Stelrad : Annual Report and Accounts for the year ended 31 December 2023

Stelrad

Annual

OUR CORE PURPOSE

Helping to heat

homes sustainably

» Read more on page 26

STRATEGIC PILLAR

Driving better environmental performance

» Read more on page 29

STRATEGIC PILLAR

Enabling an exceptional workforce

» Read more on page 33

UNDERPINNING FOUNDATIONS

Conducting business

responsibly

» Read more on page 35

STRATEGIC REPORT	GOVERNANCE REPORT
01	Highlights	57	Chair's introduction to governance
02	At a glance	58	Board of Directors
04	Our investment case	61	Statement of corporate governance
06	Chair's statement	65	Audit & Risk Committee Report
08	Chief Executive Officer's review	70	Nomination Committee Report
10	Market overview	74	Directors' Remuneration Report
11	Market trends	88	Directors' Report

1. Our business model

1. Our strategy

1. Strategy in action

1. Key performance indicators

1. Stakeholder engagement

1. Sustainability Report

1. Finance and business review

1. Risk management

1. Viability statement and going concern
2. Non-financialand sustainability information statement

FINANCIAL STATEMENTS

92 Independent auditors' report to the members of Stelrad Group plc

1. Consolidated income statement
2. Consolidated statement of comprehensive income
3. Consolidated balance sheet
4. Consolidated statement of changes in equity
5. Consolidated statement of cash flows
6. Notes to the consolidated financial statements

1. Company balance sheet
2. Company statement of changes in equity
3. Notes to the Company financial statements

ADDITIONAL INFORMATION

144 Shareholder Information

Highlights

Resilient performance, strategically positioned for market improvement

Revenue	Operating profit
£308.2m	£26.7m
(2022: £316.3m)	(2022: £22.6m)
Free cash flow(1)	EPS
£17.8m	12.11p
(2022: £12.7m)	(2022: 3.38p)

Financial and operational highlights

Adjusted operating profit(1)

£29.3m

(2022: £34.0m)

Adjusted EPS(1)

13.62p

(2022: £19.11p)

• 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.
• • UK & Ireland: revenue down 0.5% (0.6% like-for-like) broadly flat despite market headwinds.
  • Europe: revenue down 0.4%
    (21.2% like-for-like) as a result of depressed levels of RMI activity.
  • 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.

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 on page 21 and reconciled to the appropriate financial statements line item in note 33. Note 33 also outlines the limitations of using alternative performance measures.

stelradplc.com

Visit us online to see how we are innovating to drive sustainability

Annual Report 2023 Stelrad Group plc

01

STRATEGIC REPORT

At a glance

We are Europe's leading radiator manufacturer and our core purpose is helping to heat homes sustainably

Our products

Standard steel panel radiators

Premium steel panel and low surface temperature steel panel radiators

Towel warmers

Column and decorative steel tubular radiators

Electric, hybrid and dual

fuel radiators

Data source: BRG Building Solutions.

Our brands

Europe's number one brand

Stelrad, our premier brand, is sold across the world.

The Netherlands' number one brand

With a strong presence in the Netherlands, Belgium, the UK and France, Henrad is a channel differentiated European brand.

Turkey's number five brand

Mainly sold into Turkey and Eastern European markets, the Termo Teknik brand offers a high ratio of quality to cost.

Premium design brand

Representing the best of Danish design, Hudevad is a favourite brand of architects, interior designers and commercial specifiers.

Innovative design brand

Combining advanced technology with designer style, the DL Radiators brand offer includes heat emitters suitable for a wide variety of heat sources and heating systems.

02 Stelrad Group plc Annual Report 2023

Our markets

500+ 40+ 1,400+

customers countries people

Market-leading international presence

Supported by an extensive sales and marketing network, Stelrad's well-invested,state-of-the-art manufacturing and distribution operations are designed to provide our customers with high levels of service and product availability, wherever they are based.

• Read more in our market overview on page 10

1	6
2

37

5

4

1	Head office	4	Termo Teknik
	Newcastle upon Tyne, UK		Çorlu, Istanbul, Turkey
2	UK Radiators	5	Radiators SpA
	Mexborough, UK		Moimacco, Italy	Head office
		6
3	Continental Radiators	Hudevad	Manufacturing,
	Nuth, Netherlands		Kolding, Denmark	distribution and sales
		7	Caradon Polska	Distribution warehouse
		Sales presence
			Kraków, Poland

Revenue

Stelrad Group	UK & Ireland	Europe	Turkey & International
£308.2m	£139.4m	£149.1m	£19.7m

• Read more in our financial statements on page 98

Our ESG strategy

FIT F R THE

FUTURE

Consistent with our core purpose, helping to heat homes sustainably, Fit for the Future is Stelrad's sustainability framework. It sets 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 we can play in the transition to a low - and ultimately zero - carbon heating industry.

Underpinned by the fundamental issues of safety, governance and responsible supply chain management, Fit for the Future has two strategic pillars.

Driving better environmental performance focuses on reducing Stelrad's environmental impact whilst engaging, educating and influencing others to transition effectively to the heating systems of the future. Enabling an exceptional workforce ensures our people contribute positively to the delivery of our strategy and our sustainability objectives.

• Read more in the Sustainability section on page 26
• Read more about our markets on page 10

Annual Report 2023 Stelrad Group plc

03

STRATEGIC REPORT

Our investment case

In 2023, Stelrad's resilient performance in challenging market conditions was testament to our robust strategy, our management experience and the commercial and operational agility to respond effectively to the prevailing macroeconomic environment. The integration of Radiators SpA and continued focus on home heating decarbonisation ensure the Group is well positioned for future growth as markets recover.

Trevor Harvey

Chief Executive Officer

Leading market position

#1

steel panel radiator market share position in Europe, market leadership in seven countries

• the UK, Ireland, France, the Netherlands, Belgium, Denmark and Greece - and a Top 3 position in a further nine

A long-term player of scale in the European heat emitter market

• Operating in a market with high barriers to entry
• Providing cost leadership and unrivalled operational flexibility from a multisite manufacturing and logistics platform

• Read more about our markets on page 10

Robust business model

14.9%

design radiator mix, including premium steel panel radiators, an increase of 2.4 percentage points versus 2022, 6.0 percentage points since 2021

Attractive long-term dynamics led by replacement demand in mature European markets

• Proven financial resilience through challenging economic cycles, including 2008's global financial crisis, the Covid-19 pandemic and the current macroeconomic environment
• Broad geographic spread and underlying growth in higher value design radiators, coupled with focused and agile cost management
• Read more about our business model on page 12

Data source: BRG Building Solutions.

04 Stelrad Group plc Annual Report 2023

Experienced management and effective strategy

500+

customers in 40 countries

1. lean, customer-orientated leadership team with unparalleled sector experience

• Flat management structure with clear focus on quality, customer service and innovation
• Effective channel management driven by a multibrand strategy and proactive adaptation to evolving routes to market

Strong

financial position

80.2%

growth in contribution per radiator between 2018 and 2023

A track record of consistent growth

• Sector-leadingmargins
• Strong cash generation and return on capital employed

Long-term focus on decarbonisation and ESG

41.5%

energy from renewable sources

With a growing range of innovative heat emitters and our Fit for the Future framework ensuring delivery of both our business strategy and sustainability commitments, Stelrad is positioned effectively for the transition to low and zero carbon heating over the coming decades

• Anticipated pan-European legislation relating to home heating and reduced fossil fuel use is expected to present favourable growth drivers for higher output heat emitters suitable for lower temperature heating systems
• Stelrad and all its stakeholders will benefit from long-term sector transition to a more sustainable heating model

» Read more about our strategy on page 14	» Read more about our KPIs on page 20
» Read more about our Board of Directors
on pages 58 and 59

• Read more about our ESG priorities on page 27

Annual Report 2023 Stelrad Group plc	05

STRATEGIC REPORT

Chair's statement

Strong performance in a challenging market environment

Despite well-documented headwinds impacting volumes in new build and RMI across Europe, Stelrad continues

to deliver a robust financial performance and is making clear progress on sustainability and its strategic objectives.

Bob Ellis

Chair

Dear shareholders

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(1) 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").

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 on page 21 and reconciled to the appropriate financial statements line item in note 33. Note 33 also outlines the limitations of using alternative performance measures.

06 Stelrad Group plc Annual Report 2023

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.

Governance

In line with its status as a company with a premium listing on the Main Market of the London Stock Exchange, Stelrad is committed to high levels of corporate governance. Our compliance with the 2018 edition of the UK corporate governance code is set out in the Governance Report

on page 57.

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.

Board

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.

On behalf of the Board, I would like to express our appreciation for George's contribution and commitment during 20 years at Stelrad, which leaves the Group in a strong position for future growth. We wish George all the very best in his retirement. I would also like to thank Terry for the contribution that she has made to the Company over the past two years and to wish her well for the future.

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

Annual Report 2023 Stelrad Group plc

07

STRATEGIC REPORT

Chief Executive Officer's review

Well positioned to outperform the market and capitalise once markets improve

Stelrad's financial performance in 2023 is testament to the resilience and flexibility of our business which has enabled us to deliver results in line with expectations. We have been able to significantly offset

a decline in volumes with proactive margin management initiatives, positioning the Group well to capitalise once markets improve.

Trevor Harvey

Chief Executive Officer

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 (1) 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.

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 on page 21 and reconciled to the appropriate financial statements line item in note 33. Note 33 also outlines the limitations of using alternative performance measures.

08 Stelrad Group plc Annual Report 2023