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
|
2023
|
|
2022
|
|
Increase/ (decrease)
%
|
|
|
|
|
|
|
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
Trevor Harvey, Chief Executive
Officer
Annette Borén, Chief Financial
Officer
|
+44 (0)191 261 3301
|
Powerscourt
James White / Pete Lambie
|
stelrad@powerscourt-group.com
+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/.
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.
|
2023
|
2022
|
Increase/
(decrease)
|
Increase/ (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
|
2023
|
2022
|
Increase / (decrease)
|
Increase / (decrease)
|
|
£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
*
|
2023
|
2022
|
Increase/ (decrease)
|
Increase/
(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.
|
2023
|
2022
|
Increase/
(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
|
|
2023
|
2022
|
Increase/
(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
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
Profit before tax
|
|
19,182
|
10,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
Basic
|
7
|
12.11p
|
3.38p
|
|
|
|
|
|
|
Adjusted earnings per
share
|
|
|
|
|
Basic
|
7
|
13.62p
|
19.11p
|
|
|
|
|
|
Consolidated statement of comprehensive
income
for the year ended 31 December
2023
|
|
|
|
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 operations and qualifying
hedges of net investments in foreign operations
|
|
674
|
1,691
|
Income tax effect
|
6
|
(158)
|
(631)
|
Exchange differences on translation
of foreign operations
|
|
|
|
Net other comprehensive expense that
may be reclassified
to profit or loss in subsequent periods
|
|
(1,734)
|
(4,881)
|
Other comprehensive expense not to be reclassified
to profit or loss in subsequent periods:
|
|
|
|
Remeasurement losses on defined
benefit plans
|
|
(936)
|
(1,932)
|
|
|
|
|
Net other comprehensive expense not
to be reclassified
to profit or loss in subsequent periods
|
|
(730)
|
(1,509)
|
Other comprehensive expense for the
year, net of tax
|
|
|
|
Total comprehensive income/(expense)
for the year,
net of tax attributable to owners of the parent
|
|
|
|
|
|
|
|
Consolidated balance sheet
as at 31 December
2023
|
|
|
|
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
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
Equity and liabilities
|
|
|
|
Equity
|
|
|
|
Share capital
|
18
|
127
|
127
|
Share premium
|
18
|
-
|
-
|
Merger reserve
|
|
(114,469)
|
(114,469)
|
Retained earnings
|
|
233,329
|
227,849
|
|
|
|
|
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
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity and
liabilities
|
|
|
|
Consolidated statement of changes in equity
for the year ended 31 December
2023
|
Attributable to the owners of the parent
|
|
Issued
share
capital
£'000
|
|
|
|
|
|
At 1 January 2022
|
127,353
|
13,391
|
(114,469)
|
57,814
|
(57,177)
|
26,912
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
Total comprehensive
income/(expense)
|
-
|
-
|
-
|
14,694
|
(1,734)
|
12,960
|
Share-based payment
charge
|
-
|
-
|
-
|
515
|
-
|
515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated statement of cash flows
for the year ended 31 December
2023
|
|
|
|
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
|
|
|
|
|
|
40,888
|
30,347
|
Income tax paid
|
|
(7,497)
|
(3,801)
|
|
|
|
|
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
|
|
|
|
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)
|
|
|
|
|
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
|
|
|
|
Cash and cash equivalents at 31
December
|
|
|
|
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
The currency that mainly influences
sales prices for goods and services (this will often be the
currency in which sales prices for goods and services are
denominated and settled).
|
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. These
two currencies now make up approximately 80 - 85% of total sales
for the Turkish business.
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 currency of the country whose
competitive forces and regulations mainly determine the sales
prices of goods and services.
|
The predominant sales markets are
GBP (UK) and Euro (Europe) denominated.
|
Costs
The currency that mainly influences
labour, material and other costs of providing goods or services
(this will often be the currency in which such costs are
denominated and settled).
|
Raw material purchases are
denominated in USD and Euro. Selling and distribution expenses and
administrative expenses are denominated in Euro and TL. Employee
and utilities costs are denominated in TL, with management salaries
being benchmarked against Euro equivalents annually. Capital
expenditure is predominantly in Euro including one of the two
recently installed additional manufacturing lines.
|
Financing
The currency in which funds from
financing activities (i.e. issuing debt and equity instruments) are
generated.
|
Intercompany loans are denominated
in Euro.
Historically, external loan
arrangements, where undertaken, have been exclusively in
Euro.
|
Cash flows
The currency in which receipts from
operating activities are usually retained.
|
The majority of excess cash from
operating activities is retained in Euro.
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
|
|
|
UK & Ireland
|
139,422
|
140,066
|
Europe
|
149,063
|
149,673
|
|
|
|
|
|
|
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
|
|
|
UK & Ireland
|
24,485
|
22,716
|
Europe
|
9,061
|
13,877
|
Turkey &
International
|
1,348
|
2,055
|
|
|
|
Adjusted operating profit
|
29,288
|
33,980
|
Exceptional items
|
(2,466)
|
(1,809)
|
Amortisation of customer
relationships
|
(141)
|
(57)
|
Foreign exchange
differences
|
-
|
(3,446)
|
|
|
|
|
|
|
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
|
|
|
UK
|
17,547
|
18,823
|
The Netherlands
|
20,581
|
22,757
|
Turkey
|
26,500
|
26,854
|
Italy
|
26,818
|
25,786
|
|
|
|
|
|
|
4 Other operating
income/(expenses)
|
|
|
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)
|
-
|
|
|
|
|
|
|
5 Finance costs
|
|
|
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
|
|
|
|
|
|
|
6 Income tax expense
The major components of income tax
expense are as follows:
|
|
|
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
|
|
|
Income tax expense reported in the
income statement
|
|
|
|
|
|
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
net investment
|
|
|
Income tax (credited)/expensed to
other comprehensive income
|
|
|
Reconciliation of tax expense and
the accounting profit at the tax rate in the United Kingdom of
23.5% (2022: 19%):
|
|
|
|
|
|
Profit before tax multiplied by
standard rate of corporation tax in the UK of 23.5% (2022:
19%):
|
4,508
|
1,947
|
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 assets)
|
(3,163)
|
(161)
|
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
|
|
|
Total tax expense reported in the
income statement
|
|
|
Deferred tax
Deferred tax relates to the
following:
|
Consolidated balance sheet
|
|
Consolidated income statement
|
|
|
|
|
|
|
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
|
|
|
|
|
|
Deferred tax
credit/(charge)
|
|
|
|
|
|
|
|
|
|
|
|
Reflected in the balance sheet
as:
|
|
|
|
|
|
Deferred tax assets
|
6,685
|
5,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of deferred tax
assets, net
|
|
|
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
|
|
|
|
Closing balance as at 31
December
|
|
|
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
|
|
|
Capital allowances
|
20
|
17
|
Losses available for offsetting
against future income
|
|
|
|
|
|
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
|
|
|
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
|
|
|
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.
|
|
|
Basic weighted average number of
shares in issue
|
127,352,555
|
127,352,555
|
Diluted weighted average number of
shares in issue
|
|
|
Earnings per share
|
|
|
Basic earnings per share (pence per
share)
|
12.11
|
3.38
|
Diluted earnings per share (pence
per share)
|
|
|
Adjusted earnings per
share
|
|
|
Basic earnings per share (pence per
share)
|
13.62
|
19.11
|
Diluted earnings per share (pence
per share)
|
|
|
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.
|
|
|
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)
|
|
|
|
|
|
|
|
|
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)
|
|
|
9 Property, plant and
equipment
|
Freehold
land
and
buildings
£'000
|
Leasehold
buildings
£'000
|
Assets
under
construction
£'000
|
Plant
and
equipment
£'000
|
Fixtures,
fittings
and motor vehicles
£'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
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying value of right-of-use
assets within property, plant and equipment, by line item, at the
year end is:
|
|
|
Leasehold buildings
|
6,927
|
7,466
|
Plant and equipment
|
1,255
|
896
|
Fixtures, fittings and motor
vehicles
|
|
|
|
|
|
Right-of-use asset additions within
property, plant and equipment, by line item, during the year
are:
|
|
|
Leasehold buildings
|
1,090
|
418
|
Plant and equipment
|
731
|
153
|
Fixtures, fittings and motor
vehicles
|
|
|
|
|
|
Depreciation of right-of-use assets
within property, plant and equipment, by line item, during the year
is:
|
|
|
Leasehold buildings
|
1,456
|
1,307
|
Plant and equipment
|
374
|
282
|
Fixtures, fittings and motor
vehicles
|
|
|
|
|
|
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
|
|
Customer
relationships
£'000
|
Technology
and
software
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)
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortisation and
impairment
|
|
|
|
|
At 1 January 2023
|
-
|
59
|
110
|
169
|
Depreciation charge
|
-
|
141
|
316
|
457
|
Disposals
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
Provisional fair value
adjustments
£'000
|
Fair value
at 31 December 2022
£'000
|
Final fair
value adjustments
£'000
|
Fair value
at 31 December 2023
£'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
|
|
|
|
|
|
Total identifiable net
assets
|
|
|
|
|
|
Goodwill on the business
combination
|
|
|
|
|
|
Discharged by:
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
Financial instruments at fair value
through profit or loss
|
|
|
Derivatives not designated as hedges
- foreign exchange forward contracts
|
|
|
Total instruments at fair value
through profit or loss
|
|
|
Current
|
318
|
-
|
|
|
|
b) Financial liabilities
- interest bearing loans and borrowings
|
Effective
interest
rate
%
|
|
|
|
Current interest-bearing loans and
borrowings
|
|
|
|
|
Lease liabilities
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing loans and
borrowings
|
|
|
|
|
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
|
|
|
|
|
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
|
|
|
|
|
Net
liabilities arising from financing activities
|
|
|
|
|
13 Inventories
|
|
|
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
|
|
|
|
|
|
|
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
|
|
|
Current
|
|
|
Trade receivables
|
47,619
|
55,739
|
Other receivables
|
2,462
|
4,197
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
The table below sets out the
movements in the allowance for expected credit losses of trade
receivables:
|
|
|
At 1 January
|
763
|
204
|
On business combination
|
-
|
844
|
Charge for the year
|
155
|
-
|
Utilised
|
-
|
(223)
|
Unused amounts reversed
|
(95)
|
(122)
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
2023
|
|
|
|
|
|
Gross carrying amount
|
48,425
|
41,635
|
4,600
|
777
|
1,413
|
Expected credit loss rate
(%)
|
2
|
-
|
1
|
16
|
45
|
|
|
|
|
|
|
2022
|
|
|
|
|
|
Gross carrying amount
|
56,502
|
49,403
|
3,217
|
3,056
|
826
|
Expected credit loss rate
(%)
|
1
|
-
|
1
|
3
|
77
|
|
|
|
|
|
|
15 Cash and cash
equivalents
16 Trade and other
payables
|
|
|
Current
|
|
|
Trade payables
|
49,263
|
73,903
|
Other payables and
accruals
|
22,319
|
18,860
|
Other taxes and social
security
|
5,685
|
6,045
|
|
|
|
|
|
|
17 Provisions
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
194
|
-
|
2,684
|
139
|
3,017
|
|
|
|
|
|
|
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
|
|
|
|
|
Authorised, called up and fully
paid
|
|
|
|
|
Ordinary shares of £0.001
each
|
127,352,555
|
127,353
|
127,352,555
|
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
|
|
|
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)
|
|
|
Reconciliation of adjusted
operating profit and EBITDA
|
|
|
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
|
|
|
|
Reconciliation of cash flow
from operations, adjusted cash flow from operations and free cash
flow
|
|
|
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)
|
|
|
|
Reconciliation of net debt
and leverage before finance leases
|
|
|
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
|
|
|
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.