million (2022: £34.0 million), a decrease of
£4.7 million, mainly due to an increase in depreciation. Cash flow from
operations conversion for the year was 107.6% (2022: 57.9%), an increase of
49.7pp, reflecting the movements in cash flow from operations described above.
Capital expenditure
The Group's capital expenditure mainly relate to investment in operating plant
and equipment. The following table sets out the Group's capital expenditure,
including right-of-use assets, net of transfers from assets under
construction.
2023 2022
£m £m
Freehold land and buildings 0.6 2.0
Leasehold buildings 1.1 0.4
Plant and equipment 5.4 7.2
Fixtures, fittings and motor vehicles 2.2 1.6
Intangible assets 0.5 0.2
Total 9.8 11.4
Key capital expenditure in the year ended 31 December 2023 related to the
finalisation of the installation of a new steel panel radiator line at the
Group's facilities in Italy. The Group's capital expenditure will reduce in
future years.
Net debt and leverage
At 31 December 2023, net debt (including finance leases) of £70.3 million
(2022: £78.4 million) comprises £81.8 million (2022: £91.0 million)
drawn down against the multicurrency facility and £9.9 million (2022:
£10.0 million) finance leases net of £21.4 million (2022: £22.6 million)
cash.
2023 2022
£m £m
Revolving credit facility - GBP 46.9 55.3
Revolving credit facility - EUR 10.4 10.6
Term loan 24.5 25.1
Cash (21.4) (22.6)
Net debt before lease liabilities 60.4 68.4
Lease liabilities 9.9 10.0
Net debt 70.3 78.4
Leverage at 31 December 2023 was 1.47x (2022: 1.62x), based on net debt before
lease liabilities. During the year ended 31 December 2023, the Group's
revolving credit facility and term loan facility were extended by two years to
November 2026 by exercising a two year extension option included in the
facility agreement.
Annette Borén
Chief Financial Officer
8 March 2024
Consolidated income statement
for the year ended 31 December 2023
Note 2023 2022
£'000 £'000
Continuing operations
Revenue 3 308,193 316,315
Cost of sales (excluding exceptional items) (221,343) (235,194)
Exceptional items 3 - (1,054)
Cost of sales (221,343) (236,248)
Gross profit 86,850 80,067
Selling and distribution expenses (42,278) (40,800)
Administrative expenses (excluding exceptional items) (16,624) (12,811)
Exceptional items 3 (2,466) (755)
Administrative expenses (19,090) (13,566)
Other operating income/(expenses) 4 1,199 (3,073)
Operating profit 26,681 22,628
Finance income 182 50
Finance costs 5 (7,681) (4,573)
Monetary losses - net - (7,860)
Profit before tax 19,182 10,245
Income tax expense 6 (3,758) (5,936)
Profit for the year 15,424 4,309
Note 2023 2022
Earnings per share
Basic 7 12.11p 3.38p
Diluted 7 12.11p 3.38p
Adjusted earnings per share
Basic 7 13.62p 19.11p
Diluted 7 13.62p 19.11p
Consolidated statement of comprehensive income
for the year ended 31 December 2023
Note 2023 2022
£'000 £'000
Profit for the year 15,424 4,309
Other comprehensive income/(expense)
Other comprehensive income/(expense) that may be reclassified
to profit or loss in subsequent periods:
Net gain on monetary items forming part of net investment in foreign 674 1,691
operations and qualifying hedges of net investments in foreign operations
Income tax effect 6 (158) (631)
Exchange differences on translation of foreign operations (2,250) (5,941)
Net other comprehensive expense that may be reclassified (1,734) (4,881)
to profit or loss in subsequent periods
Other comprehensive expense not to be reclassified
to profit or loss in subsequent periods:
Remeasurement losses on defined benefit plans (936) (1,932)
Income tax effect 6 206 423
Net other comprehensive expense not to be reclassified (730) (1,509)
to profit or loss in subsequent periods
Other comprehensive expense for the year, net of tax (2,464) (6,390)
Total comprehensive income/(expense) for the year, 12,960 (2,081)
net of tax attributable to owners of the parent
Consolidated balance sheet
as at 31 December
2023
Note 2023 2022
£'000 £'000
Assets
Non-current assets
Property, plant and equipment 9 87,247 91,604
Intangible assets 10 5,251 3,855
Trade and other receivables 14 301 317
Deferred tax assets 6 6,685 5,397
99,484 101,173
Current assets
Inventories 13 63,376 77,851
Trade and other receivables 14 50,674 60,497
Income tax receivable 243 235
Cash and cash equivalents 15 21,442 22,641
135,735 161,224
Total assets 235,219 262,397
Equity and liabilities
Equity
Share capital 18 127 127
Share premium 18 - -
Merger reserve (114,469) (114,469)
Retained earnings 233,329 227,849
Foreign currency reserve (63,792) (62,058)
Total equity 55,195 51,449
Non-current liabilities
Interest-bearing loans and borrowings 12 88,227 98,513
Deferred tax liabilities 6 218 2,611
Provisions 17 1,980 1,799
Net employee defined benefit liabilities 4,053 4,542
94,478 107,465
Current liabilities
Trade and other payables 16 78,056 99,214
Financial liabilities 12 318 -
Interest-bearing loans and borrowings 12 2,469 1,520
Income tax payable 1,686 1,829
Provisions 17 3,017 920
85,546 103,483
Total liabilities 180,024 210,948
Total equity and liabilities 235,219 262,397
Consolidated statement of changes in equity
for the year ended 31 December 2023
Attributable to the owners of the parent
Issued share Share Merger Retained Foreign Total
capital premium reserve earnings currency £'000
£'000 £'000 £'000 £'000 £'000
At 1 January 2022 127,353 13,391 (114,469) 57,814 (57,177) 26,912
IAS 29 adjustment - - - 8,327 - 8,327
At 1 January 2022 (restated) 127,353 13,391 (114,469) 66,141 (57,177) 35,239
Profit for the year - - - 4,309 - 4,309
Other comprehensive expense for the year - - - (1,509) (4,881) (6,390)
Total comprehensive income/(expense) - - - 2,800 (4,881) (2,081)
Capital reduction (127,226) (13,391) - 140,617 - -
IAS 29 adjustment to retained earnings in the year - - - 22,982 - 22,982
Share-based payment charge - - - 250 - 250
Dividends paid (note 8) - - - (4,941) - (4,941)
At 31 December 2022 127 - (114,469) 227,849 (62,058) 51,449
Profit for the year - - - 15,424 - 15,424
Other comprehensive expense for the year - - - (730) (1,734) (2,464)
Total comprehensive income/(expense) - - - 14,694 (1,734) 12,960
Share-based payment charge - - - 515 - 515
Dividends paid (note 8) - - - (9,729) - (9,729)
At 31 December 2023 127 - (114,469) 233,329 (63,792) 55,195
Consolidated statement of cash flows
for the year ended 31 December 2023
Note 2023 2022
£'000 £'000
Operating activities
Profit before tax 19,182 10,245
Adjustments to reconcile profit before tax to net cash flows:
- Depreciation of property, plant and equipment 9 11,615 9,700
- Amortisation of intangible assets 10 457 163
- Loss/(gain) on disposal of property, plant and equipment 11 (220)
- Monetary loss IAS 29 - 7,860
- IAS 29 - inflation adjustment before taxation - 3,530
- Share-based payments charge 515 250
- Finance income (182) (50)
- Finance costs 5 7,681 4,573
Working capital adjustments:
- Decrease in trade and other receivables 8,237 1,632
- Decrease in inventories 12,884 5,831
- Decrease in trade and other payables (20,364) (11,528)
- Increase/(decrease) in provisions 2,214 (1,297)
- Movement in other financial liabilities 319 -
- Decrease in other pension provisions (7) (23)
- Difference between pension charge and cash contributions (1,674) (319)
40,888 30,347
Income tax paid (7,497) (3,801)
Interest received 182 50
Net cash flows generated from operating activities 33,573 26,596
Investing activities
Proceeds from sale of property, plant, equipment and intangible assets 352 316
Purchase of property, plant and equipment 9 (6,586) (9,671)
Purchase of intangible assets 10 (507) (164)
Business combination of subsidiaries, net of cash acquired 11 - (20,484)
Net cash flows used in investing activities (6,741) (30,003)
Financing activities
Transaction costs related to refinancing (500) (429)
Proceeds from external borrowings - 34,122
Repayment of external borrowings (8,350) (1,250)
Repayment of borrowings acquired with subsidiary - (10,746)
Payment of lease liabilities (2,619) (2,049)
Interest paid (6,428) (3,269)
Dividends paid 8 (9,729) (4,941)
Net cash flows (used in)/generated from financing activities (27,626) 11,438
Net (decrease)/increase in cash and cash equivalents (794) 8,031
Net foreign exchange difference (405) (953)
Cash and cash equivalents at 1 January 15 22,641 15,563
Cash and cash equivalents at 31 December 15 21,442 22,641
Notes to the consolidated financial statements
for the year ended 31 December 2023
1 Basis of preparation
The results for the year ended 31 December 2023, including comparative
financial information, have been prepared in accordance with UK adopted
international accounting standards ("IFRS") in conformity with the
requirements of the Companies Act 2006 and the disclosure guidance and
transparency rules sourcebook of the United Kingdom's Financial Conduct
Authority.
Stelrad Group plc ("the Company") has adopted all IFRS in issue and effective
for the year.
While the financial information included in this preliminary announcement has
been prepared in accordance
with the recognition and measurement criteria of IFRS, this announcement does
not itself contain sufficient
information to comply with IFRS. The Company expects to publish full financial
statements that comply with
IFRS in March 2024.
The financial information set out above does not constitute the Company's
statutory accounts for the years
ended 31 December 2023 but is derived from those accounts. Statutory accounts
for 2023 will be delivered in due course. The auditors have reported on those
accounts: their report was unqualified, did not draw attention to any matters
by way of emphasis and did not contain statements under s498 (2) or (3) of the
Companies Act 2006.
Going concern
Having considered the Group's current trading, cash flow generation and debt
maturity and applying severe but plausible stress testing scenarios, the
Directors have concluded that it is appropriate to prepare the consolidated
financial statements on a going concern basis. Under a severe but plausible
downside scenario, the Group remains within its debt facilities and its
financial covenants until 31 December 2026. Based on this going concern
review, the Directors have concluded that, at the time of approving the
financial statements, the Group will be able to continue to operate within its
existing facilities and is well placed to manage its business risks
successfully.
The financial information presented in respect of the year ended 31 December
2023 has been prepared on a basis consistent with the financial information
presented for the year ended 31 December 2022 except for IAS 29 which is no
longer applied.
2 Significant accounting judgements, estimates and assumptions
The preparation of the Group's consolidated financial statements requires
management to make judgements, estimates and assumptions that affect the
reported amounts of revenues, expenses, assets and liabilities, and the
accompanying disclosures, and the disclosure of contingent liabilities.
Uncertainty about these assumptions and estimates could result in outcomes
that require a material adjustment to the carrying amount of assets or
liabilities affected in future periods.
Judgements
In the process of applying the Group's accounting policies, management has
made judgements which would have a significant effect on the amounts
recognised in the consolidated financial statements.
Functional currency
Following the economic crisis in Turkey in 2018 the Group has tried to limit
its exposure to volatility in Turkish Lira (TL) in the Turkish business. Over
that time export growth opportunities for the Turkish business have also
increased as the Group has looked to take advantage of the lower manufacturing
cost in Turkey. Both of these factors have resulted in a gradual decrease in
sales into the local Turkish market with the percentage of the Turkish
business' sales in TL over that period reducing to c.15% of total sales in
Turkey. The strategic focus for the Turkish business has evolved over that
time and following the installation of two additional radiator manufacturing
lines in the Group's Turkish factory, the Directors confirmed that a strategic
change was now complete and that the Turkish business would be operated
primarily as an export company going forward. Based on this decision the
Directors recognised they needed to consider whether the functional currency
for the Turkish business should be changed taking into account IAS 21
paragraph 13 which stipulates that the functional currency should only be
changed when there is a change in the relevant underlying transactions, events
and conditions.
When considering whether or not there had been a change in the underlying
transactions, events and conditions the Directors considered the increased
production capabilities at the Turkish factory arising from the installation
of the two additional manufacturing lines, which are predominantly to serve
the European and UK export markets, and the resultant sales to European and UK
export markets that this change has created. They considered this alongside
the steady reduction in TL sales and rise in Euro and GBP sales in recent
years. In the Directors' judgement these factors confirm that there has been a
change in the currency profile of the Turkish business which is now a
permanent change and is expected to continue. As a result, the Directors
carried out a review of the functional currency of the Turkish business by
reference to the primary and secondary indicators outlined in IAS 21 The
Effects of Changes in Foreign Exchange Rates. Another relevant factor that the
Directors took into consideration was the decision from 1 January 2023 to put
in place Euro:USD forward contracts at the point of purchase for all USD
purchases and Euro:GBP forward contracts at the point of sale for all GBP
sales made by the Turkish business.
The results of this review, which are outlined below, led the Directors to
decide that it was necessary to change the functional currency of the Turkish
business from Turkish Lira to Euros from 1 January 2023.
An analysis of the functional currency of the Turkish business by reference to
the key indicators outlined in IAS 21 The Effects of Changes in Foreign
Exchange Rates is outlined below:
Indicator Analysis
Sales price A high proportion of sales are denominated and settled in GBP and Euro due to
the predominant sales markets being GBP (UK) and Euro (Europe) denominated.
The currency that mainly influences sales prices for goods and services (this These two currencies now make up approximately 80 - 85% of total sales for the
will often be the currency in which sales prices for goods and services are Turkish business.
denominated and settled).
Local competition in the UK and European sales markets dictates the sales
price. Sales prices are negotiated in both GBP and Euro.
Selling prices and margins for all customers in all geographies are analysed,
benchmarked and assessed by the business in Euros.
Sales market The predominant sales markets are GBP (UK) and Euro (Europe) denominated.
The currency of the country whose competitive forces and regulations mainly
determine the sales prices of goods and services.
Costs Raw material purchases are denominated in USD and Euro. Selling and
distribution expenses and administrative expenses are denominated in Euro and
The currency that mainly influences labour, material and other costs of TL. Employee and utilities costs are denominated in TL, with management
providing goods or services (this will often be the currency in which such salaries being benchmarked against Euro equivalents annually. Capital
costs are denominated and settled). expenditure is predominantly in Euro including one of the two recently
installed additional manufacturing lines.
Financing Intercompany loans are denominated in Euro.
The currency in which funds from financing activities (i.e. issuing debt and Historically, external loan arrangements, where undertaken, have been
equity instruments) are generated. exclusively in Euro.
Cash flows The majority of excess cash from operating activities is retained in Euro.
The currency in which receipts from operating activities are usually retained. Since 1 January 2023, Euro:USD forward contracts are put in place at the point
of purchase for USD purchases made by the Turkish business, and Euro:GBP
forward contracts are put in place at the point of sale for GBP sales made by
the Turkish business. As a result, Euro is the currency that underpins the
majority of cash flows.
Cash balances exists in GBP and USD intermittently following receipt of income
and in advance of supplier payments being made. A small amount of cash is
retained in TL for local funding.
Dividends from the business are made in Euro.
Based on the indicators for functional currency being mixed between Euro, GBP
and USD, IAS 21 requires the Directors to use their judgement to determine the
functional currency that most faithfully represents the economic effects of
the underlying transactions, events and conditions.
In the judgement of the Directors, the functional currency is Euro based on
the following factors:
· the agreed strategy to operate the Turkish business primarily as
an export company;
· Euro accounts for a significant proportion of both sales and
costs;
· all financing is carried out in Euro;
· excess cash from operating activities is retained in Euro, with
the use of Euro:USD forward contracts for USD purchases and Euro:GBP forward
contracts for GBP sales. As a result, Euro is the currency that underpins the
majority of cash flows;
· the increase in production capabilities in the second half of
2022 was carried out to accommodate higher Euro sales; and
· the Turkish business has historically prepared its Group level
reporting information in Euro.
The Directors recognise that determining whether or not there has been a
change in the relevant underlying transactions, events and conditions in
relation to the Turkish business and the functional currency of the Turkish
business are critical judgements.
Business combinations
In July 2022, the Group acquired Radiators SpA, an Italian manufacturer of
heat emitters, for €28.3 million.
As a result, an exercise was undertaken to measure the fair value of assets
and liabilities acquired as part of the business combination. This included
ascertaining a fair value for all inventory acquired as part of the business
combination. Management exercised judgement in determining whether any
additional intangible assets, such as customer relationships, should be
identified and the valuation assigned to these. Management engaged with
experts in order to assist with the valuation of certain tangible and
intangible assets, including customer relationships. The opening acquisition
balance sheet was finalised in the period with the changes from the initial
assessment outlined in note 11.
Impairment of non-financial assets
Intangible assets, including goodwill, that have an indefinite useful life are
not subject to amortisation and are tested annually for impairment. Assets
that are subject to amortisation are reviewed for impairment whenever events
or circumstances indicate that the carrying amount may not be recoverable.
Details of the impairment assessment of goodwill are disclosed in note 10.
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date, which have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are described below. The Group based its assumptions
and estimates on parameters available when the consolidated financial
statements were prepared. Existing circumstances and assumptions about future
developments, however, may change due to market changes or circumstances
arising beyond the control of the Group. Such changes are reflected in the
assumptions when they occur.
Rebates
A proportion of rebates is paid to the end consumers of goods sold.
Uncertainties exist over the value of rebates recognised as, until claims are
made by end consumers, the Group cannot be certain which consumers have
purchased which products. Due to this uncertainty it is therefore judgemental
what contractual rates, if any, will apply to goods sold.
Significant management judgement is required in order to assess the level of
rebate required at the balance sheet date. Management is able to utilise
market information and historical/current data and trends in order to make an
appropriate estimate.
A reasonably possible change in the estimates surrounding rebates would not
result in a material impact to the financial statements.
3 Segmental information
IFRS 8 Operating Segments requires operating segments to be determined from
the Group's internal reporting to the Chief Operating Decision Maker ("CODM").
The CODM has been determined to be the Chief Executive Officer and Chief
Financial Officer, who receive information on the Group's revenue channels in
key geographical regions based on the Group's management and internal
reporting structure. The CODM assesses the performance of geographical
segments based on a measure of revenue and adjusted operating profit.
Adjusted operating profit is earnings before interest, tax, amortisation of
customer relationships, exceptional items, the impact of IAS 29 (until 31
December 2022) and foreign exchange differences (until 31 December 2022).
IAS 29 was applied in the year ended 31 December 2022. The impact of IAS 29
has been removed in arriving at adjusted operating profit, as management
believes that the pre-IAS 29 results give a more meaningful presentation of
the Group's underlying performance.
On 1 January 2023, the functional currency of the Turkish business was changed
from Turkish Lira to Euro and, as a result, IAS 29 is no longer being applied
after this date. Also, after this date, the impact of foreign exchange
differences is no longer adjusted for in arriving at adjusted operating
profit.
Revenue by geographical market
2023 2022
£'000 £'000
UK & Ireland 139,422 140,066
Europe 149,063 149,673
Turkey & International 19,708 26,576
Total revenue 308,193 316,315
The revenue arising in the UK, being the Company's country of domicile, was
£133,323,000 (2022: £133,458,000).
Adjusted operating profit by geographical market
2023 2022
£'000 £'000
UK & Ireland 24,485 22,716
Europe 9,061 13,877
Turkey & International 1,348 2,055
Central costs (5,606) (4,668)
Adjusted operating profit 29,288 33,980
Exceptional items (2,466) (1,809)
Amortisation of customer relationships (141) (57)
Foreign exchange differences - (3,446)
Impact of IAS 29 - (6,040)
Operating profit 26,681 22,628
In the year ended 31 December 2023 the exceptional items relate to a
£2,908,000 restructuring exercise undertaken in quarter four of the year in
order to drive cost savings for future periods, partially offset by
exceptional income related to the acquisition of Radiators SpA of £442,000.
In the year ended 31 December 2022 the exceptional items within administrative
expenses of £755,000 relate to redundancy costs and acquisition costs, and
the exceptional item within cost of sales of £1,054,000 relates to the
reversal of the IFRS 3 fair value uplift on finished goods and work in
progress.
All exceptional items have been presented as such because they are one-off in
nature and separate disclosure allows the underlying trading performance of
the Group to be better understood.
The revenue information above is based on the locations of the customers. All
revenue arises from the sale of goods.
No customer has revenues in excess of 10% of revenue (2022: none).
Non-current operating assets
2023 2022
£'000 £'000
UK 17,547 18,823
The Netherlands 20,581 22,757
Turkey 26,500 26,854
Italy 26,818 25,786
Other 1,052 1,239
Total 92,498 95,459
4 Other operating income/(expenses)
2023 2022
£'000 £'000
Net (loss) / gain on disposal of property, plant and equipment (11) 220
Foreign currency gains / (losses) 1,736 (3,446)
Net losses on forward derivative contracts (689) -
Sundry other expenses - environmental claim (104) -
Sundry other income 267 153
1,199 (3,073)
5 Finance costs
2023 2022
£'000 £'000
Interest on bank loans 5,663 2,564
Amortisation of loan issue costs 513 492
Interest expense on defined benefit liabilities 357 481
Finance charges payable on lease liabilities 120 124
Other finance charges 1,028 912
7,681 4,573
6 Income tax expense
The major components of income tax expense are as follows:
2023 2022
£'000 £'000
Consolidated income statement
Current income tax:
Current income tax charge 7,214 4,090
Adjustments in respect of current income tax charge of previous year 10 (290)
Deferred tax:
Relating to origination and reversal of temporary differences (3,466) 2,802
Relating to change in tax rates - (666)
Income tax expense reported in the income statement 3,758 5,936
2023 2022
£'000 £'000
Consolidated statement of comprehensive income
Tax related to items recognised in other comprehensive income/(expense) during
the year:
Deferred tax on actuarial loss (206) (423)
Current tax on monetary items forming part of net investment and on hedges of 158 631
net investment
Income tax (credited)/expensed to other comprehensive income (48) 208
Reconciliation of tax expense and the accounting profit at the tax rate in the
United Kingdom of 23.5% (2022: 19%):
2023 2022
£'000 £'000
Profit before tax 19,182 10,245
Profit before tax multiplied by standard rate of corporation tax in the UK of 4,508 1,947
23.5% (2022: 19%):
Adjustments in respect of current income tax charge of previous year 10 (290)
Non-deductible expenses 60 147
Adjustments due to IAS 29 - non-tax deductible expenses - 4,779
Differences arising due to tax losses 1,205 (321)
Other timing differences (including 2023 inflation adjustment to Turkish tax (3,163) (161)
assets)
Benefit of overseas investment incentives (263) (1,042)
Withholding tax on dividend income 1,760 527
Effect of changes in overseas tax rates - (127)
Effect of different overseas tax rates (359) 1,016
Effect of changes in UK deferred tax rate - (539)
Total tax expense reported in the income statement 3,758 5,936
Deferred tax
Deferred tax relates to the following:
Consolidated balance sheet Consolidated income statement
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Capital allowances 279 204 (538) (730)
Pension 719 806 (275) 10
Fixed asset fair value adjustments (1,421) (1,711) 252 116
Losses available for offsetting against future income 4,387 5,471 (1,039) 572
Other temporary differences 2,503 (1,984) 5,066 (2,104)
Deferred tax credit/(charge) 3,466 (2,136)
Net deferred tax assets 6,467 2,786
Reflected in the balance sheet as:
Deferred tax assets 6,685 5,397
Deferred tax liabilities (218) (2,611)
Deferred tax assets, net 6,467 2,786
Reconciliation of deferred tax assets, net
2023 2022
£'000 £'000
Opening balance as at 1 January 2,786 6,158
On business combination - 315
IAS 29 opening balance sheet adjustment - (2,284)
Tax income/(charge) recognised in income statement 3,466 (2,136)
Tax income recognised in other comprehensive income/(expense) 206 423
Exchange adjustment 9 310
Closing balance as at 31 December 6,467 2,786
The Group offsets tax assets and liabilities if it has a legally enforceable
right to set them off and they are levied by the same tax authority. Deferred
tax assets in respect of losses of £2,130,000 (2022: £1,821,000) have been
recognised in respect of two (2022: two) loss making subsidiary companies;
these are recognised on the grounds of future projected performance.
Deferred tax asset recognition
During the years ended 31 December 2022 and 31 December 2023, the Group chose
to derecognise certain tax losses, in particular those arising from Corporate
Interest Restriction ("CIR") rules. An increase in debt to finance the
acquisition of Radiators SpA and an increase in interest rates mean that these
tax losses will take longer to utilise and therefore an element has been
derecognised.
The deferred tax assets have been analysed in detail at the year end and the
recognition of assets, in particular those in respect of tax losses, has been
scrutinised in detail with modelling undertaken to ensure that they are likely
to be utilised over a period of time where profitability can be estimated with
reasonable certainty.
Unrecognised deferred tax balances
2023 2022
£'000 £'000
Capital allowances 20 17
Losses available for offsetting against future income 3,733 2,810
3,753 2,827
The Group has tax losses which arose in the United Kingdom of £14,932,000
(2022: £11,240,000) that are available indefinitely for offsetting against
future taxable profits of the companies in which the losses arose. Deferred
tax assets have not been recognised in respect of these losses as they either
relate to CIR losses which cannot be reliably utilised in the short term or
they arose prior to April 2017 in subsidiaries that are not profit making and
where there is no evidence of recoverability in the near future.
Changes in the corporate income tax rate
The UK corporation tax rate rose to 25% from 1 April 2023.
7 Earnings per share
2023 2022
£'000 £'000
Net profit for the year attributable to owners of the parent 15,424 4,309
Exceptional items 2,466 1,809
Amortisation of customer relationships 141 57
Foreign exchange differences - 3,446
Impact of IAS 29 - 13,906
Tax on exceptional items (651) (462)
Tax on foreign exchange differences - (656)
Tax on amortisation of customer relationships (39) (16)
Tax on IAS 29 - 1,940
Adjusted net profit for the year attributable to owners of the parent 17,341 24,333
IAS 29 was applied in the year ended 31 December 2022. The impact of IAS 29
has been removed in arriving at adjusted net profit, as management believes
that the pre-IAS 29 results give a more meaningful presentation of the Group's
underlying performance.
On 1 January 2023, the functional currency of the Turkish business was changed
from Turkish Lira to Euro and, as a result, IAS 29 is no longer being applied
after this date. Also, after this date, the impact of foreign exchange
differences is no longer adjusted for in arriving at adjusted net profit.
2023 2022
Number Number
Basic weighted average number of shares in issue 127,352,555 127,352,555
Diluted weighted average number of shares in issue 127,352,555 127,352,555
Earnings per share
Basic earnings per share (pence per share) 12.11 3.38
Diluted earnings per share (pence per share) 12.11 3.38
Adjusted earnings per share
Basic earnings per share (pence per share) 13.62 19.11
Diluted earnings per share (pence per share) 13.62 19.11
8 Dividends paid
The Board is recommending a final dividend of 4.72 pence per share (2022: 4.72
pence per share), which, if approved, will mean a final dividend payment of
£6,011,000 (2022: £6,011,000).
The proposed final dividend is subject to approval by shareholders at the
Annual General Meeting and has not been included as a liability in these
consolidated financial statements.
2023 2022
£'000 £'000
Declared and paid during the year
Equity dividend on ordinary shares:
Final dividend for 2022: 4.72p per share (2021: 0.96p per share) 6,011 1,223
Interim dividend for 2023: 2.92p per share (2022: 2.92p per share) 3,718 3,718
9,729 4,941
2023 2022
£'000 £'000
Dividend proposed (not recognised as a liability)
Equity dividend on ordinary shares:
Final dividend for 2023: 4.72p per share (2022: 4.72p per share) 6,011 6,011
9 Property, plant and equipment
Freehold land Leasehold Assets under Plant and Fixtures, Total
and buildings buildings construction equipment fittings and motor vehicles £'000
£'000 £'000 £'000 £'000 £'000
Cost
At 31 December 2021 21,828 11,019 4,768 47,906 6,919 92,440
IAS 29 opening adjustment 7,282 - 31 14,517 1,005 22,835
At 1 January 2022 29,110 11,019 4,799 62,423 7,924 115,275
On business combination 10,608 127 974 4,321 1,498 17,528
Additions 228 427 7,773 1,577 1,276 11,281
Transfers 1,820 - (6,183) 4,068 295 -
Disposals - - - (94) (488) (582)
IAS 29 adjustment 5,528 - - 13,853 922 20,303
Exchange adjustment (821) 649 (94) (2,760) (193) (3,219)
At 31 December 2022 46,473 12,222 7,269 83,388 11,234 160,586
Additions 233 1,100 3,616 2,833 1,483 9,265
Transfers 406 - (9,539) 8,434 699 -
Disposals (88) (292) - (3,779) (1,006) (5,165)
Exchange adjustment (822) (289) (80) (1,798) (130) (3,119)
At 31 December 2023 46,202 12,741 1,266 89,078 12,280 161,567
Accumulated depreciation and impairment
At 31 December 2021 9,302 3,123 - 21,316 5,005 38,746
IAS 29 opening adjustment 1,845 - - 10,748 847 13,440
At 1 January 2022 11,147 3,123 - 32,064 5,852 52,186
Depreciation charge 1,289 1,330 - 5,785 1,296 9,700
Transfers - - - (101) 101 -
Disposals - - - (87) (457) (544)
IAS 29 adjustment 1,180 - - 7,502 575 9,257
Exchange adjustment (241) 230 - (1,399) (207) (1,617)
At 31 December 2022 13,375 4,683 - 43,764 7,160 68,982
Depreciation charge 1,634 1,482 - 6,676 1,823 11,615
Disposals (88) (292) - (3,577) (877) (4,834)
Exchange adjustment (172) (113) - (1,097) (61) (1,443)
At 31 December 2023 14,749 5,760 - 45,766 8,045 74,320
Net book value
At 31 December 2023 31,453 6,981 1,266 43,312 4,235 87,247
At 31 December 2022 33,098 7,539 7,269 39,624 4,074 91,604
At 31 December 2021 12,526 7,896 4,768 26,590 1,914 53,694
The carrying value of right-of-use assets within property, plant and
equipment, by line item, at the year end is:
2023 2022
£'000 £'000
Leasehold buildings 6,927 7,466
Plant and equipment 1,255 896
Fixtures, fittings and motor vehicles 1,700 1,672
9,882 10,034
Right-of-use asset additions within property, plant and equipment, by line
item, during the year are:
2023 2022
£'000 £'000
Leasehold buildings 1,090 418
Plant and equipment 731 153
Fixtures, fittings and motor vehicles 858 1,039
2,679 1,610
Depreciation of right-of-use assets within property, plant and equipment, by
line item, during the year is:
2023 2022
£'000 £'000
Leasehold buildings 1,456 1,307
Plant and equipment 374 282
Fixtures, fittings and motor vehicles 700 439
2,530 2,028
Land and buildings with a carrying amount of £20,022,000 (2022: £21,547,000)
are subject to a first charge to secure the Group's bank loan.
No borrowing costs have been capitalised since the assets have not met the
criteria for qualifying assets.
10 Intangible assets
Goodwill Customer Technology Total
£'000 relationships and software £'000
£'000 costs
£'000
Cost
At 1 January 2023 1,294 1,865 865 4,024
Final fair value adjustment on business combination 1,481 - - 1,481
Additions - - 507 507
Disposals - - (32) (32)
Exchange adjustment (43) (43) (21) (107)
At 31 December 2023 2,732 1,822 1,319 5,873
Accumulated amortisation and impairment
At 1 January 2023 - 59 110 169
Depreciation charge - 141 316 457
Disposals - - - -
Exchange adjustment - (1) (3) (4)
At 31 December 2023 - 199 423 622
Net book value
At 31 December 2023 2,732 1,623 896 5,251
At 31 December 2022 1,294 1,806 755 3,855
Included in technology and software costs are assets under construction of
£126,000 (2022: £345,000), which are not amortised. The remaining
amortisation period of the customer relationships, being those acquired upon
the acquisition of Radiators SpA, is eleven years and seven months.
Impairment assessment of goodwill
Goodwill is not amortised but is subject to annual impairment testing. All of
the goodwill recognised is allocated to a single cash-generating unit ("CGU"),
being the Radiators SpA division. A CGU represents the lowest level in the
Group at which goodwill is monitored for internal management purposes.
Impairment tests on the carrying amounts of goodwill are performed by
analysing the carrying amount allocated to each CGU against its value in use.
Value in use is calculated for each CGU as the net present value of that CGU's
discounted future pre-tax cash flows covering a three-year period. These
pre-tax cash flows are based on budgeted cash flows information for a period
of three years. Terminal growth rates of 2% have been applied beyond this,
based on historical macroeconomic performance and projections of the sector
served by the CGUs.
When assessing for impairment of goodwill, management has considered the
impact of climate change, particularly in the context of the risks and
opportunities identified within the Task Force on Climate-related Financial
Disclosures Report, and has not identified any material short-term impacts
from climate change that would impact the carrying value of goodwill. Over the
longer term, the risks and opportunities are more uncertain, and management
will continue to assess the quantitative impact of risks at each balance sheet
date.
A pre-tax discount rate of 15.32% has been applied in determining the
recoverable amounts of CGUs. The pre-tax discount rate is estimated based on
the Group's risk adjusted cost of capital. Other key assumptions include
EBITDA, which is included in the terminal value at a margin of 7.7%.
The Group has applied sensitivities to assess whether any reasonably possible
changes in assumptions could cause an impairment that would be material to
these consolidated financial statements. Details of the sensitivity analysis
are disclosed in relation to Radiators SpA because it is sensitive to changes
in assumptions. The base case scenario for Radiators SpA has headroom of
£1.9 million. A change in EBITDA margin of 0.5% percentage points, holding
all other assumptions constant, would erode the headroom to zero for Radiators
SpA. A change in discount rate of 0.75%, holding all other assumptions
constant, would erode the headroom to zero for Radiators SpA. A reasonably
possible change to the EBITDA margin of 1.0% would give rise to an impairment
of £1.6 million.
11 Business combinations
On 13 July 2022, Stelrad Radiator Holdings Limited, a wholly owned subsidiary
of the Group, acquired 100% of Radiators SpA, a radiator manufacturer
incorporated in Italy. The total consideration paid was €28,346,000.
The fair value of the net assets acquired was as follows:
Book value Provisional fair value Fair value at 31 December 2022 Final fair value adjustments Fair value at 31 December 2023
£'000 adjustments £'000 £'000 £'000
£'000
Intangible assets 713 1,761 2,474 - 2,474
Property, plant and equipment 11,054 6,474 17,528 - 17,528
Inventory 24,499 1,034 25,533 (398) 25,135
Trade and other receivables 17,837 - 17,837 (952) 16,885
Trade and other payables (28,403) - (28,403) - (28,403)
Deferred taxation 1,853 (1,538) 315 - 315
Current taxation (49) - (49) - (49)
Cash and cash equivalents 3,490 - 3,490 - 3,490
Provisions (3,580) - (3,580) (131) (3,711)
Pension liabilities (1,033) - (1,033) - (1,033)
Loans and other borrowings (11,360) - (11,360) - (11,360)
Total identifiable net assets 15,021 7,731 22,752 (1,481) 21,271
Goodwill on the business combination 1,222 2,703
Discharged by:
Cash consideration 23,974 23,974
During the year ended 31 December 2023, the provisional fair values of the
identifiable net assets were revisited with the fair value reduced by
£1,481,000 which increased the goodwill value to £2,703,000. Goodwill of
£2,703,000 reflects certain intangibles that cannot be individually separated
and reliably measured due to their nature. These items include the value of
expected synergies arising from the business combination and the experience
and skill of the acquired workforce. The fair value of the customer
relationships was identified and included in intangible assets.
The gross amount of trade and other receivables is £18,681,000 in both the
provisional and final fair values. All of the trade and other receivables are
expected to be collected in full, other than those that have been provided
for.
Transaction costs relating to professional fees associated with the business
combination in the year ended 31 December 2023 were £81,000 (2022: £251,000)
and have been expensed.
During the year ended 31 December 2022, Radiators SpA generated revenue of
£31,541,000 and a loss of £405,000 (adjusted profit of £485,000) in the
period from acquisition to 31 December 2022 which are included in the
consolidated statement of comprehensive income for this reporting period. If
the combination had taken place at 1 January 2022, the Group's revenue would
have been £40,588,000 higher and the profit for the year from continuing
operations would have been £1,296,000 lower than reported.
12 Financial liabilities
a) Financial liabilities - other - not interest bearing
Financial instruments through profit or loss reflect the positive change in
fair value of those foreign exchange forward contracts that are not designated
in hedge relationships, but are, nevertheless, intended to reduce the level of
foreign currency risk for expected sales and purchases.
Liabilities 2023 2022
£'000 £'000
Financial instruments at fair value through profit or loss
Derivatives not designated as hedges - foreign exchange forward contracts 318 -
Total instruments at fair value through profit or loss 318 -
Current 318 -
Non-current - -
b) Financial liabilities - interest bearing loans and borrowings
Effective Maturity 2023 2022
interest rate £'000 £'000
%
Current interest-bearing loans and borrowings
Lease liabilities 2,469 1,520
2,469 1,520
Non-current interest-bearing loans and borrowings
Lease liabilities 7,402 8,516
Revolving credit facility - GBP SONIA + 2.25% 9 Nov 2026 46,900 55,250
Revolving credit facility - Euro Euribor + 2.25% 9 Nov 2026 10,399 10,647
Term loan Euribor + 2.25% 9 Nov 2026 24,563 25,150
Unamortised loan costs (1,037) (1,050)
88,227 98,513
Total interest-bearing loans and borrowings 90,696 100,033
On 10 November 2021, the Group refinanced its external debt as part of the IPO
and entered into an £80 million revolving credit facility ("RCF") jointly
financed by National Westminster Bank plc and Barclays Bank PLC, which was
first drawn on 10 November 2021.
On 8 July 2022, the £80 million revolving credit facility was increased by
£20 million by means of an accordion option. The facility consists of a
£76.027 million revolving credit facility and a €28.346 million term loan
facility.
During the year ended 31 December 2023, the £76.027 million revolving credit
facility and the €28.346 million term loan facility were extended by two
years to 9 November 2026 by exercising the two-year extension option included
in the facility agreement.
The RCF and term loan facilities are secured on the assets of certain
subsidiaries within the Group.
c) Changes in liabilities arising from financing activities
I January 2023 Cash flows Non-cash changes 31 December 2023
£'000 £'000 £'000 £'000
Revolving credit facility - GBP 55,250 (8,350) - 46,900
Revolving credit facility - Euro 10,647 - (248) 10,399
Term loan 25,150 - (587) 24,563
Lease liabilities 10,036 (2,619) 2,454 9,871
Cash and cash equivalents (22,641) 794 405 (21,442)
Net liabilities arising from financing activities 78,442 (10,175) 2,024 70,291
13 Inventories
2023 2022
£'000 £'000
Raw materials - cost 21,723 32,111
Work in progress - cost 3,327 3,530
Finished goods - lower of cost and net realisable value 34,509 38,974
Other consumables 3,817 3,236
63,376 77,851
The cost of inventories recognised as an expense in the year was £221,343,000
(2022: £236,248,000). The provision for the impairment of stocks increased in
the year, giving rise to a cost of £355,000 (2022: cost of £138,000). At 31
December 2023, the provision for the impairment of stocks was £3,347,000
(2022: £2,640,000).
14 Trade and other receivables
2023 2022
£'000 £'000
Current
Trade receivables 47,619 55,739
Other receivables 2,462 4,197
Prepayments 593 561
50,674 60,497
Non-current
Other receivables 301 317
301 317
The table below sets out the movements in the allowance for expected credit
losses of trade receivables:
2023 2022
£'000 £'000
At 1 January 763 204
On business combination - 844
Charge for the year 155 -
Utilised - (223)
Unused amounts reversed (95) (122)
Exchange adjustment (17) 60
At 31 December 806 763
As at 31 December, the details of the provision matrix used to calculate
provisions for trade receivables (with the ageing gross of impairment) are as
follows:
Total Current <30 days 30-90 days >90 days
£'000 £'000 £'000 £'000 £'000
2023
Gross carrying amount 48,425 41,635 4,600 777 1,413
Expected credit loss rate (%) 2 - 1 16 45
Expected credit loss 806 - 46 125 635
2022
Gross carrying amount 56,502 49,403 3,217 3,056 826
Expected credit loss rate (%) 1 - 1 3 77
Expected credit loss 763 - 32 92 639
15 Cash and cash equivalents
2023 2022
£'000 £'000
Cash at bank and on hand 21,442 22,641
16 Trade and other payables
2023 2022
£'000 £'000
Current
Trade payables 49,263 73,903
Other payables and accruals 22,319 18,860
Other taxes and social security 5,685 6,045
Interest payable 789 406
78,056 99,214
17 Provisions
Warranty Compensation Restructuring Unused Total
£'000 fund £'000 vacation £'000
£'000 £'000
At 1 January 2022 35 - - 302 337
On business combination 587 1,125 1,868 - 3,580
Arising during the year 218 12 - 537 767
Utilised (274) (5) (1,184) (557) (2,020)
Unused amounts reversed - - (27) (16) (43)
Exchange adjustment 27 67 62 (58) 98
At 31 December 2022 593 1,199 719 208 2,719
On business combination - - 131 - 131
Arising during the year 864 50 2,652 728 4,294
Utilised (696) - (799) (506) (2,001)
Exchange adjustment (15) (29) (19) (83) (146)
At 31 December 2023 746 1,220 2,684 347 4,997
Current 194 - 2,684 139 3,017
Non-current 552 1,220 - 208 1,980
Compensation fund
The supplementary customer compensation fund is made in accordance with
European legislation to provide for potential severance payments to agents.
Restructuring
Restructuring provisions at 31 December 2023 relate to a Group-wide
restructuring programme undertaken to drive cost savings for future periods.
Restructuring provisions at 31 December 2022 related to the remaining costs
still to be settled in respect of the closure of a manufacturing site in
Italy. The site was closed prior to the acquisition of Radiators SpA and the
costs were provided for at the point of acquisition.
Unused vacation
A provision is recognised in respect of an unused vacation pay liability due
to certain employees in Turkey. The timing of the provision is dependent on
the rate at which employees take additional vacation.
18 Share capital and reserves
2023 2023 2022 2022
Number £ Number £
Authorised, called up and fully paid
Ordinary shares of £0.001 each 127,352,555 127,353 127,352,555 127,353
127,353 127,353
On 25 January 2022, a capital reduction application was approved by the
courts, reducing the value of ordinary shares in issue from £1 to £0.001.
Under the same application the courts approved the reduction of the Company's
share premium account in full. The reduction of share capital and share
premium was transferred to retained earnings.
19 Commitments and contingencies
Commitments
Amounts contracted for but not provided in the financial statements amounted
to £215,000 (2022: £433,000) for the Group. All amounts relate to property,
plant and equipment.
Contingent liabilities
Termo Teknik Ticaret ve Sanayi A.S. has issued letters of guarantee and
letters of credit to its steel suppliers amounting to $18,309,000 (2022:
$22,685,000) and $10,204,000 (2022: $11,175,000) respectively. Termo Teknik
Ticaret ve Sanayi A.S. has also issued letters of guarantee denominated in
Turkish Lira totalling TL14,876,000 (2022: TL13,220,000).
The Group enters into various forward currency contracts to manage the risk of
foreign currency exposures on certain purchases and sales. The total amount of
unsettled forward contracts as at 31 December 2023 is £12,197,000 (2022:
£nil) on purchases and £20,750,000 (2022: £nil) on sales.
The fair value of the unsettled forward contracts held at the balance sheet
date, determined by reference to their market values, is a liability of
£318,000 (2022: £nil).
As part of the £100 million loan facility, entered into in November 2021, and
amended on 8 July 2022, the Group is party to a cross-collateral agreement
secured on specific assets of certain Group companies. No liability is
expected to arise from the agreement.
Under an unlimited multilateral guarantee, the Company, in common with certain
fellow subsidiary undertakings in the UK, has jointly and severally guaranteed
the obligations falling due under the Company's net overdraft facilities. No
liability is expected to arise from this arrangement.
Reconciliation of alternative performance measures and glossary of terms
The Group uses some alternative performance measures to monitor and assess the
underlying performance of the business. These measures include adjusted
operating profit and adjusted profit for the year. These measures are deemed
useful as they aid comparability year on year. The use of alternative
performance measures compared to statutory IFRS measures does give rise to
limitations, including a lack of comparability across companies and the
potential for them to present a more favourable view. Further, these measures
are not a substitute for IFRS measures of profit. Alternative performance
measures are defined in the glossary of terms below. Alternative performance
measures are reconciled to the appropriate financial statements line item
being disclosed.
On 1 January 2023, the functional currency of the Turkish business was changed
from Turkish Lira to Euro and, as a result, IAS 29 is no longer being applied
after this date. As a result of the change in functional currency, the foreign
exchange differences are no longer adjusted for in the Group's alternative
performance measures and the IAS 29 differences no longer arise.
Reconciliation of adjusted profit for the year and adjusted earnings per share
2023 2022
£'000 £'000
Profit for the year 15,424 4,309
Adjusted for:
Exceptional items 2,466 1,809
Amortisation of customer relationships 141 57
Foreign exchange differences (2022 only) - 3,446
Impact of IAS 29 (2022 only) - 13,906
Tax on exceptional items (651) (462)
Tax on foreign exchange differences (2022 only) - (656)
Tax on amortisation of customer relationships (39) (16)
Tax on impact of IAS 29 (2022 only) - 1,940
Adjusted profit for the year 17,341 24,333
Basic weighted average number of shares in issue 127,352,555 127,352,555
Diluted weighted average number of shares in issue 127,352,555 127,352,555
Earnings per share
Basic earnings per share (pence per share) 12.11 3.38
Diluted earnings per share (pence per share) 12.11 3.38
Adjusted earnings per share
Basic earnings per share (pence per share) 13.62 19.11
Diluted earnings per share (pence per share) 13.62 19.11
Reconciliation of adjusted operating profit and EBITDA
2023 2022
£'000 £'000
Operating profit 26,681 22,628
Adjusted for:
Exceptional items 2,466 1,809
Amortisation of customer relationships 141 57
Foreign exchange differences (2022 only) - 3,446
Impact of IAS 29 (2022 only) - 6,040
Adjusted operating profit 29,288 33,980
Adjusted for:
Depreciation (excluding IAS 29 depreciation of £1,628,000 - 2022 only) 11,615 8,072
Amortisation (excluding customer relationships) 316 106
EBITDA 41,219 42,158
Reconciliation of cash flow from operations, adjusted cash flow from
operations and free cash flow
2023 2022
£'000 £'000
EBITDA (see reconciliation above) 41,219 42,158
Adjusted for:
Exceptional items (2,466) (1,809)
Loss/(gain) on disposal of property, plant and equipment 11 (220)
Share-based payments 515 250
Working capital adjustments (adjusted for foreign exchange - 2022 only) 1,609 (9,150)
Net capital expenditure (9,360) (11,568)
Cash flow from operations 31,528 19,661
Income tax paid (7,497) (3,801)
Interest paid - net (6,246) (3,219)
Free cash flow 17,785 12,641
Reconciliation of net debt and leverage before finance leases
2023 2022
£'000 £'000
Total interest-bearing loans and borrowings 90,696 100,033
Cash and cash equivalents (21,442) (22,641)
Adjusted for:
Unamortised loan costs 1,037 1,050
Lease liabilities (9,871) (10,036)
Net debt before finance leases 60,420 68,406
EBITDA (see reconciliation above) 41,219 42,158
Debt leverage ratio before finance leases 1.47 1.62
Adjusted cash flow from operations: cash flow from operations before
exceptional items and the impact of exceptional items on working capital.
Adjusted EPS: adjusted earnings per share is calculated on adjusted profit for
the year divided by the weighted average number of shares in issue.
Adjusted operating profit: operating profit before exceptional items,
amortisation of customer relationships, foreign exchange differences (until 31
December 2022) and the impact of IAS 29 (until 31 December 2022).
Adjusted profit for the year: earnings before exceptional items, amortisation
of customer relationships, foreign exchange differences (until 31 December
2022), the impact of IAS 29 (until 31 December 2022) and tax thereon.
Business capital employed: the sum of property, plant and equipment,
technology and software costs, trade and other receivables, inventories, other
current financial assets, provisions, net employee defined benefit
liabilities, trade and other payables and other current financial liabilities.
Cash flow from operations: EBITDA, less exceptional items, plus or minus
movements in operating working capital, less share-based payment expense, less
net investments in property, plant and equipment, less technology and software
costs, less finance lease payments.
Cash flow from operations conversion: calculated by dividing cash flow from
operations by adjusted operating profit.
Contribution: revenue from sale of the Group's products less any cost of
direct materials, variable distribution costs, variable selling costs, direct
labour costs and other variable costs.
EBITDA: profit before interest, taxation, depreciation, amortisation,
exceptional items, foreign exchange differences (until 31 December 2022) and
the impact of IAS 29 (until 31 December 2022).
Free cash flow: cash flow from operations less tax paid less net interest
paid.
Return on capital employed: adjusted operating profit as a percentage of
business capital employed.
RMI: repair, maintenance and improvement activities.
Certain statements in this presentation are forward-looking statements which
are based on Stelrad Group plc's expectations, intentions and projections
regarding its future performance, anticipated events or trends and other
matters that are not historical facts. Such forward-looking statements can be
identified by the fact that they do not relate only to historical or current
facts. Forward-looking statements sometimes use words such as "aim",
"anticipate", "target", "expect", "estimate", "intend", "plan", "goal",
"believe", or other words of similar meaning. These statements are not
guarantees of future performance and are subject to known and unknown risks,
uncertainties and other factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements.
Given these risks and uncertainties, prospective investors are cautioned not
to place undue reliance on forward-looking statements. Forward-looking
statements speak only as of the date of such statements and, except as
required by applicable law, Stelrad Group plc undertakes no obligation to
update or revise publicly any forward-looking statements, whether as a result
of new information, future events or otherwise.
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