Stelrad Group Plc · LSE:SRAD
Stelrad — Investor Day (November 2024)
74 slides from Stelrad's investor day presentation, Nov 14, 2024
Slide 1: Capital markets event
Capital markets event Stelrad Group plc Well positioned with structural opportunities to drive profitable growth 14 November 2024
Slide 2: Presenting today
WELCOME Presenting today Trevor Harvey Leigh Wilcox Chris Humphreys Chief Executive Officer Chief Financial Officer Strategic Marketing Director • Joined Stelrad in 2000 • Joined Stelrad in 2012 • Joined Stelrad in 2007 • >35 years’ industry experience • Appointed CFO in 2024 • >30 years’ industry e
Slide 3: Agenda
WELCOME Agenda 14:30: Introduction - Trevor Harvey 14:35: Market overview - Chris Humphreys 14:40: Increasing premiumisation - Chris Humphreys and Mike Brady, Eden McCallum 15:00: Positioning effectively for decarbonisation - Koen Mannaerts 15:15: Coffee break 15:40: Flexible, state-of-the-art, low-
Slide 4: Stelrad is Europe's leading radiator manufacturer
STELRAD AT A GLANCE Stelrad is Europe’s leading radiator manufacturer Our core purpose is helping to heat homes sustainably 2023 revenue £308.2m 1,400+ 500+ people customers 40+ 5 countries market leading brands #1 In hydronic heat emitters • 11.8% overall market share • 20.2% steel panel market sha
Slide 5: Comprehensive portfolio of heat emitters for all heating systems
INTRODUCTION The Group has a comprehensive portfolio of heat emitters suitable for all heating systems Standard steel panel Premium steel panel Low surface temperature Towel warmer Column Decorative steel tubular Hybrid low temperature Electric Stelrad Group plc 5
Slide 6: Four key strategic objectives to drive profitable growth
INTRODUCTION Four key strategic objectives to drive profitable growth Growing market share 1 Improving product mix 2 Optimising routes 3 Positioning effectively 4 to market for decarbonisation • Strive for cost leadership • Accelerate upselling to • Adapt quickly to channel • Maximise sales of curre
Slide 7: Today's focus
INTRODUCTION Today’s focus Stelrad has an attractive market opportunity, with positive underlying dynamics and a significant installed base Two key structural growth drivers will drive demand for higher margin, higher added-value product, enabling Stelrad to grow ahead of the market • Increasing pre
Slide 8: Market overview
Market overview Chris Humphreys Group Strategic Marketing Director
Slide 9: Hydronic systems dominate the market
MARKET OVERVIEW Hydronic systems dominate the market Hydronic systems represented 93% of With steel panel radiators accounting for the European market in 2023 56% of European hydronic heat emitter volume in 2023 7% 2% 24% 321m 41m homes with 5% heat emitters 56% central heating sold annually 13% 93%
Slide 10: Three key macro trends
MARKET OVERVIEW Three key macro trends 1: Replacement 2: Premium and designer 3: Decarbonisation The key volume driver Profitable growth potential Long-term demand driver • With an installed base of >1.8 bn • Increased consumer focus on • Legislation mandating home units, long-term demand for home d
Slide 11: Routes to market evolve; Stelrad's specifier and distributor relationships provide market access
MARKET OVERVIEW As routes to market evolve, Stelrad’s strong specifier and distributor relationships provide unrivalled market access Stelrad’s strong brands, market leadership position and unrivalled specifier influence makes the Group a valuable partner in all geographies and market channels Stelr
Slide 12: Increasing premiumisation
Increasing premiumisation Chris Humphreys Group Strategic Marketing Director
Slide 13: Improving product mix is a key growth driver
INCREASING PREMIUMISATION Improving product mix is a key growth driver • Premium steel panel and other Premium and designer contribution designer radiators offer significantly relative to standard steel panel higher contribution relative to radiators standard – Other designer – 2x – Premium steel pa
Slide 14: Designer radiator volume growth since 2015
INCREASING PREMIUMISATION Clear strategic focus has driven 264% designer radiator volume growth since 2015 • In 2023, premium steel panel Total designer radiators mix share of all steel panel radiator Volume as % of total radiators volume reached a high of 6.2% 16% • Total designer radiator mix 14%
Slide 15: The UK provides considerable potential for profitable growth
INCREASING PREMIUMISATION The UK provides considerable potential for Stelrad’s profitable growth… • One of Europe’s largest markets for Stelrad.com H1 revenue growth all design radiator categories H1 2021 to H1 2024 – Stelrad has developed premium 38% CAGR steel panel and column business with Kingfi
Slide 16: Premium a notable opportunity
INCREASING PREMIUMISATION …with premium a notable opportunity • The UK is under penetrated in premium Premium share of total steel steel panel radiators panel volume 2023 • Stelrad has sustainable competitive 8% advantage 7% – In core markets, premium steel panel 7.1% 6% has 5%-26% penetration: in t
Slide 17: Increasing premiumisation: Market survey insights
Increasing premiumisation Market survey insights Mike Brady Eden McCallum consultant
Slide 18: Update on insights from Stelrad's recent market survey
INCREASING PREMIUMISATION Update on insights and implications from Stelrad’s recent market survey Key findings Implications for strategy Target size of prize • What has changed since 2017; • How should Stelrad flex its • What might Stelrad target in what remains important? strategy for market and pr
Slide 19: Key findings from independent survey
INCREASING PREMIUMISATION Key findings from independent survey The consumer is the key decision-maker: around two-thirds choose design themselves But installers remain important, and are increasingly likely to recommend specific (often designer) radiators Designer radiators are not a niche product,
Slide 20: The consumer is the key decision maker on designer radiators
INCREASING PREMIUMISATION The consumer is the key decision maker on choice of designer radiator Consumer survey: % of consumers who received Commentary advice in their last designer radiator installation • Most (80%) consumers research choices – and only check technical matters with installer: Chose
Slide 21: Installers remain important and more likely to recommend a specific radiator
INCREASING PREMIUMISATION But installers remain important, and are now more likely to recommend a specific radiator Installer survey: Recommendation and advice “… I would generally price a job including standard radiators 100% only and give the customer Installed type the option of upgrading to 21%
Slide 22: Nearly two-thirds of installer recommendations include designer radiators
INCREASING PREMIUMISATION … And nearly two-thirds of recommendations from installers include designer radiators Consumer survey: Of those consumers who received advice – Radiator type Recommendations received How best would you describe the Which types of radiators were recommended? recommendation t
Slide 23: Designer radiators appeal across income groups
INCREASING PREMIUMISATION KEY FINDINGS Designer radiators appeal across income groups, with consumers seemingly willing to pay for the right radiator Consumer survey: % respondents who bought Designer radiator in last purchase – by household income 63% “… The priority was not theTotal price, % who b
Slide 24: Consumers more likely to buy their own designer radiators than in 2017
INCREASING PREMIUMISATION Consumers are more likely to buy their own designer radiators than in 2017 Consumer survey: % of consumers who Installer survey: % of consumers who bought designer radiators themselves bought designer radiators themselves 57% 50% 44% 30% 2017 2024 2017 2024 Source: Eden McC
Slide 25: Shifting buying patterns alter importance of channels
INCREASING PREMIUMISATION Shifting buying patterns alter the importance of different channels: D2C increasingly key for consumers, merchants still core for installers Of consumers who bought designer Of installers who bought designer radiators radiators themselves – where bought, themselves – where
Slide 26: Recap – key findings
INCREASING PREMIUMISATION Recap – key findings • The consumer is the key decision-maker: around two-thirds choose design themselves • But installers remain important, and are increasingly likely to recommend specific (often designer) radiators • Designer radiators are not a niche product, but have b
Slide 27: Understanding the consumer conversion funnel
INCREASING PREMIUMISATION To understand barriers to purchase, we need to understand the consumer ‘conversion funnel’ Aware of designer radiators but did not consider buying Considered a designer radiator, but did not buy Awareness Consideration Purchase What % of consumers are What % of consumers Wh
Slide 28: Biggest leakage is from consideration to purchase
INCREASING PREMIUMISATION In designer radiators, the biggest leakage is from consideration to purchase Conversion Conversion (awareness to (consideration consideration) to purchase) Awareness % of consumers are aware of product? Consideration % of consumers consider buying? Purchase % of consumers b
Slide 29: Reasons for leakage indicate areas to focus on
INCREASING PREMIUMISATION Identifying reasons for leakage indicates areas for Stelrad to focus on Main reasons for leakage from awareness to consideration to purchase for designer radiators From awareness to consideration From consideration to purchase N.B. Consumers typically over-estimate premium
Slide 30: Design is the key choice factor, with spikes for premium panel
INCREASING PREMIUMISATION Design is the key choice factor, but there are also spikes for premium panel which Stelrad can leverage Consumer survey: Main reasons for installing each type of radiator in last purchase – % who selected Premium panel Standard Suits style of home 46 25 Look / style / desig
Slide 31: A clear strategy to capitalise on this structural growth opportunity
INCREASING PREMIUMISATION Stelrad has a clear strategy to capitalise on this structural growth opportunity… Leverage Stelrad 1 Boost Stelrad 2 Optimise 3 trade strengths consumer appeal distribution • Support installers and merchant • Optimise Stelrad.com consumer • Continue to assess opportunities
Slide 32: Stelrad will grow ahead of the designer radiator market
INCREASING PREMIUMISATION With the right execution, Stelrad will grow ahead of the designer radiator market Stelrad designer sales 2017-21 Stelrad designer potential • ‘Size of prize’ estimated (# units, indexed) sales 2024 onwards (# based on addressing units, indexed) leakages in consumer conversi
Slide 33: Positioning effectively for decarbonisation
Positioning effectively for decarbonisation Koen Mannaerts European Commercial Director
Slide 34: 2050 net zero commitments provide a legislative tailwind
POSITIONING EFFECTIVELY FOR DECARBONISATION 2050 net zero commitments provide a legislative tailwind across all markets EU Reduce net greenhouse gas emissions by ≥ 55% by 2030 • 2021 - mandatory nearly zero-energy buildings (NZEB) standard for all new buildings • December 2021 - Energy Performance o
Slide 35: Steel panel radiators will remain the leading emitter technology
POSITIONING EFFECTIVELY FOR DECARBONISATION Steel panel radiators will remain the leading emitter technology regardless of heat source Steel panel Electric Hybrid Hydronic underfloor Adoption level High Low/moderate Low Low Common in all Country specific and For low temperature Growing in Western co
Slide 36: Innovating to ensure profitable growth from all future heating systems
POSITIONING EFFECTIVELY FOR DECARBONISATION Innovating to ensure profitable growth from all future heating systems • Heat emitters suitable for the low and zero carbon systems of the future have the potential to deliver increased revenue and higher levels of profitability • Stelrad’s product develop
Slide 37: Promoting high output conventional radiators
POSITIONING EFFECTIVELY FOR DECARBONISATION Promoting high output conventional radiators • Stelrad has worked closely with new Volumes across higher heat output build, social housing and commercial products more than doubled between H1 specifiers to find cost-effective, 2022 and H1 2024 high-perform
Slide 38: Case study: Barnsley Hospital
POSITIONING EFFECTIVELY FOR DECARBONISATION Case study: Barnsley Hospital • K3 radiators specified to maximise heat efficiency from low-temperature heating system • Barnsley Hospital installed over 300 Stelrad K3 radiators when replacing gas boilers with air source heat pumps • Multi-million-pound p
Slide 39: Developing hybrid products for low temperature systems
POSITIONING EFFECTIVELY FOR DECARBONISATION Developing hybrid products for low temperature systems • In July 2024, Stelrad launched a new range of hybrid radiators • Partnership with a long-standing customer, a leading European heat source manufacturer and system supplier • Fan-assisted convection p
Slide 40: Introducing electric ranges into core markets
POSITIONING EFFECTIVELY FOR DECARBONISATION Introducing electric ranges into core markets • Acquisition of Radiators SpA in 2022 provided Stelrad with an electric radiator portfolio and design capability • Stelrad is leveraging its market position, trusted brands, strong customer relationships, chan
Slide 41: Summary
POSITIONING EFFECTIVELY FOR DECARBONISATION Summary • In a decarbonising market, the outlook for Stelrad is positive • Forecasting future market demand for different heat emitter technologies is difficult at this relatively early stage in the decarbonisation journey • However, Stelrad’s brand streng
Slide 42: Coffee
Coffee
Slide 43: Recap
WELL POSITIONED WITH STRUCTURAL OPPORTUNITIES TO DRIVE PROFITABLE GROWTH Recap Stelrad has an attractive market opportunity, with positive underlying dynamics and a significant installed base Two key structural growth drivers will drive demand for higher margin, higher added-value product, enabling
Slide 44: Flexible, state-of-the-art, low-cost manufacturing
Flexible, state-of-the-art, low-cost manufacturing David Taylor Group Operations Director
Slide 45: Corlu, Türkiye
@ Corlu, Turkiye Video
Slide 46: Strategically located facilities
FLEXIBLE, STATE-OF-THE-ART, LOW-COST MANUFACTURING Strategically located facilities Overview Key • 4 production units Head office Hudevad • 6 finished goods stock Kolding, Denmark Manufacturing centre locations Distribution centre • 1,414 permanent employees UK Radiators • 8.3 m radiator output Mexb
Slide 47: Standardised core heat emitter design
FLEXIBLE, STATE-OF-THE-ART, LOW-COST MANUFACTURING Standardised core heat emitter design Benefits Common design platform allows pan-European • Pan-European procurement manufacturing • Cost optimisation • High-capacity optimisation • Shared specialist knowledge Core Compact Premium Hybrid Stelrad Gro
Slide 48: Well-invested, industry-leading asset base
FLEXIBLE, STATE-OF-THE-ART, LOW-COST MANUFACTURING Well-invested, industry-leading asset base £40m recent incremental investment in manufacturing facilities, resulting in low-cost manufacturing and enhancing future profit margins Türkiye Netherlands • 8 fully invested production • 3 fully invested l
Slide 49: Reconfigured asset base has driven lower-cost production capacity
FLEXIBLE, STATE-OF-THE-ART, LOW-COST MANUFACTURING Reconfigured asset base has driven lower- cost production capacity Over the last 15 years, production has shifted to lower cost locations 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 20
Slide 50: Capacity positioned to maximise market opportunities
FLEXIBLE, STATE-OF-THE-ART, LOW-COST MANUFACTURING Capacity positioned to maximise market opportunities • Technical advancement in conjunction with capacity growth • Largest capacity within the industry • Cost benefits from combining flexibility/capacity/location Stelrad pan-European steel panel rad
Slide 51: Security of supply & partnerships
FLEXIBLE, STATE-OF-THE-ART, LOW-COST MANUFACTURING Security of supply & partnerships • Optimised levels of raw material and FG Stock • Long-term supplier relationships • Global supply chain, multiple suppliers , security of supply • Steel pricing agreements to guarantee continuity of supply and pric
Slide 52: Market-leading customer service and product availability
Market-leading customer service and product availability David Taylor Group Operations Director
Slide 53: Stelrad's well-invested distribution centres drive competitive advantage
Stelrad’s well- invested distribution centres drive competitive advantage Video
Slide 54: Distribution capability underpins best-in-class lead times
MARKET-LEADING CUSTOMER SERVICE AND PRODUCT AVAILABILITY Distribution capability underpins best-in-class lead times Heerleen, Netherlands Mexborough, UK 350k 3 Day 2m+ 200k 1 Week 1m+ Lead Units per Lead Units per Capacity Capacity Time Year Time Year Moimacco, Italy Corlu, Türkiye 250k Containers 5
Slide 55: Industry leading OTIF - UK
MARKET-LEADING CUSTOMER SERVICE AND PRODUCT AVAILABILITY Industry leading OTIF - UK Consistent improvement in On-Time In Full “OTIF” delivery 98.4% 96.6% 91.9% 2022 2023 2024 (to date) • Consistent annual improvements in Stelrad OTIF delivery performance due to improvements in finished goods stock m
Slide 56: Award winning customer service
MARKET-LEADING CUSTOMER SERVICE AND PRODUCT AVAILABILITY Award winning customer service “We work with Stelrad radiators in many of our projects…and we do so because they offer a combination of quality and ease of installation for our team,” ‘Highly Commended’ Domestic Heating Product of the Year: Ri
Slide 57: Well positioned to capitalise on structural opportunities
MARKET-LEADING CUSTOMER SERVICE AND PRODUCT AVAILABILITY Well positioned to capitalise on structural opportunities MARKET- LEADING = FLEXIBLE, LOW-COST CUSTOMER SERVICE MANUFACTURING & PRODUCT AVAILABILITY Best in class customer service driven by product availability, underpinned by 1. Strategic net
Slide 58: Leading competitive position
Leading competitive position Chris Humphreys Group Strategic Marketing Director
Slide 59: Stelrad extended its European steel panel radiator market leadership
LEADING COMPETITIVE POSITION In 2023, Stelrad extended its European steel panel radiator market leadership • Outperforming other key European steel panel radiators players, the Group increased Top 5 manufacturers' share evolution 2019 - 2023 share 2023 vs 2022 by 25% 1.4 ppts to 20.2% • Stelrad bene
Slide 60: Focus on ten core markets is delivering long-term share growth
LEADING COMPETITIVE POSITION Our focus on ten core markets is delivering long-term share growth • Since 2019, Stelrad has grown Market Share Position Gains Since 2019 share in nine of ten core markets, with double digit UK 52.6% #1 +2.9 ppts = growth in five Denmark 48.9% #1 +14.6 ppts = • The Group
Slide 61: Leveraging scale and strong brands for competitive advantage
LEADING COMPETITIVE POSITION Stelrad is leveraging scale and strong brands to drive sustainable competitive advantage 2023 Steel Panel Radiator market - Europe • In 2019, Stelrad was #2 Market share by manufacturer with sales > 0.5m player with 17.9% share units in 2023 • The Group had top 3 30 posi
Slide 62: Steel panel radiator market offers significant potential for consolidation
LEADING COMPETITIVE POSITION The steel panel radiator market offers significant potential for consolidation • In 2023, the top 11 players with sales Steel panel radiator market is fragmented volume >0.5m units beyond operators of scale Units m – Held 77% market share – Sold a combined 17.8m units •
Slide 63: Radiators SpA
Radiators SpA Video
Slide 64: Market leadership positions Stelrad to benefit from future consolidation
LEADING COMPETITIVE POSITION Market leadership positions Stelrad well to benefit from future consolidation • In 2023, Stelrad led the European hydronic heat emitter market, with 11.8% share • The Group’s market leadership is driven by #1 position in the largest product category, steel panel radiator
Slide 65: Financial framework
Financial framework Leigh Wilcox Chief Financial Officer
Slide 66: Strong financial track record
FINANCIAL FRAMEWORK Strong financial track record reflecting consistent strategic and operational delivery Adj. operating Contribution Operating cash Return on capital Revenue profit(1) per radiator flow conversion(2) employed(1) (£m) (£m) (£) (%) (%) 18.1 117% Revenue Adjustmen Revenue 108% 35% 308
Slide 67: Ambitious medium-term targets underpinned by clear strategic objectives
FINANCIAL FRAMEWORK Ambitious medium-term targets underpinned by clear strategic objectives Strategic objectives 1 2 3 4 Positioning Growing market Improving Optimising routes effectively for share product mix to market decarbonisation Key medium-term targets Market share Contribution per Operating
Slide 68: Multiple levers to deliver operating margin target
FINANCIAL FRAMEWORK Multiple levers to deliver operating margin target – plus upside from market recovery Operational excellence 4 13.0% 3 2 1 Growing market share 1 9.5% 2 Improving product mix 3 Optimising routes to market 4 Positioning effectively for decarbonisation Operating margin progression
Slide 69: Clear capital allocation priorities
FINANCIAL FRAMEWORK Clear capital allocation priorities Strong free cash flow growth Capital allocation priorities Investment for Shareholders Controlled Selective organic growth returns leverage acquisitions Continued Via a progressive Targeting a leverage Based on our investment in: dividend polic
Slide 70: Summary and conclusions
Summary and conclusions Trevor Harvey Chief Executive Officer
Slide 71: Summary
SUMMARY AND CONCLUSIONS Summary Stelrad has an attractive market opportunity, with positive underlying dynamics and a significant installed base Two key structural growth drivers will drive demand for higher margin, higher added-value product, enabling Stelrad to grow ahead of the market • Increasin
Slide 72: Our investment case
SUMMARY AND CONCLUSIONS Our investment case 1 • #1 steel panel radiator market share position in Europe Leading market position • Well positioned to benefit from consolidation in the market 2 • Attractive long-term dynamics led by replacement demand Robust business model • Proven financial resilienc
Slide 73: Questions
@ Questions
Slide 74: @Stelrad
@Stelrad roup pic