Annual Report • Mar 28, 2023
Annual Report
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Stelrad_AR22_Cover_[NB]13989_AR22_Stelrad Management Limited Stelrad_AR22_Front[NB]13989_AR22_Stelrad Management Limited Stelrad_AR22_Middle[NB]13989_AR22_Stelrad Management Limited Stelrad_AR22_Back[NB]13989_AR22_Stelrad Management Limited Stelrad_AR22_Cover[NB]13989_AR22_Stelrad Management Limited Stelrad_AR22_Cover[NB]13989_AR22_Stelrad Management Limited Stelrad_AR22_Cover[NB]13989_AR22_Stelrad Management Limited Stelrad_AR22_Front[NB]13989_AR22_Stelrad Management Limited Stelrad_AR22_Middle[NB]13989_AR22_Stelrad Management Limited Stelrad_AR22_Back[NB]13989_AR22_Stelrad Management Limited Stelrad_AR22_Cover[NB]13989_AR22_Stelrad Management Limited Stelrad_AR22_Cover[NB]13989_AR22_Stelrad Management Limited Stelrad_AR22_Cover[NB]13989_AR22_Stelrad Management Limited Stelrad_AR22_Front[NB]13989_AR22_Stelrad Management Limited Stelrad_AR22_Middle[NB]13989_AR22_Stelrad Management Limited Stelrad_AR22_Back[NB]13989_AR22_Stelrad Management Limited Stelrad_AR22_Cover[NB]13989_AR22_Stelrad Management Limited Stelrad_AR22_Cover[NB]_13989_AR22_Stelrad Management Limited Stelrad Group plc Annual Report 2022 Leading with Delivering on Stelrad Group plc Annual Report 2022 OUR CORE PURPOSE Helping to heat Read more on page 27 UNDERPINNING FOUNDATIONS Read more on page 36 STRATEGIC PILLAR environmental performance Read more on page 30 STRATEGIC PILLAR exceptional workforce Read more on page 34 STRATEGIC REPORT Highlights At a glance Our investment case Chair’s statement Market trends Our business model Our strategy Key performance indicators Stakeholder engagement Sustainability Report Risk management Viability statement and going concern GOVERNANCE REPORT Chair’s introduction to governance Board of Directors Statement of corporate governance Audit & Risk Committee Report Nomination Committee Report Directors’ Remuneration Report Directors’ Report FINANCIAL STATEMENTS Independent auditors’ report to the members of Stelrad Group plc Consolidated income statement Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of Notes to the consolidated Company balance sheet Company statement of changes Notes to the Company ADDITIONAL INFORMATION Shareholder Information Financial and operational highlights • Record Group financial performance as a result of Stelrad’s resilient business model – – – • • Improved performance underpinned by proactive margin management and operational improvements across the business • • • availability and customer service and product innovation • Revenue (pre-IAS 29) £312.1m (2021: £272.3m) Adjusted operating profit (1) £34.0m (2021: £33.2m) Adjusted free cash flow (1) £17.2m (2021: £21.2m) Adjusted EPS (1) 19.11p (2021: 16.92p) amortisation of customer relationships and foreign exchange differences Record results underpinned by stelradplc.com STRATEGIC REPORT Stelrad Group plc At a glance We are a leading radiator Our heat emitters transform people’s experience of their worlds Standard steel panel radiators Premium steel panel temperature steel panel radiators Decorative steel tubular and column radiators dual fuel radiators An important long-term player in the global radiator market UK & Ireland £138.9m Europe £147.9m Turkey & International £25.3m Our international presence is significant and growing state-of-the-art manufacturing facilities supported by market-leading distribution levels of service and product based and supported by an extensive sales and marketing • Head office • distribution and sales • • Sales presence Head office 1 UK Radiators 2 Continental Radiators 3 DL Radiators 5 Termo Teknik 4 1 2 3 6 5 7 4 500+ customers 40+ countries 1,500+ people Hudevad 6 Caradon Polska 7 Revenue (pre-IAS 29) Stelrad Group plc Five strong brands Europe’s number 1 brand Number 1 brand in the Netherlands Henrad is a channel differentiated European Number 5 brand in Turkey Sold primarily into Turkey and Eastern European cost ratio. High-end design brand and commercial specifiers. FIT F R THE FUTURE the responsible treatment of both stakeholders helping to heat homes sustainably influencing others to achieve an effective transition to the heating systems of the future. The second and supply chain management underpin the sustainability commitments to stakeholders and Advanced technology, Italian innovation sources and heating systems. Read more in the Sustainability section on page 26 STRATEGIC REPORT Stelrad Group plc Our investment case Leveraging our business strengths and delivering on our strategy Leading market position A long-term player of scale in steel panel radiators • • Providing cost leadership and unrivalled production flexibility from a multisite manufacturing and logistics platform No.1 market share position in the UK, Ireland, the Netherlands, Belgium and Denmark in 2021, with a top 3 position in twelve countries in total Read more about our markets on page 10 us to leverage our scale and robust business model to achieve Trevor Harvey Robust business model Attractive long-term dynamics led by replacement demand in mature European markets • Proven financial resilience to external shocks through macroeconomic climate • Increasingly broad geographic spread and an underlying 40.1% organic volume growth in higher added-value Read more about our business model on page 12 Stelrad Group plc Experienced management A lean, customer-orientated leadership team with unparalleled sector experience • innovation and customer service • Effective channel management driven by a multibrand to evolving channels to market 500+ customers in 40 countries Read more about our strategy on page 14 Read more about our Board of Directors on pages 58 and 59 Long-term focus on decarbonisation and ESG Our Fit for the Future sustainability framework positions Stelrad effectively for the transition to low and zero carbon home heating over the coming decades • Anticipated pan-European legislation relating to the heating of buildings and the reduction in fossil fuel use is expected to • sector transformation to a more sustainable heating model 61.2% reduction in Scope 1 and Scope 2 carbon emissions Read more about our ESG priorities on page 27 A track record of consistent growth • Sector leading margins • Strong cash generation and return on capital employed 11.1% CAGR sales growth between 2018 and 2022 Read more about our KPIs on page 20 STRATEGIC REPORT Page title Stelrad Group plc Chair’s statement Dear shareholders, Stelrad has continued to make strong progress. Although an unpredictable trading environment and significant level. This underlines the resilience of our business model Performance and results to demonstrate high levels of resilience despite the difficult inflationary pressures. Record results are underpinned by our Stelrad made the strategic despite facing a challenging macroeconomic climate. Bob Ellis Chair Stelrad Group plc Dividend Purpose achieving our purpose: helping to heat homes sustainably. The Group has an important role to play in facilitating the influencing specification and supplying products able to Strategy Stelrad’s clear commercial and operational strategies positioning effectively for decarbonisation. overall product mix. Increased access to channels and territories continues to build the Group’s distribution footprint products effectively complements Stelrad’s expanding heating systems. Environmental, social and governance employee engagement are central to Stelrad Group’s values impact of all our business operations. long-term success depends on the responsible treatment of all our stakeholders and the natural environment. Fit for and focuses on the most material issues for Stelrad and supported by three strategic components. Driving better environmental performance focuses on reducing our and influence others in the value chain in order to achieve Enabling an exceptional workforce is intended to help our people contribute positively to the realisation of our goals. Conducting business responsibly represents the structural chain management and exceptional safety standards. Board The Board expanded significantly in advance of our listing practice in our corporate governance. The future focus of stakeholders over the coming years. Governance The Group remains committed to high levels of corporate Corporate Governance Code is set out in the Governance Report on page 57. Summary approach positions the Group effectively to benefit from market recovery over the medium term. access to additional territories and channels to market and of the future. This provides a significant opportunity to maximise the clear synergies that exist across our portfolio . Bob Ellis Chair STRATEGIC REPORT Stelrad Group plc Overview delivering a record year despite testing trading conditions. cost inflation. In order to mitigate the effects for our stakeholders the Group has effectively managed these input cost risks our Fit for the Future build upon our robust existing practices and to formalise a more effectively positioned than ever for future success. Leveraging our business strengths, delivering on our strategy to the resilience of our business the strength of our product relationships and our relentless approach to operational improvements across the business. Trevor Harvey Stelrad Group plc Strong financial performance Our flexible manufacturing footprint continues to provide us decrease in China. combined to halt and reverse the post-pandemic recovery The impact of this challenging macroeconomic environment spending and stock levels throughout the distribution channel increased in anticipation of a sustained period of recovery. premium steel panel radiators remained around 6% overall. channels. The European market for premium steel panel remain excited by the opportunity to substantially increase UK premium steel panel volumes in the future. Continued investment for the future supply chain to minimise any impact on our customers and scaling production output appropriately for reduced levels ongoing improvements in customer service across the Group. Investment in our facilities continues to drive improvements 942 Outlook market and positioning the business for decarbonisation. half of the year being stronger than the first. Russian invasion of Ukraine continue to stimulate increased aim to fulfil our purpose: helping to heat homes sustainably. heat emitters remain supportive macro trends underpinning the broader outlook for the business. outperformance despite the challenging macroeconomic Trevor Harvey 13 March 2023 STRATEGIC REPORT Stelrad Group plc Scale in steel panel radiators, low-cost manufacturing operations platform are at the heart of Stelrad’s continuing success Residential heating systems by type Hydronic heat emitters by type Steel panel radiator demand drivers Stelrad operates across three core geographies UK & Ireland 52% market share in 2021 The UK & Ireland represented 45% of maintaining clear market leadership in Europe 11% market share in 2021 European sales represented 47% market leader in its long-established core markets of Belgium and the Turkey & International 7% market share in 2021 5 position in both the Turkish and Chinese markets. Read more in our associated strategy in action on page 18 80% hydronic radiators 60% steel panel radiators 61% replacement and first time installation Stelrad Group plc Our strategy aligns with underlying market trends Historical market stability impacted by short-term macroeconomic headwinds Increasing adoption of A positive outlook for radiators in decarbonised heating systems shocks resulting from Russia’s invasion of Ukraine and high particularly in the private residential replacement sector. annualisation of these macro effects eases and underlying demand recovers. Our opportunity these short-term challenges and to profit from healthy longer-term fundamentals. There is a clear opportunity to act as a natural consolidator and to increase our market share in select geographies as smaller competitors exit The longer-term fundamentals for premium steel panel short-term effects of the challenging macroeconomic trend is expected to continue once consumer confidence and disposable income recover. Our opportunity Stelrad has the most extensive range of premium steel types to the Group’s manufactured design radiator market in our key countries of operation. construction is the secondary volume driver and despite including the UK. Our opportunity through our traditional trade distribution outlets and Stelrad to leverage its leading trade brands across all market sectors. Although residential construction is expected to cost electricity and electricity prices become increasingly decoupled from fossil fuel energy sources. Our opportunity Stelrad is a trusted adviser to specifiers and has a clear opportunity to engage and educate to influence the leading logistics capabilities. Read more on page 14 Read more on page 15 Read more on page 14 Read more on page 15 Link to strategy Growing market share Link to strategy Improving product mix Link to strategy Optimising routes to market Link to strategy Positioning effectively for decarbonisation 1 2 3 4 Market trends STRATEGIC REPORT Stelrad Group plc Our business model Stelrad’s robust business model drives sustainable long-term value for our stakeholders ESG fit for the future Brand strength Stelrad is the number one steel panel radiator brand across routes to market. This maximises access to specifiers in all segments and optimises channels to market. Product availability largest radiator distribution centres in the UK and mainland units. Our customers are further supported by additional regional distribution hubs. Range innovation Stelrad pioneered premium steel panel and vertical steel Standardised core design The Group’s core steel panel radiator design is used in all standard and premium steel panel ranges produced in the People the most stable and experienced senior management International network Brands brand. Completing our portfolio is the Hudevad Danish specification and high-end residential sectors. Operational assets focused on manufacturing automation and logistics operational platform. Fit for the Future centred around our core purpose: helping to heat homes sustainably. Stelrad has a significant role Driving better environmental performance focused on reducing both the direct and indirect environmental impacts of our products and on helping to drive the decarbonisation of heating. suitable products as part of a coherent offering for What makes us differentOur resources Read more on page 27 Stelrad Group plc ESG fit for the future Customers People provide a desirable long-term career environment. Investors investors by making Stelrad a better business year on year: striving for cost leadership and harnessing the skills and commitment of our people. Suppliers and to maximise long-term value for our investors. Communities and the environment Stelrad plays an important role in the life of the communities positively and striving to minimise our impact on the Enabling an exceptional workforce Our people are fundamental to the success of our programme to ensure our employees’ voices continue to be heard. Conducting business responsibly Nothing is more important than keeping our people safe and healthy and conducting ourselves embedded a positive safety culture and effective our programme of manufacturing investment our approach to business is guided by a strong set Driving better environmental performance is central to Shared valueHow we create value Package Design and innovate Recycle and reuse ManufactureDistribute Source Engage, educate and influence Formulate strategy STRATEGIC REPORT Stelrad Group plc Our strategy Four key objectives are at the heart of Stelrad’s strategy Growing market share Links to risks Links to risks Improving product mix Strive for cost leadership Now programme of investment for cost leadership resulted in the upgrade of Future higher cost competitors exit the market. Provide market-leading product availability Now Standardised core design across three facilities enables production planning flexibility. Our market-leading UK and European distribution centres are supported by dedicated inventory best-in-class logistics offer. Future steel panel and other design radiators in order to expand the market Selectively target share growth in key geographic markets Now position in seven more. Important share gains continue to be made in France and Scandinavia. Future provides a clear opportunity to leverage our strong brands in our key geographies to gain share beyond the steel panel radiator category. Act as a market consolidator Now Future business gains or competitor exits. Read more in our associated strategy in action on page 18 Accelerate upselling to premium Now Group's profitability. Future leveraging Stelrad’s brand strength and market leadership position in key geographies Pursue complementary acquisition opportunities Now Future There are opportunities to develop Read more in our associated strategy in action on page 16 1 4 72 5 8 93 6 1 42 53 6 Stelrad Group plc Risk key Business disruption 1 Reliance on key customers 2 Loss of competitive advantage 3 IT failure or cyber breach 5 Political and economic environment 8 Climate change 9 Supply chain risk 4 People and culture 6 Health and safety 7 Links to risks Links to risks Optimising routes to market Positioning effectively for decarbonisation Adapt quickly to channel evolution Now Stelrad continues to manage changes in channel clearly demonstrating the benefits of our longstanding Future in our brands to position them appropriately to maximise Radiators increases Stelrad’s penetration of the DIY and retail channel and notably expands the Group’s presence European market. Embrace digital transformation Now architects and consultant engineers. Online sales to the UK private residential replacement market continue to develop positively despite this sector having been strongly Future and online presence to ensure the continuing strength to market. Maximise sales of products compatible with low-temperature systems Now The full impact of heating system decarbonisation cycles and the significant numbers of radiators already continue to expand our portfolio of higher output heat be more fragmented in terms of heat source technology. Future emitters in addition to existing high output steel panel core markets through our comprehensive sales and sustainably through optimising heat emitter selection heat source. Leverage our market position to unlock Now operational infrastructure position the Group to play a pivotal role in the development of European heating distribution channels as decarbonisation initiatives gain momentum over the coming decade. Future further diversification into complementary heat emitters and into other product areas relating to the long-term decarbonisation of home heating. 1 42 53 6 1 63 8 94 STRATEGIC REPORT Stelrad Group plc Strategy in action DL Radiators is a well-established, well-invested • Based in Moimacco, near Udine, Italy • Manufactures steel panel, steel column, aluminium, decorative steel tubular and towel warmer radiators, with a 2021 volume of c.1 million units • Employs approximately 350 people • Experienced management team • Generates 17% of its electricity requirement through solar energy • 2021 revenue of €86.9 million The acquisition of leading Italian manufacturer aligned with Stelrad’s key strategic objectives c.60% of sales are in higher added-value design ranges c.90% DL Radiators is an extremely complementary acquisition Stelrad Group plc The acquisition of DL Radiators delivers against all four of Stelrad Group’s strategic objectives Growing market share geographic markets through market consolidation Improving product mix of higher added-value heat emitter types and upselling opportunities through existing Stelrad Group channels Optimising routes to market Increases access to key channels and routes to market Positioning effectively for decarbonisation Extends Stelrad’s offer for compatible products and provides an electric range suitable for decarbonised heating systems through higher added-value designs and a Trevor Harvey STRATEGIC REPORT Stelrad Group plc Strategy in action Growing market share Stelrad made important gains in market share and foundation to meet future market challenges. UK #1 Market position Stelrad’s leadership position in Europe’s largest single steel panel radiator market. Expansion of our distribution base has Belgium #1 Market position UK market share 52.1% 52.1 50.2 49.7 Belgium market share 38.2% 38.2 33.5 31.1 Netherlands #1 Market position Netherlands market share 45.8% 45.8 39.4 37.3 Stelrad is outperforming its peer group Of the top five players in the European steel panel radiator experienced share decline. Holding a significant market-leading UK share position According to the latest available steel panel market data for important markets. to be challenging for European market leadership from Stelrad Group plc Stelrad moved from number 5 position Sweden #2 Market position Sweden market share 18.2% 18.2 6.0 5.3 Stelrad had previously identified France France #2 Market position France market share 26.4% 26.4 19.8 14.9 Denmark #1 Market position Denmark market share 42.6% 42.6 37.5 21.2 countries of operation positioned Stelrad Group positively Trevor Harvey STRATEGIC REPORT Stelrad Group plc Key performance indicators Management considers and the Directors believe that each of these measures provides respect to the Group’s business and operations. These are non-IFRS Revenue (pre-IAS 29) £312.1m Adjusted operating profit £34.0m 312.1 34.0 272.3 33.2 Description The Group generates revenue from three operating segments: the UK International. Revenue arises from the sale of products to consumers and represents the gross invoiced sales less credit notes and rebates. Performance selling price increases implemented in a decrease in sales volumes. Steel price volatility continued in the first half of throughout the period to recover steel and other inflationary cost increases. Description performance from operations. Performance contribution per radiator and the offset by a decrease in sales volumes. Measuring and analysing Links to strategy Links to strategy1 12 23 34 4 Strategy key Growing market share Improving product mix Optimising routes to market Positioning effectively for decarbonisation 1 2 3 4 Links to strategy Adjusted EPS 19.11p 19.11 16.92 Description the year of the Group per share in issue. Performance operating profit and reduced interest not recur. 1 2 3 4Links to strategy Adjusted free cash flow £17.2m 17.2 21.2 Description available to service debt and make distributions to shareholders. Performance Italian site. 1 2 3 4 196.6 15.6 4.44 16.4 Stelrad Group plc Total radiator volumes sold 5,404k units Total premium panel 304k units 304 346 Description The sales volumes of premium panel radiators sold across all geographical segments in the reporting period. Premium panel radiators include vertical radiators and are differentiated from standard steel panel radiators by their design. Performance due to a decline in overall volumes. 5,404 5,952 Description The sales volumes of radiators across all geographical segments in the reporting period. Performance global macroeconomic uncertainty improvement activity. Glossary of terms Adjusted cash flow from operations: Adjusted cash flow from operations conversion: calculated by dividing Adjusted EPS: average number of shares in issue. Adjusted free cash flow: received less tax paid. Adjusted operating profit: operating foreign exchange differences and the Adjusted profit for the year: earnings Business capital employed: the sum trade and other payables and other current financial liabilities. CAGR: Contribution: revenue from sale of the Group’s products less any cost of direct and other variable costs. EBITDA: Return on capital employed: operating profit as a percentage of business capital employed. RMI: improvement activities. Links to strategy Contribution per radiator (pre-IAS 29) £16.01 16.01 13.74 Description The value of contribution generated per radiator sold. Performance Contribution per radiator has offset by the impact of steel and other inflationary price rises. 2 4 Links to strategy Return on capital employed 27.2% 27.2 46.5 Description operating profit as a percentage of business capital employed. Performance Return on capital employed reduced in 1 2 3 4 Links to strategy Links to strategy1 23 300 4,969 13.19 21.0 We are committed to engaging our stakeholders in all aspects of our strategic vision STRATEGIC REPORT Stelrad Group plc to promote the long-term success of the Group and the importance of the communities and environment in its stakeholders seriously in setting and implementing the Group strategy and believes that good stakeholder engagement is key to the long-term success of Stelrad Group plc. Stakeholder considerations also form part of Each year the Group undertakes a detailed business success of the Group for all stakeholders. The Board the Group to explore various alternatives and the likely The remainder of this section of the Annual Report sets delivery of our plan. Read more in our Corporate Governance Report on page 57 Stakeholder engagement Board discussion • including the long-term impacts on • decision making • The Board satisfies itself that accurate and comprehensive to • The Executive team provides information on a timely basis and Board information • • Board papers including financial and non-financial information • Advice and presentations by internal and external experts • key stakeholders Board review • information on outcomes and actions of its decisions Board decision • Actions are taken to implement the Board’s decisions 1 4 2 3 Decision making by the Board Section 172 statement Stelrad Group plc People Why we engage Our people are fundamental to delivering our strategy and driving the future a responsible employer and an attractive colleagues are an important input in the part of our decision-making process. unions and employee representatives. Through a combination of these engagement approach is effective and appropriate for the Group. for ensuring that employee engagement need for alternative methods of engagement. How we engage • Regular access to and provision of training and development • • • • Annual Report • Employee surveys • Board member visits to sites • Code of Conduct • Outcomes • Communication of relevant and timely information • higher retention rates • Development and improvement of skills throughout • • Code of Conduct • High standards of health and Read more about our workforce in our Sustainability Report on page 34 People Customers Suppliers Investors Communities and the environment Our stakeholders STRATEGIC REPORT Stelrad Group plc Stakeholder engagement continued Customers Suppliers Why we engage and high standards of business conduct are critical to our Group’s performance. strengthen these key relationships How we engage • Management of ongoing customer relationships • Customer events and product launches • • • Annual Report • heating systems • Outcomes • Continued customer satisfaction and loyalty • Establishment of long-term partnerships • Successful and mutually beneficial product development Why we engage Our suppliers are intrinsic to the performance of our business. Maintaining a fully integrated supply chain means undertake sustainability initiatives. How we engage • Ongoing supplier performance and relationship building meetings • • innovative solutions in a collaborative manner • Collaboration as appropriate on product development • • Timely payment of suppliers • Annual Report Outcomes • • • Fair payment terms • Support of our ESG initiatives Stelrad Group plc Communities and the environment Investors Why we engage The Group's ESG strategy is key to ensuring The Group has clear ESG initiatives in each make a positive impact in the communities impact it has on the environment and this is a critical part of our decision-making and business planning process. How we engage • Community investment initiatives • Sponsorship and employee volunteering • national initiatives • businesses to identify and support the delivery of educational and vocational initiatives • Participation in initiatives to help reduce environmental impact of our business • heating systems Outcomes • Support and development of local educational institutions • charitable events and fundraising • Cleaner and friendlier areas for the local communities • Read more about our environmental performance in our Why we engage strategy and sustainability initiatives is key to ensuring that they are engaged in the business and motivated to support future investment opportunities that may arise. Continued investor engagement is and understandable information about the business to enable informed investment decisions to be made. How we engage • Annual Report • Annual General Meeting • • Results presentations and post-results engagement • results announcements • our corporate brokers • communicating to investors Outcomes • Maximising demand for the Group’s shares • Support for investment opportunities including potential Establishing the foundations for sustainability Introduction to our Sustainability Report at Stelrad this year. Using our findings from a stakeholder stakeholders and our business. This is enabling us to target future actions to support our sustainability priorities and our core purpose of helping to heat homes sustainably. Highlights of 2022 • • • • • Our manufacturing site in the Netherlands gained Next steps for 2023 • setting of targets • include all business units • • • Roll-out of supplier audit process to all business units Trevor Harvey Chief Executive Officer sustainability steering group made up of senior managers group is responsible for driving our sustainability actions across Stelrad and helping us achieve our longer-term sustainability goals. by conducting supplier audits and expanded our methods of collecting feedback from our employees. Each of these development of an expanded set of sustainability metrics This year hasn’t only been about developing the foundations on reducing the impacts of our energy usage. A particular reduced production volumes. Our goal is to decouple our carbon intensity. This year has also been characterised by a challenging economic environment for our employees. In response to the pressures of the rising cost of living and hyperinflation actions are useful examples of our culture in practice: acting The number of lost time incidents and the total number of conditions and near misses. I am hopeful that these actions Trevor Harvey 13 March 2023 STRATEGIC REPORT Stelrad Group plc Sustainability Report Stelrad Group plc Our commitment to sustainability responsible treatment of all stakeholders and the Focusing on the material issues for Stelrad and its is centred around our core purpose: helping to heat homes sustainably heating industry. commitments to stakeholders and the environment. Fit for educating and influencing others throughout the value chain FIT F R THE FUTURE OUR CORE PURPOSE Helping to heat UNDERPINNING FOUNDATIONS Conducting business responsibly Read more on page 36 STRATEGIC PILLAR Driving better environmental performance Read more on page 30 STRATEGIC PILLAR Enabling an exceptional Read more on page 34 STRATEGIC REPORT Stelrad Group plc Sustainability Report continued Our commitment to sustainability continued Materiality and the potential impact it could have on our business. This the greatest level of importance and focus. These material issues are the ones specifically addressed through our Fit for of focus. This contributed to an evolution rather than a comprehensive redesign of our sustainability approach. Material issues Driving better environmental performance 1 Decarbonisation of heating 2 3 Greenhouse gas emissions 4 Product innovation 5 Energy management 6 Product packaging impacts Enabling an exceptional workforce 7 Employment and skills 8 Diversity and inclusion 9 Conducting business responsibly 10 Anti-bribery and corruption 11 12 Supply chain human rights Materiality matrix Exposure/impact on the business High Significance to stakeholders Alignment with the UN Sustainable Development Goals Through our sustainability work, we are supporting several of the Sustainable Development Goals (“SDGs”). Of the 17 SDGs, seven align most closely with our sustainability activities. Driving better environmental performance Enabling an exceptional workforce We promote sustainable manufacture and resilient infrastructure and contribute to sustainable industry Our products can deliver low-cost and efficient heat distribution and are suitable for low-carbon heating systems We actively manage our environmental footprint, reducing our resource usage and waste where possible We combat climate change by reducing carbon in our value chains and supporting the decarbonisation of heating systems We prioritise the health and safety of our people, ensuring access to healthcare and aiding mental health We promote equal opportunities for women, including leadership roles. discrimination We provide productive employment and decent work, and maintain high standards, responsible growth 6 7 2 8 4 1 3 9 11 10 12 5 Stelrad Group plc Stelrad’s sustainability journey Up to 2015 • • • • Apprenticeship programmes established • Group develops minimum ESG standards • 2016–2018 • • • 2019–2020 • • • • Stelrad UK becomes a Disability Confident employer 2021 • • • • • First Sustainability and TCFD Report as part of Annual Report 2022 • • Stakeholder materiality assessment completed • Sustainability steering group formed • lifecycle analysis completed • • Sustainability metrics to provide a transparent assessment of our progress against time. The metrics in this section do not currently include data and further alignment to external standards. reason for significant reductions in our carbon emissions and make improvements and reduce this intensity in future. Metric Driving better environmental performance Plastic packaging intensity Enabling an exceptional workforce Training days per employee Conducting business responsibly — STRATEGIC REPORT Stelrad Group plc Sustainability Report continued Driving better environmental performance A key pillar of our strategy focuses on reducing the direct and indirect environmental impacts of our products and on the urgent need to reduce global emissions and manage in meeting these global aims. innovate and introduce complementary products as part of a positive behavioural change for consumers to encourage the decarbonisation of heating. of plastic in our packaging. Our strategy to drive better environmental performance Spotlight on UK water usage usage. This enabled us to identify several significant installation of additional valves and controls to manage 1. Formulate strategy Environmental considerations feature strongly in our strategy. importance of environmental aspects reinforces the need to opportunities to reduce the environmental impact of our products through the sharing of best practice and reinforced 2. Design and innovate Our radiators are designed to strike the best compromise of improving our material consumption is to design products product offering. Package Design and innovate Recycle and reuse ManufactureDistribute Source Engage, educate and influence Formulate strategy Stelrad Group plc 3. Source purchased goods and services and upstream transportation Conscious of this and the environmental impact of the steel suppliers to understand their plans to decarbonise steel enabler for reducing the environmental impact of our steel. 4. Manufacture Improving efficiency in our manufacturing operations facility. This investment has contributed to improved carbon spotlight above. Spotlight on energy usage – fan optimisation energy consumption and performance. The second change involved automatically stopping a fan if there replicate this success in our other facilities. e/t to e/t. Our manufacturing and distribution facilities largely on multi-year contracts and it is our aim to maintain A key enabler of improving energy efficiency is our energy contribute to future energy savings. STRATEGIC REPORT Stelrad Group plc Spotlight on low-carbon heating – carbon heating supplied from the Glenrothes Energy This innovative district heating system benefited from positively to the UK’s Net Zero Strategy. The choice of Stelrad products to effectively distribute this heat carbon heating systems. Driving better environmental performance continued 5. Package specification of packaging is essential to avoid damages. to publish a range of packaging metrics for the first time. last year. This change has been successfully implemented Packaging used (2022), by material type 3,017t (2021: 3,832t) 6. Distribute investing significantly in the reorganisation of our European and aim for all vehicles across the Group to emit less than Sustainability Report continued 7. Engage, educate and influence to make more informed decisions on heating systems and accelerate the decarbonisation of home heating. In support and specifiers in the form of continuing professional system design agencies. 8. Recycle and reuse It is estimated that the lifecycle of our radiators is in excess the highest recycling rates of all materials. Recycled steel is Stelrad Group plc Streamlined Energy and Carbon Reporting The table below summarises our energy usage and associated emissions for the Group during 2022. This table does not include data from DL Radiators for this year; this will be incorporated in future years. We achieved 96.15% verifiable data coverage, with only 3.85% of consumption data being estimated. Our chosen intensity metric is tCO 2 e per tonne of product produced. The results of this intensity metric are as follows: Variance Market-based UK Non-UK Total UK Non-UK Total Variance Consumption Total UK Non-UK Total UK Non-UK Total Variance Market-based Market-based — — — — emissions — — emissions Market-based Reporting methodology reporting guidance. have been sourced for our countries of operation. STRATEGIC REPORT Stelrad Group plc Sustainability Report continued Enabling an exceptional workforce Our people are fundamental to the success of our business. ensure our employees’ voices continue to be heard. Outside tailored to local needs across our broad geographic spread. Our people bridges and values the rich heritage of our people and the in each country. Our flat management structure also assists us Development leadership capability to support and develop our current and future leaders and a key focus is on enhancing technical and sell heat pump systems. This included information on These initiatives and a large increase in safety training in Turkey have contributed to an increase in our key metric of Developing our employees of the future Continental Radiator for more information. hosting open days and school leaver days across the Group. Engineering at Sheffield College as part of the Employer Skills Academy. Spotlight on Continental Radiators – how we develop employees the shortage of operators and maintenance technicians by promoting enrolment in training courses. As part including providing Company tours for secondary school students and their parents and participating in targeted support to give them the skills and experience internal candidates. Employee engagement Our approach to employee engagement is decentralised and the diversity of our people. identify areas for improvement. union partners across our main sites. Stelrad Group plc as this reflects the success of our approach to employee our people. Equality, diversity and inclusion diversity and inclusion into our key people processes and improve representation. Our success in achieving this is number attending training courses. The Code of Conduct Policy sets out the standards of behaviour expected from underlines our commitment to continue to develop as an open and inclusive organisation. Gender in our business and in leadership roles is important to our access to technical education. Wellbeing already offer a range of occupational health services across cost of essential healthcare. This includes optical and dental Community sponsorships and local partnerships. their flights and enabling them to take part in an ultimately through our employee feedback scheme. This involves through any of several hosted events that take place throughout the year. These activities are underpinned This enables us to tailor benefits to support retention and an on-site prayer room and an annual festival for all employees and their families. All employees SG&A Management Board Male Female 34.3% 19.2% 25.0% 90.8% 65.7% 80.8% 75.0% 9.2% STRATEGIC REPORT Stelrad Group plc Sustainability Report continued Conducting business responsibly Conducting business responsibly is a key foundation in including our sustainability strategy. Our approach to business is guided by a clear set of Company values and a culture of safety that is overseen by the strong development and progression. training and manufacturing processes to keep our colleagues safe and healthy and to reduce accident rates. Governance of sustainability Our Chief Executive Officer continues to have overall accountability for sustainability. He is assisted in this by a sustainability steering group and our sustainability to provide greater senior management support and driving the implementation of our sustainability strategy. on stakeholder engagement and the development of our Sustainability Manager and comprises local representatives from each business unit. This group is responsible for data and progress to the steering group and acting as effective by expanding the membership to reflect Stelrad's ongoing development. Spotlight on safety – collision warning happen regularly and are complemented by daily tours risk of accidents. This pedestrian detection system has pedestrian interaction. Stelrad Group plc Health and safety Our number one priority is to keep our employees and contractors number of days lost. This increase is driven by accidents in procedures. Corrective actions have been identified and are conditions reporting. Focus on these aspects helps to identify strong culture of safety. Our increased focus on reporting incidents captured. Supply chain management Conducting business responsibly also extends to ensuring that of the activities of each supplier and helps ensure meaningful Anti-bribery, corruption and labour standards supported by in-person training to a large number of colleagues. Our Code of Conduct is reinforced by our Group Conflicts Our approach to labour standards is typified by our approach to collective bargaining and pay. This is also reflected in our and Continental Radiators maintaining a silver medal. Lost time severity rate 51.8 32.1 Lost time frequency rate 6.1 7.2 Fatality rate 0 0 Total recordable incident rate 5.1 7.3 STRATEGIC REPORT Stelrad Group plc Sustainability Report continued TCFD Report against the recommendations of the Task Force on Climate- risks and opportunities into our strategy. Our focus in the disclosures not currently made: climate scenario modelling not made this year due to a desire to ensure any scenarios or taking into consideration different climate-related scenarios. Climate governance Our Chief Executive Officer has overall accountability for our opportunities. The Board is responsible for ensuring that appropriate systems and processes are in place to monitor and manage progress. The Board is guided by the Audit & Risk Committee in matters relating to climate risk. The Audit & Risk Committee is also responsible for overseeing the and processes. risk. This means that significant emerging or evolving Committee on an ongoing basis. Group Sustainability Manager maintains a climate-related advantageously separating this from existing business unit on emerging risks to our Group Sustainability Manager and alongside business unit registers. Progress on the execution of our sustainability strategy is driven and monitored by our sustainability steering group. This Director and Group Strategic Marketing Director. This group our strategy across the business. Members of the steering group periodically update the Chief Executive Officer and the Board on progress and the Board has embedded a process to ensure that Co-ordination of sustainability actions across the Group is led by our Group Sustainability Manager and he is supported Strategy homes sustainably. Sustainability and climate are significantly are addressing our climate-related risks and opportunities. strategy and financial planning. Risk management captured in a climate-specific risk and opportunity register. This climatic temperature increases and any opportunities that may Our climate-related risks and opportunities are assessed in terms of the likelihood of the risk arising over three different or opportunity is unlikely to occur in the period and level three suggesting that the risk is more likely than not to happen. impact if a risk does occur. This impact is defined based on the likely financial or reputational damage or gain that could halt our ability to service our customers for a period. advantage of the opportunity. The management of the risk acceptable level as defined by the Board and for updating on changes. related risks and opportunities that have been identified through this process. Metrics and targets there is also a description of the main contributors to our including setting targets in key areas and expanding the ensure that our metrics are developed in consideration of our main climate-related risks. Stelrad Group plc Failure to meet stakeholder sustainability expectations or our previous commitments. Category Transition risk Description Impact Mitigation/realisation actions stakeholders of a company's around climate and achieving carbon reductions. This includes examination of performance against previously stated commitments. There is a risk that these expectations are not met. • Customers may move their business • Stelrad’s access to capital may costly to invest and impacting the Company’s valuation. An appropriate governance structure exists to ensure that sustainability matters are prioritised according to stakeholders’ climate expectations. perceptions are accurate. Increased cost of business due to a combination of legislation and market dynamics. Category Transition risk Description Impact Mitigation/realisation actions Climate change may result in suppliers example through using green hydrogen. These may come at a higher cost. Sustainability targets are also leading to the introduction of legislation to encourage companies to reduce their environmental impacts and increase transparency in reporting. This trend is likely to continue and may differ by than others. • energy and transport. • Cost drivers may lead to changes to the relative competitiveness of radiators against alternatives. • data gathering and reporting changes and ensure that appropriate responses are developed. Any internal also focus on efficiency improvements. necessary to understand market changes in a timely manner and implement appropriate responses. trade bodies are especially important. An increase in the use of alternative technology. Category Transition risk Description Impact Mitigation/realisation actions The drive to reduce carbon in heating competing technology. This could be driven by consumer behaviour and could be intensified The future changes may also support differentiation described on the • Any increase in the presence of competing technologies may reduce the relative share of radiators and may impact on Stelrad's market share and profitability. changes and assess these for their likely impact on product choices. customers and specifiers to ensure the positive attributes of radiators are understood and incorporated. to market as part of our offering. STRATEGIC REPORT Stelrad Group plc Sustainability Report continued TCFD Report continued Differentiation of Stelrad's product and service offering. Category Opportunity Description Impact Mitigation/realisation actions The drive to reduce carbon in heating may also lead to changes that could demand for higher output products. There is also the opportunity to bring our offering. The buying decision on heating products is likely to encompass broader opportunity for differentiation. • Opportunities for development of our product and service offering • Diversified or increased revenue Increased severity and frequency of extreme weather events. Category Physical risk Description Impact Mitigation/realisation actions damage is increasing. These events • Damage or disruption to our production facilities may reduce our ability to fulfil customer demand. • Disruption to global supply chains may reduce our ability to move product and materials. • Extreme heat may necessitate impact on productivity or cost. • Prolonged periods of heat may All facilities have reactionary processes in place to adapt to acute events. Production volume can be flexed across the Group if specific facilities have issues. Many inputs are sourced from multiple reducing the risk if specific supply routes are disrupted. Stelrad Group plc Sustainability metrics table Unit of measure SASB reference Change Driving better environmental performance Energy and carbon Total energy consumed Grid energy % % kgCO e kgCO e n/a kgCO e/tonne n/a Water and waste m stress % l/tonne n/a tonnes kg/tonne n/a % n/a Materials % n/a Packaging material used tonnes n/a Plastic packaging material % n/a Plastic packaging intensity kg/tonne n/a Recycled content of packaging material used % n/a Enabling an exceptional Training and development Training days per person days n/a Number of apprentices FTE n/a Labour practices Employee turnover % n/a Absence rates % n/a Gender diversity Female % n/a Male % n/a Not available % n/a — — — Conducting business responsibly Health and safety rate n/a rate n/a Total recordable incident rate rate Fatality rate rate — — — Business ethics Total amount of monetary losses as a result of legal bribery or corruption — — — Total amount of monetary losses as a result of legal anti-competitive behaviour regulations — — — STRATEGIC REPORT Page title Stelrad Group plc performance positions the Group for continuing growth Group overview £m Increase/ Increase/ % Revenue Adjusted operating profit Exceptional items Amortisation of customer relationships — n/a Foreign exchange differences — n/a Operating profit Net finance costs — n/a Profit before tax Income tax expense Profit for the year Earnings per share (p) Adjusted profit for the year Adjusted earnings per share (p) Total dividend per share (p) Stelrad Group plc Financial overview by a challenging macroeconomic environment due to high inflation and increasing interest rates. The market price for steel costs increased significantly in the same period. decrease in sales volumes. Steel price volatility continued in recover steel and other inflationary cost increases. Revenue margin management and operational improvements leading The currency differences arise from the retranslation of our hard currency assets and liabilities in our Turkish subsidiary and these non-cash currency gains and losses have been IAS 29 respect of its Turkish subsidiary for the first time in its financial accounting policy outlined in note 5. as a positive restatement to opening reserves. Management representation of the Group’s underlying performance in the costs in the Turkish subsidiary being denominated in hard A strong focus on margin management and operational improvements more than George Letham STRATEGIC REPORT Stelrad Group plc continued IAS 29 continued Statutory position position Revenue Adjusted operating profit — Exceptional items — Amortisation of customer relationships — Foreign exchange differences — Operating profit/(loss) Net finance costs — — Profit/(loss) before tax Income tax expense Profit/(loss) for the year Functional currency profile and therefore functional currency of the business. The change in functional currency of the Turkish business from Turkish DL Radiators acquisition Revenue (pre-IAS 29) by geographical market geographical market £m Increase Increase % UK & Ireland Europe Turkey & International Total UK & Ireland partially offset by a decrease in sales volumes. Europe Turkey & International Stelrad Group plc Adjusted operating profit by geographical market Adjusted operating profit by geographical market £m Increase/ Increase/ % UK & Ireland Europe Turkey & International Central costs Total UK & Ireland Europe Turkey & International profit in this territory. Central costs Exceptional costs Finance costs Income tax expense charge benefiting from the recognition of previously unrecognised deferred tax assets. Earnings per share and adjusted earnings per share STRATEGIC REPORT Stelrad Group plc continued Dividends and reserves The Group is committed to delivering returns for its shareholders. It has initially adopted a dividend policy targeting an annualised Group intends to split dividend payments approximately The Group paid an interim dividend in respect of the year Cash flow £m Increase/ EBITDA Gain on disposal of — Share-based payments — Net capital expenditure Adjusted cash flow from operations Income tax paid Interest received — Adjusted free cash flow increase from operations. output in Turkey and capital expenditure relating to a Capital expenditures The Group’s capital expenditures mainly relate to investment under construction. £m Freehold land and buildings Assets under construction Fixtures and fittings Intangible assets — Total production lines at the Group’s facilities in Turkey and future years. Stelrad Group plc Net debt refinanced and repaid all legacy financing arrangements amended and restated facility agreement is made up of a loan facility. £m — Term loan — Cash Net debt before finance leases Finance leases Net debt George Letham 13 March 2023 market conditions. George Letham STRATEGIC REPORT Stelrad Group plc Risk management The Board has ultimate responsibility for the Group’s system of internal control and risk processes that enable the monitoring and mitigation of existing risks and the early Risk management approach The Group’s approach to risk management combines a top bottom up operational identification and reporting process. and Audit & Risk Committee and consider the strategy and operating environment of the Group. Bottom up activities take place across the Group and capture risks that are regular exercises undertaken by management to identify and document the significant risks facing the businesses. This process ensures risks are identified and monitored and mitigating management controls are embedded in the businesses’ operations. Risk management teams are also management team. The risk assessments from each of the and are considered in determining the principal risks of the environment. The principal risks of the Group are presented Emerging risks are also collated from assessments made by the business units and through considered risk oversight across the Group and industry. The Group considers that the process for the management of risk consists of three lines of defence. The first line of defence bottom up activities detailed here. The second line of defence is Group oversight provided by the Group Board and Audit and other external assurance providers. Board Ultimate responsibility for risk management • Sets Group strategy • • Sets the Group’s risk appetite • • • Sets delegated levels of authority Audit & Risk Committee Monitors risk management and assurance arrangements • Supports the Board in risk management responsibilities and activities • Executive Directors Monitor performance and changes in key risks • Provide regular risk management update reports to the Board and the Audit & Risk Committee • Report to the Board and the Audit & Risk Committee on the status of key risks • mitigating actions • Oversee health and safety activities Business units/ operational and management teams Identify, manage and report local risks • • Identify risks • Identify and implement mitigating actions • Assess the likelihood and impact of each risk before and after mitigating and contingent actions are taken Risk management framework Identification of emerging risks Stelrad Group plc Assessment of risk direction 1. Business disruption Risk The Group could be subject to disruption due to incidents including, but not limited to, pandemics, major accidents or natural disasters. Change from prior year No change Impact • A further global pandemic could reduce market demand for the Group’s products. • capacity due to staff shortages. • The Group’s production and distribution customer demands. Mitigations • Infection and pandemic risk assessments and response procedures are short notice include: – social distancing; – regular testing on site; – – • Appropriate fire safety measures are in place at key sites. • Building modifications have been made to address flooding risk. • • Accident prevention measures are put in place. • There is an option and ability to flex production volume across facilities around the Group. • Appropriate business interruption insurance is in place. Risk appetite The Group Board is responsible for setting and monitoring certain level of risk. appetite across a number of risk categories according to a tolerance for risks relating to health and safety. The Group establishes its risk appetite through use of delegated authorities so that matters considered higher Group Board. The Group’s risk appetite remains unchanged in the year. Principal risks The Board confirms that it has carried out a thorough assessment of the principal and emerging risks facing the the impact and strategic relevance of the risks and an risks that are believed to have the greatest impact on the Climate change has been presented as a separate principal risk for the first time this year due to an increased focus on climate change in the regulatory environment and document our approach to climate risk management and STRATEGIC REPORT Stelrad Group plc Risk management continued Assessment of risk direction continued 2. Reliance on key customers Risk The Group, in some geographies, is overly dependent on a small number of customers, or on a particular market or business segment. Change from prior year No change Relevant stakeholder Customers See page 24 Impact • Group derives a significant proportion of its revenue from a small number of customers. Failure to manage these relationships or of demand. Mitigations • market channels. • The Group continues to maintain strong specifier relationships to generate demand for the Group’s brands through the distribution channel. • The Group actively manages and maintains its ongoing customer relationships. • • • final consumer. • • 3. Loss of competitive advantage Risk New products, innovations or routes to market could cause a loss Change from prior year No change Relevant stakeholder Customers See page 24 Impact • or product advantage that results in a loss of market share for the Group. • or increase market share as part of the assisted heat exchanger products. There could be a resultant loss of Group sales volumes. Mitigations • The Group continues to monitor legislative changes. • • The Group continues to maintain strong customer and specifier relationships to determine the most appropriate solutions. • Appropriate product types are brought to market under the Group’s brands. • The Group continues to maintain and develop strong relationships • The Group continues to maintain strong specifier relationships distribution channel. • • • on sustainability. • • The Group invests in appropriate energy saving initiatives across • Stelrad Group plc 4. Supply chain risk Risk Failure of the supply chain either due to lack of availability Change from prior year No change Relevant stakeholder Suppliers See page 24 Impact • ability of the Group to manufacture products or harm profit margins. • to manufacture products. • could harm profit margins. • Inflationary price increases could harm profit margins. • success of the Group and any disruption in the supply chain could impact on the ability and/or cause a reduction in profitability. Mitigations • having a secondary provider; this extends to location dual sourcing. • understanding of future prices. • selling price increases. • short-term supply issues. • The Group undertakes ongoing supplier performance and relationship • shipping partners. • trucks instead of shipping. • option is available. • There is an option and ability to flex production volume across facilities around the Group. • The Group pays suppliers on a timely basis. • • • STRATEGIC REPORT Stelrad Group plc Risk management continued 5. IT failure or cyber breach Risk Prolonged or major failure of the Group’s IT systems or a significant security breach. Change from prior year No change Impact • A cyber attack at one of the Group’s facilities could disrupt its production and/ or distribution capabilities leading to an • Failure of our IT and communication systems could affect any or all of our business processes and have significant and make payments. Mitigations • Training and education are delivered to all staff. • Appropriate access rights are applied on all IT systems across • to protect our IT systems. • Email scanning processes are implemented. • Robust systems and processes are in place including data back-ups. • Third party penetration testing is carried out by all sites. • The business uses internal and third party expertise to keep up to date • Disaster recovery plans are in place. • There is continued investment in and maintenance of IT systems across the Group. • 6. People and culture Risk Being unable to retain key personnel and attract skilled individuals Change from prior year No change Relevant stakeholder People See page 23 Impact • The loss of key personnel or the inability to put the correct succession planning in place could lead to a shortage of experience that could damage business performance. • increase in costs of skilled labour could increase the costs of the Group or lead to delays in production. • create a risk of losing talent to more • Inflationary increases in staff costs could harm profit margins. • Mitigations • Deputies are in place for immediate interim assumption of key roles. • development of potential successors for key roles. • Documented processes are in place for key functions to ensure continuity of process. • Policies and procedures are embedded to ensure appropriate management practices. • and sites. • • • Pay rates are maintained at a competitive level to attract and retain staff. • • • through a range of approaches. • The Group rolled out the updated Code of Conduct to all employees during the year. Assessment of risk direction continued Stelrad Group plc 7. Health and safety Risk Failure to comply with health and safety legislation and regulatory requirements including obligations to take the correct measures to prevent fatalities or serious injury. Change from prior year No change Impact • and distribution operations are carried out detrimental to the health and safety of the could have a material adverse effect on financial results. Mitigations • to identify and manage risks. • Health and safety training is provided regularly across the Group. • appropriate machinery guarding and also introducing robotics. • in place to learn from these incidents and put in place procedures and training to prevent them from reoccurring. 8. Political and economic environment Risk Failure to evolve business practices and operations in response to the changing political and economic environment. Change from prior year Continued increase due to the energy crisis Impact • The change in political conditions in Turkey could give rise to an adverse availability of labour or the ability for Turkey • A change in political conditions in any of could give rise to an adverse change in the Group's operations. • The Group is exposed to potential changes in economic circumstances exchange rate fluctuations and private disposable income. • Inflationary price increases could harm profit margins; this is a particular risk in hyperinflationary during the year. • The energy crisis and high inflation increased costs across the Group during the year and could lead to a reduction in consumer spending. • A significant increase in interest rates • Market lending capacity could reduce. Mitigations • The Group continuously monitors legislative changes and evaluates any potential impact. • Exchange rate fluctuations are mitigated using the natural hedge of • hedging policy. • currency hedging strategy. • • There is an option and ability to flex production volumes at each of the Group's facilities. STRATEGIC REPORT Stelrad Group plc Climate change Failure to manage and mitigate climate change is identified as a risk on the Group register. Given the scale and the have been allocated to manage climate risk across the organisation and to determine the impact that this risk may have Assessment of risk direction continued 9. Climate change Risk Failure to evolve business practices and operations in response Change from prior year Continued increase due to heightened stakeholder focus on climate change initiatives Relevant stakeholder Communities and the environment See page 25 Impact • Mitigations • Risk management continued Stelrad Group plc Viability statement and going concern Viability statement The Board has considered the viability of the Group over a three-year principal risks and uncertainties facing the Group. The three-year period recognises that there is inherent uncertainty involved in looking further increases reliability in the modelling and stress testing of the Group’s monitors performance through the financial year against this budget additional years. The Board believes that the business model remains highly relevant to greener solutions for heating homes. The Board has carried out a robust assessment of the principal risks business are identified through the risk management process and are to assess the viability of the Group. The sensitivities modelled used the The Board has carefully considered the principal risks of the Group and the impact of those risks on the viability of the Group and has concluded period assessed. Going concern statement financial statements outlines the Group’s financial risk management principal risks facing the Group. Management has also applied severe also used the financial forecasts as the basis for their assessment of the statements have been prepared on a going concern basis. more than three times and for interest cover of not less than four times. covenants for the next three financial years. The forecast base case scenario has been prepared using robust • the reduction in volumes; and • a reduction of the contribution per radiator from forecast levels Volumes Volumes could reduce in the future due to competitive pressures or Contributions per radiator Group’s contributions in the future. delayed/reduced dividend payments and active management of net STRATEGIC REPORT Stelrad Group plc Non-financial information statement Reporting requirement Relevant policies and standards Read more in this report Page reference Environmental matters • • Code of Conduct • responsibility policies • UN SDGs • • Sustainability strategy and • Risk management • Sustainability Report • Task Force on Climate-related Financial Disclosures • Stakeholder engagement Employees • • • Code of Conduct • Health and safety policies and procedures • Sustainability strategy and • Stakeholder engagement • Sustainability Report • Directors’ Remuneration Report • Nomination Committee Report • Statement of corporate governance • Audit & Risk Committee Report 64 Social matters • Group purpose and values • Code of Conduct • responsibility policies • • Stakeholder engagement • Sustainability Report Human rights • Modern slavery statement • • Code of Conduct • Stakeholder engagement • Sustainability Report • Statement of corporate governance Anti-bribery and corruption • Code of Conduct • Anti-bribery policy • Dealing policy • Insider dealing and market abuse policy • Statement of corporate governance • Audit & Risk Committee Report 64 Business model n/a • Our business model • Our strategy Principal risks • • Risk management Non-financial KPIs n/a • Key performance indicators • Sustainability Report Stelrad Group plc GOVERNANCE REPORT Chair’s introduction to governance Dear shareholders, On behalf of the Board, I am pleased to present the second Corporate Governance Report of Stelrad Group plc as a publicly listed company. The report summarises the governance structure and the governance procedures of the Group. Since our listing on the Main Market of the London Stock Exchange functioning effectively. • details of the Board of Directors and their biographies • • the key roles of the Board and the division of • • • • First full year as a plc Board The Board believes that good governance enhances long- term shareholder value and promotes a sustainable business. The Board also believes that all decisions should be made for the benefit of all stakeholders and to ensure the long-term success of the Group. It is a priority of the Board to set the culture and values of the Group and to lead by example. The Board expanded significantly in advance of the listing in practice in our corporate governance duties and requirements. fresh perspective has enabled them to provide independent business model and strategy. Details of the Board of Directors The first full year of operation of the Board and the Committees has included a thorough and complete induction and training programme, including deep dives into the business units, and a full timetable of Board and Committee meetings, details continuing to aid the success of the business over coming years. Governance Code The Board is committed to the highest standards of corporate further details are included in the statement of corporate Purpose, culture and values from the Board. Our core purpose is a key component The Group has established five values that provide its moral • • • • expertise and resources to make a positive difference to • Board composition and diversity The Board recognises the advantages of having a diverse and inclusive Board in bringing different perspectives to the debate and decision-making processes of the Board, to the benefit of all stakeholders. Female Directors have made up During the year, the Group has enhanced the Group Equality, Diversity and Inclusion Policy and developed a Board Diversity and Inclusion Policy. The Board continues to encourage diversity and inclusion across the Group, and examples of this Stakeholders The Board understands the importance of listening to all The strategy and business model of the Group aim to deliver for all stakeholders. our stakeholders. Bob Ellis Chair Bob Ellis Chair Stelrad Group plc GOVERNANCE REPORT Board of Directors Bob Ellis Chair Bob Ellis is a Director and the Chair of the Board and joined Skills and experience Mr Ellis has a strong financial experience in operational restructuring and has number of sectors, including the retail, manufacturing and construction sectors. External appointments Mr Ellis currently holds directorships on the remuneration and audit committees and the board of Reconomy as chair of the board and remuneration George Letham Chief Financial Officer George Letham is a Director and the Chief Financial Officer of the Group having joined the Group in Skills and experience years of finance experience and held multiple senior finance roles before joining the Group, including at Price Blue Circle Industries PLC. Mr Letham is a member of the Institute of Chartered Accountants of Scotland. External appointments None. Trevor Harvey Chief Executive Officer Executive Officer of the Skills and experience Prior to joining the management positions as managing director of Myson Radiators and managing director of Myson radiator and heat emitter sector. Trevor studied at upon Tyne and graduated External appointments a director of ISG Boiler subsidiaries are engaged in the manufacture and distribution of boilers, and has held this position since Edmund Lazarus Non-Executive Director Non-Executive Director and joined the Group in Skills and experience partner of Bregal Capital private equity positions for and as an M&A and corporate before entering the private Stanley Capital Partners. External appointments In addition to being a number of other external appointments in private equity portfolio companies. A broad range of leading industry, corporate and N Stelrad Group plc Nicholas Armstrong Non-Executive Director Nicholas Armstrong is a Non-Executive Director and joined the Group in Skills and experience Mr Armstrong is a partner and member of the founding of the Bregal Capital team extensively across a number of portfolio companies including Stelrad Group. Prior to joining Bregal, in London and Nomura’s Australian M&A team in of Commerce. External appointments In addition to being a LLP, Mr Armstrong holds a number of other external appointments in private equity portfolio companies. Nicola Bruce Non-Executive Director Nicola Bruce is an independent Non-Executive Director and joined the Skills and experience In addition to her significant non-executive board partner at the Monitor Group director of strategy at De La Rue plc. She has chaired the remuneration committees at Society Ltd and the Anchor Institute of Management Accountants and holds both an MBA from INSEAD and External appointments Ms Bruce is currently a non-executive director independent director and chair of the remuneration Terry Miller Non-Executive Director and Senior Independent Director Terry Miller is an independent Non-Executive Director and the Senior Independent Director, and joined the Group Skills and experience non-executive board experience, Ms Miller is a career, held senior executive positions in the public and private sector, including as general counsel for the London Organising Committee of the Olympic Games and Paralympic Games and, prior to her LOCOG appointment, as a partner and international general counsel for Goldman Sachs. She holds of Michigan (Bachelor of Arts, (Juris Doctor, summa cum External appointments Ms Miller is a non-executive director of Goldman Sachs International and Goldman Sachs International Bank, part of the multinational Goldman Sachs Group of financial services businesses. Ms Miller is also a non-executive director of Rothesay Life plc, and the senior independent director of Martin Payne Non-Executive Director Martin Payne is an independent Non-Executive Director and joined the Skills and experience Mr Payne is an experienced chief executive officer and executive officer of Genuit Group plc (formerly Polypipe construction industry by and climate management solutions. Prior to that Mr officer of Polypipe Group plc, and has also held the roles of group finance director at Norcros plc and group financial controller at JCB, the construction equipment also a director and chairman of the Construction Products Association, the trade association that represents industry. Mr Payne is a qualified accountant and Institute of Management Accountants and holds a External appointments None. Committee key A Audit & Risk N Nomination R Remuneration Chair of Committee A A A R R R N N N Stelrad Group plc GOVERNANCE REPORT Statement of corporate governance Compliance with the Code The Board is committed to the highest standards of corporate Board composition At least half the board, excluding the chair, should be non-executive directors whom the board considers been composed of eight members. The Directors regard only three of the Non-Executive Directors as independent. recommendation that at least half the board, excluding Non-Executive Directors are representatives of the Major Shareholder as a condition of the Relationship Agreement. Although the number of Non-Executive Directors on the of the Major Shareholder leading to adjustment of the conditions set by the Relationship Agreement, the Board also continues to consider potential recruitment of additional independent Directors as part of Board succession planning. Independent chair The chair should be independent on appointment The Code recommends that the chair of a company should circumstances set out in the Code. The Chair, Bob Ellis, has in as being independent on appointment by reference to the year ahead is unanimously of the opinion that his continued of the Company. Role of the Board and its Committees Board The role of the Board is to set and monitor the Group’s and the long-term success of the business and, in doing so, generate value for the shareholders. It is the responsibility of the Board to ensure that the strategy of the business is in The Board is also responsible for taking into account the The Board, supported by the Audit & Risk Committee, is responsible for the Group’s systems of internal control and governance are strong and effective. The Board also sets the risk appetite of the Group. The Board’s main responsibilities are included in a schedule • strategic matters – responsibility for the overall leadership of the Group and setting and monitoring the Group’s • structure and capital – approving or recommending any • financial reporting and controls – approving the Group’s annual financial statements and reports, and approving • agreements – approving major capital projects, • • Board appointments and remuneration – approving • risk assessment and internal controls – ensuring the maintenance of sound systems of internal control and risk • corporate governance arrangements and assessing and monitoring the Group’s culture. • • • three independent Non-Executive Directors, including a • year and up to the date of signing the financial statements As envisaged by the Code, the Board has established an Audit & Risk Committee, a Nomination Committee and a The Committees play an essential role in supporting the Board and provide focused oversight of key aspects of the business. A summary of the membership and responsibilities of each Committee is detailed in this report. The full terms of reference for each Committee are available on the Company’s Stelrad Group plc Chief Executive Officer and Senior Independent Director have been clearly defined and agreed by the Board. A summary of Chair • Responsible for the leadership of the Board, promoting • Promotes the highest standards of integrity, probity • Sets the Board agenda, ensuring it has a focus • Oversees the development, induction and performance • Ensures that Directors receive accurate, timely, high-quality sound decisions. • order to understand their issues and concerns, and by communicating issues to the Board. Chief Executive Officer • Responsible for the leadership of the business. • • Represents the Company and oversees and manages all business activities, operations and performance of the • Leads the senior management team of the Group in the day-to-day running of the business. • and strategic direction and reports accurately in agreed formats to the Board and the Committees. • Monitors and maintains high standards of • Senior Independent Director • Provides a sounding board to the Chair and supports • Appraises the Chair’s performance. • • Audit & Risk Committee Nomination Committee Remuneration Committee Responsibility for oversight of the Group’s financial reporting, internal controls, risk management external auditors. Responsibility for the composition and make-up of the Board and Committees of the Board including succession planning and ongoing Responsibility for the Remuneration Policy, setting individual remuneration levels for Executive Directors and the Chair, and Group’s strategy and culture and the requirements of the Code. Members: • Three independent Non-Executive Directors – and Nicola Bruce Members: • Three independent Non-Executive Directors – and Nicola Bruce • One Major Shareholder Representative Director – Members: • Three independent Non-Executive Directors – and Martin Payne The Audit & Risk Committee Report The Nomination Committee Report The Remuneration Committee Report Stelrad Group plc GOVERNANCE REPORT Statement of corporate governance continued Governance report Board meetings and attendance The Board held ten scheduled meetings during the year ended each Director versus the maximum number of meetings they Board Audit & Risk Committee Nomination Committee Remuneration Committee — — — George Letham — — — Bob Ellis — — — Terry Miller Martin Payne Nicola Bruce — — Nicholas Armstrong — — — number of meetings due to pre-existing commitments. • • • • • • • • • • Equality, Diversity and Inclusion Policy for the Group • • • • internal controls and the establishment of an internal audit process. Appointment and election There has been no change to the composition of the Board The Board is satisfied that all Directors are effective and committed to their roles and have sufficient time available Board induction and training Details of the Board induction and training can be found in Board evaluation of operation. Overall, the results confirmed that the Board presented to the Board to agree actions for addressing the recommendations of the evaluation. In summary, key areas • succession planning for senior management and • • stakeholder engagement. Board effectiveness review and Committee responsibilities. The completed questionnaires of the Nomination Committee and Company Secretary. overall the Board and its Committees have been operating effectively during the first full year of the Company’s life as a the findings and develop proposals for action by the Board to address recommendations arising from the evaluation. Senior Independent Director provided a performance each Board member throughout the year and an annual to ensure that performance, contribution, commitment and any training and development needs are discussed. Succession planning Details of Board succession planning and senior management pipeline evaluation can be found in the Stelrad Group plc Non-Executive Director independence The Non-Executive Directors bring a broad range of skills and experience to Stelrad Group plc, and they are qualified to provide considered insights to refine the strategy of the Group over the coming years. The independence of the Non-Executive Directors the Code in relation to majority of independence of the board and the independence of the chair on appointment. Three Representative Directors and the Chair – are not independent. Company regards the three independent Non-Executive Directors as independent and free from any business or other their independent judgement. Time commitment All Non-Executive Directors are required to devote appropriate time to meet their Board responsibilities and demonstrate commitment to their role. The time commitment of each Non- letters of appointment contain information in relation to the time commitment expected of each Director in their role. ensure Directors can allocate the necessary time and effort to the Company. This process is continually managed by the Company Secretary and the Chair and takes into consideration outside appointments and commitments. other appointments, they are each able to dedicate sufficient time to fulfil their duties and obligation to the Company. Directors’ conflicts of interest The Group has a formal ongoing procedure for the disclosure, commitments. Potential and actual conflicts of interest are carefully considered and, if deemed appropriate, the continuing existence of the potential or actual conflict of interest may be approved by the Board. All conflicts of interest are recorded Internal control and risk management The Board, supported by the Audit & Risk Committee, is responsible for the Group’s systems of internal control and risk management and for ensuring that these systems of governance are strong and effective. assesses the effectiveness of the system of internal control can be found in the Audit & Risk Committee Report on pages control can only manage, and not eliminate, risk, and that they are designed to provide reasonable, and not absolute, assurance against material misstatement or loss. The Board is responsible for the oversight of the risk processes in place to calculate and manage risk effectively. The Board is also responsible for setting the risk appetite the principal risks facing the Group and the mitigation Whistleblowing feel need to be brought to the attention of management Group believes that it is important to have a culture of openness to prevent such situations occurring or to bring Information and support The information presented to the Board is clear, accurate and timely, and intended to enhance Board effectiveness. A comprehensive Board procedures manual is maintained in The standing information held there includes Board and Committee terms of reference, the duties and responsibilities of Directors, including standards of conduct and compliance, and training documents. The Board and Committee papers are also posted in the online Board portal. All Directors have access to the advice and services of the them on governance matters. The Directors may also take independent professional advice at the Group’s expense Business ethics The Group’s core values and principles, and the standards is expected to uphold, are set out in the Stelrad Group plc Code of Conduct. These values and principles are applied to other stakeholders of the business. to all employees through business units’ intranets and readily In addition, training courses are provided locally. The Group is opposed to modern slavery and human trafficking to the Group’s ethical trading policy. The Board has approved Equality, diversity and inclusion Diversity and Inclusion Policy. The Board has also approved Board appointments so that the Board membership reflects a broad combination of factors such as diversity of gender, age, educational and professional background, social, ethnic and geographical background, and cognitive and Succession planning Succession planning, both for the Board and for senior management, has been a major focus over the past year. Details of the Nomination Committee’s consideration of succession planning can be found in the Nomination Stelrad Group plc GOVERNANCE REPORT Audit & Risk Committee Report management Dear shareholders, As Chair of the Audit & Risk Committee, I am pleased to of the Committee’s role and activities for the financial year The Committee plays a vital role in delivering the Company’s corporate governance obligations, by overseeing the accounting, financial reporting and internal control and risk management processes, and providing valuable independent Group’s internal control environment and risk management Committee composition The Committee has comprised three independent Non- Nicola Bruce, Terry Miller and Martin Payne as Committee Chair. The Major Shareholder is entitled to nominate an observer to the Audit & Risk Committee and has exercised aim of providing the range of financial, commercial and sector expertise necessary to meet the responsibilities of that the Committee has the competence and experience that Accountant and a former finance director, has recent and relevant financial experience and he has been designated Details of the Directors’ experience and skill sets can be found Committee remit • the significant financial reporting judgements made in • • of the Company’s internal financial controls and internal • • Implementation of a strengthened internal audit approach using external resource. • Continued development of the Group’s risk • • Continued development of the Group’s • Continued development of the Group’s risk • • • DL Radiators. • Develop a formal process for external building upon the strong foundations already in place Martin Payne Chair of the Audit & Risk Committee Committee members Terry Miller Nicola Bruce Stelrad Group plc • overseeing and maintaining an appropriate relationship the independence, objectivity and effectiveness of the • ensuring that internal audit arrangements are appropriate • potential for fraud and financial impropriety. Further details on the remit and responsibilities of the Committee can be found in its terms of reference. The terms How the Committee operates dates in the Company’s financial calendar. The dates of the ensure it is able to devote sufficient time to discussing and its responsibilities in full. Additional meetings are held as appropriate functional currency of the Turkish business, and further details of the decision can be found later in this report. Board, the Chief Financial Officer, the Group Finance Director The Committee also sets time aside at each meeting to members of the management team. The Committee met four times during the year ended • • an update on the Group’s financial position and prospects procedures and the steps the Group has taken during the year to address any outstanding action points identified as • consideration of the relevant elements of the accounting judgements and the going concern and • • • • of the Group risk register, including the incorporation of • consideration of the Group’s approach to internal audit, and development of this approach culminating in the • to climate change. functional currency of the Turkish business due to a change in its currency profile. This has arisen from the increased to have given rise to a change in currency profile and the functional currency of the business. The functional currency Financial reporting review A key requirement of the financial statements is that they are fair, balanced and understandable. In reaching balanced and understandable in terms of the form and content of the strategic, governance and financial information presented therein. Significant issues and other statements and all formal announcements relating to the Group’s financial performance. This included an assessment Revenue recognition and indirect rebates recognition and indirect rebate provisions. Accounting for business combinations Italian manufacturer of heat emitters. The Group has applied liabilities acquired as part of the business combination. additional intangible assets, such as customer relationships, should be identified and the valuation assigned to these. involved in the accounting for business combinations arising from the acquisition of DL Radiators SpA. Stelrad Group plc GOVERNANCE REPORT Audit & Risk Committee Report continued Significant issues and other continued Hyperinflationary Economies the projected three-year cumulative inflation exceeded requires restatement of the financial statements into the current recognised in the statement of comprehensive income. The Going concern and long-term viability long-term viability disclosures in this Annual Report, along appropriateness. More detail on these disclosures can be especially considering the potential ongoing impact of the current economic situation. External auditors and audit effectiveness parent company of the Group prior to the Group’s listing, the Company. to be rotated every five years. In assessing the independence of the auditors from the Group, assurances that all of the auditors’ partners and staff involved Subsequent to the year end, the Committee assessed the assessment and the Committee concluded that the external the audit of the financial statements for the year ended Non-audit services A policy governing the provision of non-audit services is in place in order to ensure the independence of the external auditors. Non-audit services should not be carried out by the independence. The provision of non-audit services by the either by specific pre-approval or on a case by case approval • the skills and experience of the external auditors to • the effect of the non-audit services on the audited financial • the potential impact of each project on the external • the resulting ratio of non-audit to audit fees. • related to bank covenant reporting. • on a one-off basis in relation to the historical financial information required for the Company’s IPO. • the financial statements. Internal control framework The day-to-day management of our principal risks is embedded in our management and operational processes. The most significant elements of the Group’s internal control Communication of policies and procedures The Group has documented policies and procedures underpinning its key business and finance processes. at a business unit level to support the local conditions. Promoting a culture of honesty and ethical behaviour the business through employee handbooks and induction training sessions. The content and structure of the employee handbooks vary across the business units to support local conditions. Areas covered include terms of employment and health and safety. In addition to the local employee handbooks, the Group maintains complementary key Stelrad Group plc Monitoring and oversight by those charged facilitate the Executive Directors’ monitoring of the Group’s financial performance and position. In addition, business process controls are in place for the key operational cycles. The Group has a documented organisational structure that clearly specifies roles and reporting lines for all business units the Board is through the Chair, Chief Executive Officer and the Chief Executive Officer and Chief Financial Officer and business unit management teams. Segregation of duties Appropriate segregation of duties has been put in place across the Group. Risk management Board, supported in its role by the Audit & Risk Committee, the risk management methodology and the effectiveness of internal control. underpinned by the use of business unit and Group level risk to the organisation are identified, reported and reassessed on an ongoing basis. In addition to the assurance provided by the formal risk involved in the day-to-day running of the business and have The Group continually assesses and monitors the impact actions are put in place to reduce the likelihood or impact of such risks to an acceptable level. Group Board accepts that, in order to achieve its strategic objectives and generate suitable returns for shareholders, it must accept, and manage, a certain level of risk. Internal audit external providers should be engaged to deliver the Group’s • • all remaining key sites including Turkey, Continental Radiators Assessment of the Group’s system of internal control and risk management framework management of significant business risks is a key area of focus for the Committee. The Committee’s undertakings identified by the Group and the actions it had put in place to address these – as described in the Risk Management section The Group’s internal control environment is designed to been identified. Management is responsible for establishing and maintaining adequate internal controls over financial reporting and the Committee has responsibility for ensuring the effectiveness of these controls. an analysis of the Group’s system of internal control and risk as needing further improvement, and the Committee continued to receive updates on completing and embedding The Committee recognises the importance of effective strengthen governance, by ensuring a reliable system is conduct. The Committee monitors any reported incidents prevent a breach of anti-bribery legislation. The policy is the Committee. Martin Payne Chair of the Audit & Risk Committee Stelrad Group plc GOVERNANCE REPORT Nomination Committee Report Ensuring Board effectiveness and succession planning Dear shareholders, I am pleased to present the Nomination Committee Report of during the year and examines the future focus areas of Nomination Committee composition information on the Directors’ experience and skill sets can financial year end, the Committee comprised a majority Nomination Committee remit • to assist the Board in discharging its responsibilities relating to the composition and make-up of the Board • potential candidates to be appointed as Directors or • and Committees of the Board, and retirements and appointments of additional and replacement Directors and Committee members, and to make appropriate • to assist the Chair in the annual evaluation of the Board’s • to put in place plans for the orderly succession of appointments to the Board and to senior management and to oversee the development of a diverse pipeline for succession, taking into account the importance of maintaining the Group’s culture, the challenges and opportunities facing the Group, and the skills, experience • Diversity and Inclusion Policy and the progress in meeting its objectives for the Board, its Committees and the Group, recommending changes to the Board as appropriate. • Approval of enhanced Group Equality, Diversity and Inclusion Policy. • Inclusion Policy. • • succession planning. • Focus on actions to address the outcomes of the • Continuing development of Board and senior management succession planning. to address the outcomes of and continue to focus on succession planning. Terry Miller Chair of the Nomination Committee Committee members Martin Payne Nicola Bruce Stelrad Group plc Further details on the remit and responsibilities of the Committee can be found in its terms of reference. The terms the Board. During the course of this year, the Committee recommended some enhancements to the terms of Board induction and training The Committee continued to focus on the implementation of a comprehensive induction plan for the three independent Non-Executive Directors, building on the initial programme of induction and training has been developed, covering site visits to key operational centres, training on statutory and During the course of the year, induction and training activities and distribution facility in Mexborough, and a detailed Diversity and inclusion The Board recognises the significant advantages of having the Equality, Diversity and Inclusion Policy and the Group’s applied for Board and senior management appointments, meeting diversity objectives and strategies for the Group, and The Board also believes it has a responsibility to support the top is communicated clearly and consistently throughout the Group, and that adherence to the Group’s culture is taken into account in developing the pipeline for Board and senior management succession planning. recommended enhancements to the Group’s diversity policy, and Inclusion Policy for the Board, ensuring that diversity and so that the Board membership reflects as broad a combination of skills, experience, gender, ethnicity, age, sexuality, disability, education and background as possible. Board evaluation Company Secretary to facilitate the content and process of a comprehensive internally managed Board and Committee and outcome of the Board evaluation process can be found Committee meetings and agenda The Committee meets as often as needed and, in any case, ensure it is discharging its duties as a Committee in full and Agenda items for the Committee’s meetings during the • • • consideration of the Group Equality, Diversity and Inclusion • succession planning for the Board and the pipeline for • further development of an ongoing induction and training • • development of diversity reporting across the Group. A major focus of consideration for the Committee over the past year has been succession planning both for the Board to identify and maintain robust pipelines of immediate, short- management team, and is-supported by the Chief People Board succession planning. consideration of these topics. Annual re-election of Directors The Committee has considered each of the current Board members in the context of re-election and is satisfied that each Director has dedicated sufficient time to their duties on the Committee’s advice, the Board recommends that each Director be re-elected. Terry Miller Chair of the Nomination Committee Stelrad Group plc GOVERNANCE REPORT Directors’ Remuneration Report Overseeing how we Annual Statement by the Remuneration Committee Chair Dear shareholders, On behalf of the Board, I am pleased to present the Directors’ • the Annual Statement and associated high-level summary • a summary of the Directors’ Remuneration Policy approved • the decisions made by the Remuneration Committee not be asking shareholders to vote on a revised Policy at the The key highlights of the performance of the business during the year can be found in the Strategic Report on Fixed remuneration • Directors’ Remuneration Policy. • • Determining incentive outcomes for Executive Directors and senior management. • • Setting incentive targets and determining incentive outcomes for Executive Directors and senior management, including the design of an ESG component for inclusion in future years. • and senior management and its alignment • and policies. An important consideration for the Remuneration Committee of the cost of living crisis on Nicola Bruce Chair of the Remuneration Committee Nicola Bruce Chair of the Remuneration Committee Stelrad Group plc Bonus • • • a strategic measure based on the increase in volumes sold Full details of the targets and performance against them are for Group adjusted operating profit delivered performance nor the target in relation to increase in volumes sold of LTIP Directors and other members of senior management. The against EPS and relative TSR targets over the three financial vesting in respect of performance in the year ended in the cost of living. In response to cost of living pressures, • • management. Senior management, excluding Executive union representatives. Salary of the challenging macroeconomic environment and the George Letham have requested that their salary increase is Annual Bonus Plan For Executive Directors, the ABP provides that they can Stelrad Group plc GOVERNANCE REPORT continued Annual Bonus Plan continued In continued support of our strategy as set out for recognising the importance of stability and continuity, particularly in this period of more challenging trading macroeconomic environment and the key importance Policy, the Committee retains discretion to adjust formulaic ABP outcomes based on a holistic assessment of Company also take into account the quality of the cash generated as part of that overall assessment given the increase in the It is the Committee’s intention to retrospectively disclose commercially sensitive. all of our stakeholders, both internally and externally, and to sustainability as outlined in our Sustainability Report. activities included in the Sustainability Report. Based on the Long Term Incentive Plan Executive Directors or senior management. Conclusion the resolution requesting approval of the Annual Report on Remuneration at this year’s Annual General Meeting on Nicola Bruce Chair of the Remuneration Committee Directors’ Remuneration Report continued maintaining a clear, open executive remuneration. Nicola Bruce Chair of the Remuneration Committee Stelrad Group plc Remuneration at a glance Element of pay Fixed remuneration Base salary Pension of salary. Benefits Each Executive Director receives the benefit of a life assurance scheme, private health cover, Variable pay ABP Based on the stretching targets, a bonus of of base salary, based on the achievement deferred shares. LTIP Stelrad Group plc GOVERNANCE REPORT Remuneration Policy Governance Code. Criteria Approach Clarity – Remuneration arrangements should be transparent The Committee operates a consistent remuneration approach remuneration and undertook a detailed consultation ahead Simplicity – Remuneration structures should avoid to understand. Our remuneration arrangements for Executive Directors are based on a market-standard remuneration structure consisting of fixed pay, an annual bonus and a single long-term incentive. Risk – Remuneration arrangements should ensure behavioural risks that can arise from target-based incentive plans, are identified and mitigated. retains the ability to override formulaic incentive outcomes Group’s remuneration principles. Alignment to culture – Incentive schemes should drive and strategy. The variable incentive schemes and performance measures are across the business is a key element of supporting our culture, fulfilling our values and being a strong driver of business performance. Predictability to individual Directors and any other limits or discretions should be identified and explained at the time of approving the Policy. The Committee maintains clear caps on incentive The potential value and composition of the Executive Directors’ maximum scenarios are provided in the Remuneration Policy. Proportionality delivery of strategy and the long-term performance of the performance. Executives are incentivised to achieve stretching targets over annual and three-year performance periods. The Committee assesses performance holistically at the end of each period, taking into account underlying business performance and the internal and external context to ensure that pay outcomes are appropriate and reflective of overall performance. Wider workforce considerations and engagement insights from the broader employee population via regular briefings from the Company, including feedback from the employee Committee considers the general level of salary increase across the Group and in the external market. Directors’ Remuneration Report continued Stelrad Group plc Remuneration Policy summary Element of remuneration Purpose and link to strategy Operation Maximum opportunity Performance measures Base salary To provide competitive fixed remuneration. To attract, retain and motivate Executive Directors of the calibre required to deliver the Group’s strategy. An Executive Director’s salary takes into account the individual’s professional experience, individual performance, level of responsibility and the scope and reference to market. Base salaries annual basis. Any Executive Director salary exceed those of the majority of the Group’s employees unless exceptional correctional increases are appropriate (for example if an Not applicable. Benefits and pension To provide market competitive levels of employment benefits. The Executive Directors receive a salary supplement in lieu of of salary. This contribution the average of the Group’s Each Executive Director is entitled to the benefit of a life assurance scheme, private health The benefits package is set at considers provides an appropriate level of benefits for the role and is appropriate in the context of Not applicable. ABP and Deferred Share Bonus Plan (“DSBP”) year achievement of demanding annual performance metrics. Performance measures, Committee and may be changed from time to time. Threshold, targets and performance measure. after the end of the financial year. may be made equal to the have accrued on vested shares of vesting. provisions apply. Percentage of maximum bonus • • • A minimum be associated targets. determine the actual bonus outcome based on achievement against predetermined targets. Actual targets, performance achieved published at the end of the performance period. Stelrad Group plc GOVERNANCE REPORT Element of remuneration Purpose and link to strategy Operation Maximum opportunity Performance measures LTIP To provide a direct link to the achievement of sustainable performance over the longer term. the achievement of performance conditions determined by the Committee at the time of grant. The measurement period for the performance conditions for LTIP three financial years. at the end of each relevant vesting period for Executive Directors. An additional payment, normally in shares, may be made equal to the the grant date and date of vesting. base salary. The Committee the appropriate performance conditions prior to grant each year, to Company’s longer-term strategy. Performance conditions may include financial, market-based financial measures. Financial and market-based account for at Share ownership guidelines To provide long- term alignment Directors Executive Directors are expected to build up and then subsequently hold base salary. that have been granted under the LTIP termination. Progress against the shareholding requirement Committee annually. Not applicable. Non- Executive Director fees To attract and retain Non- Executive Directors of a high calibre commercial experience. Non-Executive Directors receive a base fee and additional fees for acting as Senior Independent Director or Chair of the Board Committees and for membership of Board Committees (or to reflect any additional time commitments – The Chair receives a fixed annual reflect additional time commitment in certain circumstances, such as in periods of exceptionally high activity taking into account the time commitment requirements and responsibility of the individual roles, comparable companies. The fee paid to the Chair is determined other Non-Executive Directors are For the Non-Executive Directors, there is no prescribed maximum annual increase. The maximum cap for the total aggregate remuneration paid to the Chair of the Company and the Non-Executive Directors Articles of Association. Actual fee levels are disclosed in the Annual Report on financial year. reimburse any reasonable expenses incurred. Not applicable. Directors’ Remuneration Report continued Remuneration Policy summary continued Stelrad Group plc Malus and clawback provisions used at the Committee’s discretion in relation to ABP, DSBP also require the employee to pay back amounts. of the Group, errors or inaccuracies or misleading information misconduct, material failure of risk management by the Group’s reputation. Service agreements and letters of appointment In advance of admission, each of the Executive Directors each of the Non-Executive Directors entered into a letter of The Committee’s policy for setting notice periods is that a Name Position Date of service agreement Notice period by Company Notice period by Director CEO George Letham CFO The Non-Executive Directors of the Company (including terms are subject to their re-election by the Company’s Name Date of appointment Bob Ellis Nicholas Armstrong Terry Miller Nicola Bruce Martin Payne Annual Report on Remuneration to an advisory shareholder vote at the AGM to be held on Some sections of this report have been reported on by the auditors and are thus clearly indicated as audited. All other information in this report is unaudited. Membership and meetings of the Remuneration Committee further independent Non-Executive Directors (Terry Miller Secretary. The Committee also receives assistance from invitation. The CEO also attends by invitation. The Committee appropriate. The Board is satisfied that the Committee has the competence and experience necessary to discharge its duties effectively. Details of the Directors’ experience and skill sets can The Major Shareholder remains entitled to nominate an observer to the Remuneration Committee, subject to the terms of the shareholder agreement outlined in the Prospectus at the time of admission. Governance Code in respect of Remuneration Committees. • the total remuneration packages for all Executive Directors, • to approve the design of, and determine targets for, any performance-related pay schemes operated by the Company and approve the total annual payments made • Code’s requirement for clarity, simplicity, risk mitigation, • to ensure that the Policy drives behaviours that are • • Further details on the remit and responsibilities of the Committee can be found in its terms of reference. The terms Advisers (unaudited) executive remuneration matters. Deloitte is a signatory to the The fees paid to Deloitte in relation to advice provided to the annually and is content that it does not have any connections the year, Deloitte also provided advice in relation to corporate accounting purposes, and tax reporting in relation to Stelrad Group plc GOVERNANCE REPORT Year fees All taxable Pension- related Annual bonus LTIP Total remuneration Total fixed remuneration Total variable remuneration Executive Directors — — — George Letham — — — Non-Executive Chair Bob Ellis — — — — — Non-Executive Directors Terry Miller — — — — — Nicola Bruce — — — — — Martin Payne — — — — — — — — — — — — — Nicholas Armstrong — — — — — — — — Total — — — Year fees All taxable Pension- related Annual bonus LTIP Total remuneration Total fixed remuneration Total variable remuneration Executive Directors — George Letham — Non-Executive Chair Bob Ellis — — — — — Non-Executive Directors Terry Miller — — — — — Nicola Bruce — — — — — Martin Payne — — — — — — — — — — — — — Nicholas Armstrong — — — — — — — — Total — Directors’ Remuneration Report continued Stelrad Group plc Performance targets Metric Threshold On target Stretch Actual earned maximum maximum Group adjusted operating profit threshold threshold Long Term Incentive Plan vesting (audited) have vested in the year or in respect of performance during the year. Payments for loss of office (audited) Payments to past Directors (audited) LTIP awarded during the financial year (audited) George Letham Remuneration Report. Stelrad Group plc GOVERNANCE REPORT Information on remuneration for the year ended continued LTIP awarded during the financial year (audited) continued Performance measure Threshold Maximum Relative TSR vs constituents of the FTSE Small Cap index (excluding investment Median quartile Statement of Directors’ interests (audited) Interests Ordinary shares held at Ordinary shares held at Subject to holding period subject to performance conditions Total of all scheme interests and shareholdings as at Executive Directors — George Letham — Non-Executive Directors Bob Ellis — — Terry Miller — — Nicola Bruce — — Martin Payne — — — — — — — Nicholas Armstrong — — — — — Executive Directors’ share ownership guidelines (audited) Beneficially shares as at Shareholding requirement Current shareholding Shareholding requirement met? Yes George Letham Yes of salary. Directors’ Remuneration Report continued Stelrad Group plc Performance graph (unaudited) comparator because its constituents have a comparable market capitalisation to that of the Group. Financial year CEO single figure CEO pay ratio (audited) Total remuneration ratio Method Median A A CEO Median Basic salary Total remuneration CEO Median Basic salary Total remuneration Stelrad FTSE Small Cap Stelrad Group plc GOVERNANCE REPORT Information on remuneration for the year ended continued Relative importance of spend on pay (unaudited) Percentage change Overall spend on pay including Executive Directors Distribution to shareholders — Percentage change in Directors’ remuneration (unaudited) group used for the CEO Pay Ratio disclosure. therefore been excluded from the table. Average employee Trevor George Letham Bob Ellis Terry Miller Nicola Bruce Martin Payne Salary fees Taxable benefits Annual bonus External appointments The Executive Directors are permitted to hold external appointments and are entitled to retain the fees earned from such appointments. All Directors are required to seek approval from the Board prior to accepting external appointments. Currently the CEO holds one external appointment and the CFO has three external appointments. Shareholder approval of our Directors’ Remuneration Policy and Directors’ Remuneration Report Resolution Votes for Votes against against Votes Approve the Directors’ Remuneration Policy Directors’ Remuneration Report continued Stelrad Group plc Role Chair Non-Executive Director base fee Additional fees Senior Independent Director fee Chair of the Remuneration Committee Member of the Remuneration Committee Chair of the Audit & Risk Committee Member of the Audit & Risk Committee Chair of the Nomination Committee Member of the Nomination Committee On behalf of the Board Nicola Bruce Chair of the Remuneration Committee Stelrad Group plc GOVERNANCE REPORT Directors’ Report The Directors present their report and audited financial report as required under the Disclosure Guidance and sections of the Annual Report and is incorporated by reference, • • Information relating to future business developments can be found throughout the Strategic Report on • • Information relating to risk management can be found on • The going concern and long-term viability statements can • The Group’s global greenhouse gas emissions during the • The Group is exposed to a number of financial instrument- to the consolidated financial statements. • long-term incentive schemes can be found in the • General information limited by shares. The Company is incorporated, domiciled of the Official List of the Financial Conduct Authority and to trading on the London Stock Exchange’s Main Market for listed securities. Principal activities The Group’s principal activities are the manufacture and distribution of radiators. The principal activity of the Company is that of a holding company. More detailed information about the activities of the Group during the year, and its likely future Profit and dividends The Group profit for the year, after taxation, amounted to recommending a final dividend in respect of the year ended Articles of Association Company’s Directors and their appointment and replacement. The Articles may only be amended by a special resolution at a general meeting of the shareholders. Shareholders of the Group can request a copy of the Articles by contacting the Group Share capital are listed for trading on the Main Market of the London Stock respect of voting and participation, and carry the right to be exercised by members in person, by proxy or by corporate The ordinary shares are free from any restriction on transfer, in the capital of the Company up to a maximum aggregate shares have been purchased as at the date of this report. This Substantial shareholdings Shareholder Interest The Bregal Fund III LP Chelverton Asset Management George Letham Charles Stanley Lombard Odier Asset Management As at the date of this report, the Company has not been made Stelrad Group plc Relationship agreement with The Company has entered into a relationship agreement its associates, holds, in aggregate, ordinary shares in the the ordinary shares in issuance by the Company from time to time, the Company is capable of carrying on its business independently of the Major Shareholder and its associates. The provisions of the Relationship Agreement imposing of the voting rights of the ordinary shares in issuance by the Company. or appears to be intended to circumvent the proper application of the Listing Rules. Shareholder shall be entitled to appoint (and remove and rights of the ordinary shares, then the Major Shareholder Non-Executive Representative Directors to the Board. The Major Shareholder’s first appointed shareholder Directors are the ordinary shares, the Major Shareholder is entitled to nominate a shareholder Director to be a member of the Nomination Committee. Furthermore, for so long as the Major Shareholder is entitled to appoint an observer to each of the Nomination Committee, Audit & Risk Committee and rights, including for the purposes of its accounting and other The Board of Directors Director biographies of all Directors for the year ended The appointment and removal of Directors are governed Executive Director appointments can be terminated by either the Company or by the individual upon three months’ can be appointed or removed either by the Board or by the Directors’ interests and conflicts of interest Details regarding the share interests of the Directors in the share capital of the Company are set out in the Remuneration service agreements and Non-Executive Directors’ letters of appointment are available in the Remuneration Report The Group has a formal ongoing procedure for the disclosure, other commitments. Potential and actual conflicts of interest are carefully considered and, if deemed appropriate, the continuing existence of the potential or actual conflict of interest may be approved by the Board. All conflicts of interest are recorded in the conflicts register. The conflicts of interest remain authorised. Directors’ indemnities an indemnity to one or more of its Directors against liability in respect of proceedings brought by third parties, subject force as at the date of approving the Directors’ Report. In addition, the Group maintained a Directors’ and officers’ liability insurance policy throughout the year. Change of control provisions Directors or employees providing for compensation for loss of office or employment that occurs because of a takeover is party that take effect, alter or terminate upon a change Share plans The Company’s share plans contain specific provisions Stelrad Group plc GOVERNANCE REPORT Change of control provisions continued Bank agreement event of the occurrence of a change of control event, the to require that all outstanding participations in utilisations amounts accrued. Relationship Agreement The Relationship Agreement ceases to apply if the Company’s shares cease to be listed and traded on the London Stock Company’s shares. Employee engagement The Group is committed to involving its employees in the decisions that affect them. Regular meetings take place the Group seeks to keep employees informed through regular across the Group. The Board has elected to continue to use a combination of to adopt one of the three measures set out in the Code. The majority of employees are located in manufacturing countries. Given the relatively small number of employees in each location, the diversity of cultural norms and the differing statutory requirements for each location, a decentralised and tailored approach to employee engagement has been through our long-established collective forums, through our the Group, is effective and meaningful in representing the voice of our employees. valued as an individual and feels supported and motivated Further examples of employee engagement across the Group Equality, diversity and inclusion Diversity and Inclusion Policy. The Group is a committed • prevent discrimination, eliminate prejudice, promote • • ensure that equality, diversity and inclusion is embedded The Equality, Diversity and Inclusion Policy covers all aspects of equality including race, religion or belief, sex, gender reassignment, marriage and civil partnership, pregnancy, maternity and other matters relating to parental responsibility, sexual orientation, disability and age. It underlines our commitment to develop as an open and Code of Conduct. Diversity and Inclusion Policy. Research and development expenditure Political donations and expenditure It is the Group’s policy not to make political donations and, commonly regarded as donations to any political party. very broadly and so it is possible that normal business activities, such as sponsorship, subscriptions, payment of expenses, paid leave for employees fulfilling certain public duties and support for bodies representing the business thought of as political expenditure in the usual sense, could At the Annual General Meeting of the Company held on to incur political expenditure up to a maximum aggregate authority is due to expire at the Annual General Meeting AGM, authorising political donations and expenditure, is to ensure that the Group does not commit any technical breach Important developments since There have been no material events or developments affecting the Company or any of its operating subsidiaries Independent auditors General Meeting. Directors’ Report continued Stelrad Group plc Fair, balanced and understandable processes in place to ensure that the content of the Annual Report is fair, balanced and understandable. The Directors consider, on the advice of the Audit & Risk Committee, that understandable and provides the information necessary for shareholders to assess the Group’s performance, position, business model and strategy. Annual General Meeting (“AGM”) be sent to shareholders separately. Further information on out fully in the Notice of AGM and Form of Proxy. Statement of Directors’ responsibilities in respect of the financial statements The Directors are responsible for preparing the Annual Report Directors have prepared the Group and the Company international accounting standards. statements unless they are satisfied that they give a true and and of the profit or loss of the Group and Company for that period. In preparing the financial statements, the Directors • select suitable accounting policies and then apply • any material departures disclosed and explained in the • make judgements and accounting estimates that are • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group The Directors are responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are also responsible for keeping adequate reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors’ Remuneration Report The Directors are responsible for the maintenance and integrity governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors’ confirmations The Directors consider that the Annual Report and accounts, provides the information necessary for shareholders to assess the Group’s and Company’s position and performance, business model and strategy. In the case of each Director in office at the date the Directors’ • • they have taken all the steps that they ought to have taken as audit information and to establish that the Group’s and George Letham Stelrad Group plc FINANCIAL STATEMENTS Opinion In our opinion: • Stelrad Group plc’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair view of the state of the Group’s and of the Group’s profit and the Group’s cash flows for the year then ended; • prepared in accordance with UK-adopted international accounting standards as applied in accordance with the • prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom • We have audited the financial statements, included within the Annual Report, which comprise: the Consolidated and Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated and Company statements of changes in equity and the Consolidated statement of cash flows for the year then ended; and the notes to the financial statements, which include a description Our opinion is consistent with our reporting to the Audit & We conducted our audit in accordance with International We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the Other than those disclosed in the Audit and Risk Committee to the Company or its controlled undertakings in the period Overview • • • • • • • • • • for exceptional items, foreign exchange differences and the • • As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate Stelrad Group plc continued continued Completeness and accuracy of indirect rebates (Group) Refer to Accounting policies on revenue recognition and radiator), as well as management judgement, are used in • calculations of historic take up and poundage rates to sales during the period; • included in management’s calculation of historic take up and poundage • Performed sensitivity analysis over management’s take up and poundage assumptions taking into account historic actuals to challenge the Completeness and valuation of assets and liabilities in the business combination (Group) SpA, a radiator manufacturer incorporated in Italy, for a which required management to undertake an acquisition acquired are identified and due to the judgement involved identified through: • • • Engaged our internal valuation experts to challenge the methodology and • accounting (Group) lira as their functional currency should start to apply IAS to restate the financial statements, including the cash flow statements, into the current purchasing power at the end • all non-monetary items; • • • Reperformed management’s monetary gain or loss proof calculation; • • We assessed the disclosures included within the financial statements in Carrying value of investments (parent) sheet and it is necessary for management to consider the judgement involved in assessing impairment indicators independently performed the following to challenge management’s assessment that there were no indicators: • compared to historic trading; • • Group; and • Stelrad Group plc FINANCIAL STATEMENTS continued continued We tailored the scope of our audit to ensure that we the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which entities are in scope for the Group audit given the size of As part of our audit we made enquiries of management to understand the extent of the potential impact of climate risk on the Group’s and Company’s financial statements, and we remained alert when performing our audit procedures for any not identify any material impact as a result of climate risk on helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in continued Overall materiality How we determined it adjusted for exceptional items, foreign Rationale for benchmark applied shareholders in assessing performance For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group components were audited to a local statutory audit materiality We use performance materiality to reduce to an appropriately Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our In determining the performance materiality, we considered assessment and aggregation risk and the effectiveness of controls and concluded that an amount in the middle of our We agreed with the Audit & Risk Committee that we would report to them misstatements identified during our audit • evaluating management’s downside scenarios, including appropriateness and underlying assumptions; • Evaluating the level of forecast liquidity and forecast any material uncertainties relating to events or conditions concern for a period of at least twelve months from when the In auditing the financial statements, we have concluded that predicted, this conclusion is not a guarantee as to the Group’s applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to Stelrad Group plc Annual Report other than the financial statements and our does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise In connection with our audit of the financial statements, our so, consider whether the other information is materially inconsistent with the financial statements or our knowledge material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other conclude that there is a material misstatement of this other of the audit, the information given in the Strategic report In light of the knowledge and understanding of the Group of the audit, we did not identify any material misstatements and that part of the corporate governance statement relating to the Company’s compliance with the provisions of the have concluded that each of the following elements of the corporate governance statement is materially consistent with the audit, and we have nothing material to add or draw attention to in relation to: • • principal risks, what procedures are in place to identify managed or mitigated; • whether they considered it appropriate to adopt the going identification of any material uncertainties to the Group’s of at least twelve months from the date of approval of the financial statements; • the Group’s and Company’s prospects, the period this assessment covers and why the period is appropriate; and • fall due over the period of its assessment, including any related disclosures drawing attention to any necessary less in scope than an audit and only consisted of making their statement; checking that the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the financial statements and our knowledge and understanding of the Group and Company and their our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the financial statements and our knowledge • model and strategy; • of effectiveness of risk management and internal control systems; and • Company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code and the audit intend to liquidate the Group or the Company or to cease Stelrad Group plc FINANCIAL STATEMENTS continued the audit continued whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, guarantee that an audit conducted in accordance with ISAs material if, individually or in the aggregate, they could Irregularities, including fraud, are instances of non-compliance identified that the principal risks of non-compliance with laws and regulations related to health and safety regulations and employment laws, and we considered the extent to which non-compliance might have a material effect on the financial that have a direct impact on the financial statements such as management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries this risk assessment with the component auditors so that they could include appropriate audit procedures in response auditors included: • known or suspected instances of non-compliance with laws and regulation and fraud; • and the Audit and Risk Committee; • Evaluation of management’s controls designed to prevent and detect irregularities; • management in their significant accounting estimates, in • Identifying and testing journal entries, in particular any instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve Our audit testing might include testing complete populations whom this report is shown or into whose hands it may come save you if, in our opinion: • we require for our audit; or • • law are not made; or • the company financial statements and the part of the Following the recommendation of the Audit & Risk Committee, to audit the financial statements for the year ended financial statements will form part of the ESEF-prepared for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Newcastle upon Tyne continued 93Annual Report 2022 Stelrad Group plc Consolidated income statement for the year ended 31 December 2022 Note 2022 £’000 2021 £’000 Continuing operations Revenue 7 316 , 31 5 27 2 , 28 5 Cost of sales (excluding exceptional items) (2 35 , 19 4) (192, 279) Exceptional items 7 (1 , 05 4) — Cost of sales (236, 24 8) (1 92 , 279) Gross profit 80, 067 80,0 0 6 Selling and distribution expenses (4 0, 8 0 0) (3 5 , 47 8) Administrative expenses (excluding exceptional items) (1 2 , 8 11) (11 , 5 8 4) Exceptional items 7 (755) (9 ,589) Administrative expenses (13, 56 6) (2 1 , 17 3) Other operating income 8 373 3, 20 4 Other operating expenses 9 (3, 446) — Operating profit 10 22 , 628 2 6 , 5 59 Finance income 14 50 141 Finance costs 15 (4, 573) (10 , 3 7 9) Monetary losses – net 32 (7, 8 6 0) — Profit before tax 10 , 2 4 5 16 , 3 2 1 Income tax expense 16 (5 , 936) (1, 66 1) Profit for the year 4, 30 9 14 , 6 6 0 Note 2022 2021 Earnings per share Basic 17 3. 38p 11 . 51p Diluted 17 3. 38p 11 . 51p Adjusted earnings per share Basic 17 1 9 . 11p 16 . 9 2p Diluted 17 1 9 . 11p 16 . 9 2p Stelrad Group plc Annual Report 202294 FINANCIAL STATEMENTS Note 2022 £’000 2021 £’000 Profit for the year 4, 30 9 14 , 6 6 0 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 andqualifying hedges of net investments in foreign operations 1 , 6 91 5, 192 Income tax effect 16 (6 31) (1, 23 5) Exchange differences on translation of foreign operations (5 , 9 41) (2 6, 072) Net other comprehensive expense that may be reclassified to profit or loss in subsequent periods (4 , 8 81) (22,115) Other comprehensive expense not to be reclassified to profit or loss in subsequent periods: Remeasurement losses on defined benefit plans 30 (1,9 3 2) (1 41) Income tax effect 16 423 35 Net other comprehensive expense not to be reclassified to profit or loss in subsequent periods (1 , 5 0 9) (10 6) Other comprehensive expense for the year, net of tax (6 , 39 0) (22, 221) Total comprehensive expense for the year, net of tax attributable to owners of the parent (2 , 0 81) (7, 5 6 1) Consolidated statement of comprehensive income for the year ended 31 December 2022 95Annual Report 2022 Stelrad Group plc Note 2022 £’000 2021 £’000 Assets Non-current assets Property, plant and equipment 19 91 , 6 0 4 53 ,69 4 Intangible assets 20 3, 855 — Trade and other receivables 24 3 17 10 Deferred tax assets 16 5 , 39 7 6, 28 4 1 0 1 , 17 3 59, 9 8 8 Current assets Inventories 23 7 7, 8 5 1 5 6 ,7 8 1 Trade and other receivables 24 60,497 4 6 ,7 31 Income tax receivable 235 10 4 Cash and cash equivalents 25 22 , 6 41 15, 56 3 161 , 22 4 1 1 9 , 17 9 Total assets 262 , 397 17 9 , 1 6 7 Equity and liabilities Equity Share capital 28 127 1 2 7, 3 5 3 Share premium 28 — 1 3 , 3 91 Merger reserve (1 14,469) (1 1 4,469) Retained earnings 2 2 7, 8 4 9 5 7, 8 14 Foreign currency reserve (62 ,05 8) (5 7, 17 7 ) Total equity 5 1,449 2 6 , 91 2 Non-current liabilities Interest‑bearing loans and borrowings 22 9 8 , 51 3 62, 8 65 Deferred tax liabilities 16 2 , 6 11 126 Provisions 27 1 ,7 9 9 15 8 Net employee defined benefit liabilities 30 4 , 542 1 ,7 2 8 10 7, 4 6 5 64, 877 Current liabilities Trade and other payables 26 9 9 , 21 4 83,883 Interest‑bearing loans and borrowings 22 1, 520 1 ,7 9 4 Income tax payable 1, 829 1 , 52 2 Provisions 27 920 17 9 103 , 4 8 3 8 7, 3 7 8 Total liabilities 210 , 9 4 8 152, 255 Total equity and liabilities 262 , 397 17 9 , 1 6 7 The financial statements on pages 93 to 130 were approved by the Board of Directors on 13 March 2023 and signed on its behalf by: George Letham Chief Financial Officer Consolidated balance sheet as at 31 December 2022 (Registered Number 13670010) Stelrad Group plc Annual Report 202296 FINANCIAL STATEMENTS Attributable to the owners of the parent Issued share capital £’000 Share premium £’000 Merger reserve £’000 Retained earnings £’000 Foreign currency £’000 Total £’000 At 1 January 2021 65 19 8 94 0 43 , 26 0 (35 ,0 62) 9 , 4 01 Profit for the year — — — 14 , 6 6 0 — 14 , 6 6 0 Other comprehensive expense fortheyear — — — (10 6) (22 ,115) (22, 221) Total comprehensive income/(expense) — — — 14 , 5 5 4 (22 ,115) (7, 5 6 1) Shares issued on incorporation 50 — — — — 50 “C” share redemption (13) — — — — (13) Noosa share reorganisation (50) 50 — — — — Share for share exchange – old (2) (24 8) 250 — — — Share for share exchange – new 11 5 , 6 59 — (1 15 ,6 59) — — — Shares issued 11 , 6 4 4 1 3 , 391 — — — 25,035 At 31 December 2021 1 2 7, 3 5 3 1 3 , 391 (1 1 4,469) 5 7, 8 14 (5 7, 17 7) 2 6 , 91 2 IAS 29 adjustment (note 32) — — — 8, 32 7 — 8, 327 At 31 December 2021 (restated) 1 2 7, 3 5 3 1 3 , 391 (1 1 4,469) 6 6 , 141 (5 7, 17 7 ) 35 , 2 39 Profit for the year — — — 4 ,30 9 — 4 , 309 Other comprehensive expense fortheyear — — — (1 , 5 0 9) (4 , 8 81) (6 , 39 0) Total comprehensive income/ (expense) — — — 2,80 0 (4 , 8 8 1) (2 , 0 8 1) Capital reduction (1 2 7, 2 2 6) (1 3 , 3 91) — 1 4 0 , 617 — — IAS 29 adjustment to retained earnings in the year (note 32) — — — 22 , 98 2 — 22 , 9 82 Share‑based payment charge (note 13) — — — 250 — 250 Dividends paid (note 18) — — — (4 , 9 41) — (4 , 9 41) At 31 December 2022 127 — (1 14,469) 2 2 7, 8 4 9 (62 ,05 8) 5 1,449 Consolidated statement of changes in equity for the year ended 31 December 2022 97Annual Report 2022 Stelrad Group plc Note 2022 £’000 2021 £’000 Operating activities Profit before tax 10 , 2 4 5 16 , 3 2 1 Adjustments to reconcile profit before tax to net cash flows: – Depreciation of property, plant and equipment 19 9,7 0 0 7, 4 0 9 – Amortisation of intangible assets 20 16 3 — – Gain on disposal of property, plant and equipment (220) (21 3) – Monetary loss IAS 29 32 7, 8 6 0 — – Monetary loss IAS 29 income statement element 3, 530 — – Share‑based payments 250 — – Finance income 14 (50) (141) – Finance costs 15 4 , 57 3 10 , 3 7 9 Working capital adjustments: – Decrease/(increase) in trade and other receivables 1, 632 (17, 3 8 0) – Decrease/(increase) in inventories 5 , 8 31 (31 , 69 5) – (Decrease)/increase in trade and other payables (11 , 5 2 8) 4 0 , 2 91 – (Decrease)/increase in provisions (1 , 2 97) 158 – Decrease in other pension provisions (23) (59) – Difference between pension charge and cash contributions (31 9) (2 2) 3 0 , 3 47 25,0 4 8 Income tax paid (3 , 8 01) (3 ,7 3 4) Interest received 50 141 Net cash flows generated from operating activities 26 , 59 6 21 , 4 55 Investing activities Proceeds from sale of property, plant, equipment and intangible assets 316 487 Purchase of property, plant and equipment 19 (9 , 6 71) (8 ,6 4 6) Purchase of intangible assets 20 (16 4) — Business combination of subsidiaries, net of cash acquired 21 (20,4 84) — Net cash flows used in investing activities (3 0, 0 03) (8 , 1 59) Financing activities Transaction costs related to refinancing (429) (1 , 17 1) Proceeds from external borrowings 3 4 , 122 56 ,5 00 Repayment of external borrowings (1 , 2 50) (1 1 , 0 01) Repayment of borrowings acquired with subsidiary (10 ,74 6) — Repayment of shareholder loans — (76 , 528) Settlement of deferred consideration — (20 2) Payment of lease liabilities (2 ,0 49) (1, 666) Share capital issued — 25,0 85 Share capital repaid – “C” shares — (13) Interest paid (3 , 26 9) (7 79) Dividends paid 18 (4 , 9 41) — Net cash flows generated from/(used in) financing activities 11 , 4 3 8 (9 ,7 7 5) Net increase in cash and cash equivalents 8 , 0 31 3 , 521 Net foreign exchange difference (953) (8 , 0 41) Cash and cash equivalents at 1 January 25 15 , 563 20,0 83 Cash and cash equivalents at 31 December 25 22 , 6 41 15, 56 3 Consolidated statement of cash flows for the year ended 31 December 2022 Stelrad Group plc FINANCIAL STATEMENTS 1 Corporate information The consolidated financial statements of Stelrad Group plc and its subsidiaries (collectively, the “Group”) for the year ended 31 December 2022 were authorised for issue by the Board of Directors on 13 March 2023. Stelrad Group plc ompany”) was incorporat England and Wales public company, limited by shares ompany is incorporated, domiciled and regist England and Wales ered office situated at 69–75 Side, Newcastle upon Tyne, Tyne and Wear, United Kingdom NE1 3JE. The principal activity of the Group is the manufacture and distribution of radiators. incipal activity of the Company is that of a holding company. On 10 November 2021, the entire issued share capital of the Company was admitted to the premium listing segment of the Official List of the Financial Conduct Authority and to trading on the London Stock Exchange’s Main Market for listed securities. 2 Group reorganisation On 10 November 2021, the Company acquired the entire shareholding of Noosa Holdings Jersey Limited by way of a share for share exchange. Also on 10 November 2021, Noosa Holdings Jersey Limited made a dividend in specie of its investment in Stelrad Radiator Group Limited, leaving the Company with two direct subsidiaries. The insertion of the Company on top of the existing Noosa Holdings Jersey Limited group does not constitute a business combination under IFRS 3 Business Combinations and instead has been accounted for as a common control transaction. Under merger accounting principles, the assets and liabilities of the subsidiaries are consolidated at book value in the consolidated financial statements. The consolidated reserves of the Group have been adjusted to reflect the statutory share capital of the Company with the difference between the statutory share capital of the Company and that of Noosa Holdings Jersey Limited presented as the merger reserve. 3 Basis of preparation The consolidated financial statements of Stelrad Group plc have been prepared in accordance with UK adopted international accounting standards 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. The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments which, where used, are measured at fair value. The consolidated financial statements are presented in GB Pounds and all values are rounded to the nearest thousand (£’000), except when otherwise indicated. The consolidated financial statements have been prepared on a going concern basis. Details of the going concern assessment can be found in the Strategic Report on page 55. 4 Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2022 and 31 December 2021. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra‑Group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Notes to the consolidated financial statements for the year ended 31 December 2022 99Annual Report 2022 Stelrad Group plc 5 Summary of significant accounting policies The accounting policies outlined below have been applied consistently, other than where new policies have been adopted. A. Current versus non-current classification The Group presents assets and liabilities in the balance sheet based on current/non‑current classification. An asset is current when it is: • expected to be realised or intended to be sold or consumed in the normal operating cycle; • expected to be realised within twelve months after the reporting period; or • cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non‑current. A liability is current when: • it is expected to be settled in the normal operating cycle; • it is due to be settled within twelve months after the reporting period; or • there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. The Group classifies all other liabilities as non‑current. Deferred tax assets and liabilities are classified as non‑current assets and liabilities. B. Fair value measurement The Group measures financial instruments, such as derivatives, at fair value at each balance sheet date. The fair values of financial instruments measured at amortised cost are disclosed in note 34. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: • in the principal market for the asset or liability; or • in the absence of a principal market, in the most advantageous market for the asset or liability. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non‑financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: • Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities. • Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable. • Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. C. Foreign currency translation Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in GB Pounds (£), which is the Company’s functional and the Group’s presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year‑end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in other comprehensive income/(expense) as qualifying net investment hedges or because the monetary asset or liability forms part of the net investment in the foreign operation. Foreign exchange gains are presented in other operating income within the income statement and foreign exchange losses are presented in other operating expenses within the income statement. Stelrad Group plc Annual Report 2022100 FINANCIAL STATEMENTS Notes to the consolidated financial statements continued for the year ended 31 December 2022 5 Summary of significant accounting policies continued C. Foreign currency translation continued Group companies The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; • income and expenses for each income statement are translated at average exchange rates (except when the functional currency is a hyperinflationary currency and the closing rate is used – see note 5(R)); and • all resulting exchange differences are recognised in other comprehensive income/(expense). On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to other comprehensive income/(expense). D. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Group has concluded that it is the principal in all of its revenue arrangements since it is the primary obligor in all the revenue arrangements, has pricing latitude and is also exposed to inventory and credit risks. In accordance with IFRS 15 Revenue from Contracts with Customers, the Group follows a five‑step process to determine whether to recognise revenue: 1. Identifying the contract with a customer. 2. Identifying the performance obligations. 3. Determining the transaction price. 4. Allocating the transaction price to its performance obligations. 5. Recognising revenue when/as performance obligation(s) are satisfied. Revenue is recognised at a point in time, when the Group satisfies performance obligations by transferring the promised goods or services to its customers. The specific recognition criteria described below must also be met before revenue is recognised. Interest income For all financial instruments measured at amortised cost, interest income is recorded using the effective interest rate (“EIR”). Rebates Rebates are paid to certain direct customers and end consumers of goods sold (end consumers being installers, contractors or housebuilders which install the Group’s products). Rebates represent either: an agreed percentage discount on the gross invoice value of each purchased product; or less frequently an agreed discount based on annual sales volume incentives. Provisions for rebates to direct customers are based upon the terms of sales contracts and are recorded in the same period as the related gross sale as a deduction from revenue. Where rebates are volume related, these are provided for when the associated targets are met or deemed likely to be met, with the expected outcome being reassessed at each reporting date. Volume rebates result in variable revenue; in accordance with IFRS 15, provision for volume rebates is only made when it is highly probable that a significant reversal will not occur. For indirect rebates paid to the end consumer, the Group estimates the provision for rebates based on historical take‑up rates and rebate values per product category to ensure it is highly probable that a significant reversal would not occur. Rebates paid to direct customers are offset against trade receivables whereas indirect rebates, which are payable to the end consumer, are disclosed as other payables. E. Taxation Current income tax Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income. Current income tax is recognised in income unless it relates to items recognised in other comprehensive income/(expense) or directly in equity, in which case the current income tax is recognised in other comprehensive income/(expense) or directly in equity respectively. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. 101Annual Report 2022 Stelrad Group plc 5 Summary of significant accounting policies continued E. Taxation continued Deferred tax Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognised for all taxable temporary differences, except: • when the deferred tax liability arises from the initial recognition of goodwill (taxable temporary differences only) or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or • in respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except: • when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or • in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax is recognised in income unless it relates to items recognised in other comprehensive income/(expense) or directly in equity, in which case the deferred tax is recognised in other comprehensive income/(expense) or directly in equity respectively. F. Property, plant and equipment Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs for long‑term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred. Land is not depreciated. Depreciation on other assets is calculated using the straight‑line method to allocate their cost to their residual values over their estimated useful lives as follows: Freehold buildings – 10 to 50 years Leasehold buildings – period of lease Plant and equipment – 3 to 10 years Fixtures and fittings – 2 to 5 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying value is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Assets under construction are transferred to the appropriate category of property, plant and equipment upon completion of a project. Depreciation commences upon transfer. See note 5(O)(i) for the accounting policy related to right‑of‑use assets. Stelrad Group plc Annual Report 2022102 FINANCIAL STATEMENTS Notes to the consolidated financial statements continued for the year ended 31 December 2022 5 Summary of significant accounting policies continued G. Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the consideration transferred measured at acquisition date. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred over the fair values of net identifiable assets acquired, liabilities assumed and contingent liabilities. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash‑generating units that are expected to benefit from the combination. Where goodwill has been allocated to a cash‑generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash‑generating unit retained. H. Intangible assets – other Intangible assets acquired in a business combination Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at the business combination date. The fair value of customer relationships acquired and recognised as part of a business combination is determined using the multi‑period excess earnings method. Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses. Research and development Research costs are expensed as incurred. Other intangible assets purchased or produced internally are recorded as assets when the use of the asset is likely to generate future economic benefits and when the cost of the asset can be determined in a reliable manner. These assets are valued at the cost of purchase or production and amortised at constant rates over their estimated useful life. Subsequent measurement of intangible assets Intangible assets with a finite life are amortised on a straight‑line basis over their estimated useful lives as follows: Technology and software costs – 4 years Customer relationships – 13 years The estimated useful life and amortisation methods are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. I. Financial instruments – initial recognition and subsequent measurement A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. i) Financial assets Initial recognition and measurement Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss or at amortised cost, as appropriate. With the exception of trade receivables which are recognised at transaction price, all financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e. the date that the Group commits to purchase or sell the asset. 103Annual Report 2022 Stelrad Group plc 5 Summary of significant accounting policies continued I. Financial instruments – initial recognition and subsequent measurement continued i) Financial assets continued Subsequent measurement For the purposes of subsequent measurement, financial assets of the Group are classified in two categories: • financial assets at fair value through profit or loss; and • financial assets at amortised cost (debt instruments) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. The Group has not designated any financial assets at fair value through profit or loss. Financial assets at amortised cost (debt instruments) This category is the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met: • the financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and • the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets at amortised cost are subsequently measured using the effective interest (“EIR”) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The Group’s financial assets at amortised cost include trade receivables. Derecognition A financial asset is primarily derecognised (i.e. removed from the Group’s consolidated balance sheet) when the rights to receive cash flows from the asset have expired, or the Group has transferred its rights to receive cash flows from the asset. ii) Impairment of financial assets The Group recognises an allowance for expected credit losses (“ECLs”) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms. Trade receivables are the Group’s only financial asset for which ECLs need to be calculated; for these the Group applies the simplified approach permitted under IFRS 9 for calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward‑looking factors specific to the debtors and the economic environment. iii) Financial liabilities Initial recognition and measurement Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings or payables, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, financial guarantee contracts and derivative financial instruments. Subsequent measurement The measurement of financial liabilities depends on their classification, as described below: Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Gains or losses on liabilities held for trading are recognised in the income statement. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. The Group has not designated any financial liability as at fair value through profit or loss. Stelrad Group plc Annual Report 2022104 FINANCIAL STATEMENTS Notes to the consolidated financial statements continued for the year ended 31 December 2022 5 Summary of significant accounting policies continued I. Financial instruments – initial recognition and subsequent measurement continued iii) Financial liabilities continued Loans and borrowings This is the category most relevant to the Group. After initial recognition, interest‑bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the income statement. This category generally applies to interest‑bearing loans and borrowings. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the income statement. J. Derivative financial instruments Initial recognition and subsequent measurement The Group uses derivative financial instruments, such as forward currency contracts and interest rate swaps, to hedge its foreign currency risks and interest rate risks respectively. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss. For the purpose of hedge accounting, hedges are classified as: • hedges of a net investment in a foreign operation. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument and the hedged item, the nature of the risk being hedged and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements: • there is “an economic relationship” between the hedged item and the hedging instrument; • the effect of credit risk does not “dominate the value changes” that result from that economic relationship; and • the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item. Hedges that meet all the qualifying criteria for hedge accounting are accounted for as described below: Hedges of a net investment Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised as other comprehensive income/(expense) while any gains or losses relating to the ineffective portion are recognised in the income statement. On disposal of the foreign operation, the cumulative value of any such gains or losses recorded in equity is transferred to the income statement. The Group uses a loan as a hedge of its exposure to foreign currency risk. K. Inventories Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows: • raw materials: purchase cost on a first in, first out basis; and • finished goods and work in progress: cost of direct materials and labour and a proportion of manufacturing overheads based on the normal operating capacity, but excluding borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. 105Annual Report 2022 Stelrad Group plc 5 Summary of significant accounting policies continued L. 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. The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash‑generating unit’s (“CGU’s”) fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of three years. For longer periods, a long‑term growth rate is calculated and applied to project future cash flows after the third year. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount, where the recoverable amount is the higher of the asset’s fair value less costs of disposal and value in use. Impairment losses of continuing operations, including impairment on inventories, are recognised in the income statement in expense categories consistent with the function of the impaired asset. For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement. M. Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at banks and on hand and short‑term deposits with an original maturity of three months or less. For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above, net of outstanding bank overdrafts. N. Government grants Government grants are recognised when there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item (as is the case with furlough income), it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset. O. Leases The Group assesses at contract inception whether a contract is, or contains, a lease – that is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Group as lessee The Group applies a single recognition and measurement approach for all leases, except for short‑term leases and leases of low value assets. The Group recognises lease liabilities to make lease payments and right‑of‑use assets representing the right to use the underlying assets. i) Right‑of-use assets The Group recognises right‑of‑use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right‑of‑use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right‑of‑use assets includes the amount of lease liabilities recognised, initial direct costs incurred and lease payments made at or before the commencement date less any lease incentives received. Right‑of‑use assets are depreciated on a straight‑line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows: Leasehold buildings – period of lease Plant and machinery – 3 to 10 years Fixtures and fittings – 2 to 5 years If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right‑of‑use assets are also subject to impairment. Refer to the accounting policies in section (L) Impairment of non‑financial assets. Stelrad Group plc Annual Report 2022106 FINANCIAL STATEMENTS Notes to the consolidated financial statements continued for the year ended 31 December 2022 5 Summary of significant accounting policies continued O. Leases continued ii) Lease liabilities At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in‑substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. The incremental borrowing rate is calculated based on the Group’s external borrowing rate. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g. changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. The Group’s lease liabilities are included in the interest‑bearing loans and borrowings (see note 22). iii) Short-term leases and leases of low value assets The Group applies the short‑term lease recognition exemption to its short‑term leases of plant and machinery (i.e. those leases that have a lease term of twelve months or less from the commencement date and do not contain a purchase option). It also applies the lease of low value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short‑term leases and leases of low value assets are recognised as expense on a straight‑line basis over the lease term. P. Provisions General Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the income statement net of any reimbursement. The effect of the time value of money is not material and therefore the provisions are not discounted. No warranty provision is made for steel panel radiators based on the very low claims history. The Group sells electrical radiators and a small volume of boilers and provision for these is made on a £ per unit sold basis, driven by historical warranty claims data. A provision is recognised in respect of an unused vacation pay liability due to certain employees in Turkey. The provision is calculated based on the number of unused days and the salary rates applicable. Q. Pensions and other post-employment benefits The Group has an obligation to provide lump sum termination payments to certain employees in Turkey and also in Italy; these schemes are accounted for under IAS 19. The cost of providing benefits under the schemes are determined using the projected unit credit method. Remeasurements, comprising actuarial gains and losses, are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through other comprehensive income/(expense) in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods. Past service costs are recognised in profit or loss on the earlier of: • the date of the plan amendment or curtailment; and • the date that the Group recognises restructuring‑related costs. Net interest is calculated by applying the discount rate to the defined benefit liability. The Group recognises the following changes in the defined benefit obligation under “cost of sales”, “administration expenses” and “selling and distribution expenses” in the consolidated income statement (by function): • Service costs comprising current service costs, past service costs, gains and losses on curtailments and non‑routine settlements. For the defined contribution schemes operated by the Group, the amount charged to the income statement in respect of pension costs and other post‑retirement benefits is the contributions payable in exchange for services rendered in the period. Differences between contributions payable in the period and contributions actually paid are shown as either accruals or prepayments in the balance sheet. 107Annual Report 2022 Stelrad Group plc 5 Summary of significant accounting policies continued R. Financial reporting in hyperinflationary economies (IAS 29) The financial statements of any subsidiary entity whose functional currency is the currency of a hyperinflationary economy have been restated for changes in the general purchasing power of that currency. The financial statements of entities whose functional currency is the Turkish Lira have been restated from 1 January 2022 by applying a general price index. As a result, the financial statements are stated in terms of the measuring unit current at the balance sheet date. In summary: • non‑monetary assets and liabilities (other than those that are carried at current amounts at the end of the reporting period, such as net realisable value and fair value) have been restated for the change in purchasing power caused by inflation from the date of initial recognition to the balance sheet date; • monetary assets and liabilities have not been restated; • all items in the statement of comprehensive income have been expressed in terms of the measuring unit current at the end of the reporting period and have therefore been restated for inflation from the dates when the items of income and expenses were initially recorded in the financial statements; and • a gain or loss on the net monetary position has been included in profit or loss for the period from 1 January 2022 to the end of the reporting period to reflect the impact of inflation on holding monetary assets and liabilities in local currency. The general price index used at the balance sheet date is the TUIK Index provided by the Turkish Statistical Institute. The movement in the index during the current reporting period was 64%. One of the indicators of a hyperinflationary currency is cumulative inflation over a three‑year period in excess of 100%. This became the case for the Turkish Lira at 31 March 2022 and, as such, the use of inflation accounting is required in respect of Turkish Lira functional operations for periods ending on or after 30 June 2022 using the published consumer price index. In the process of applying IAS 29, management does not consider that it has made any judgements which would have a significant effect on the amounts recognised in the consolidated financial statements. The financial statements of a subsidiary entity that has the functional currency of a hyperinflationary economy are restated in accordance with IAS 29, as outlined above, before being included in the consolidated financial statements. All amounts in the subsidiary’s financial statements, including all items in the statement of comprehensive income (which would usually be translated at average exchange rate), have then been translated at the closing exchange rate. Comparative amounts presented previously in a stable currency have not been restated. The difference between the closing equity of the previous year and the opening equity of the current year has been recognised as an IAS 29 adjustment in the consolidated statement of changes in equity. The combined effect of restating in accordance with IAS 29 and translation in accordance with IAS 21 have been presented as a net change in other comprehensive income. Further details on the application of IAS 29 are presented in note 32. S. Share-based payments (IFRS 2) The fair value of equity‑settled share options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured as at the date the options are granted and the charge is only amended if vesting does not take place due to non‑market conditions not being met. Various option pricing models are used according to the terms of the option scheme under which the options were granted. The fair value is spread over the period during which the employees become unconditionally entitled to the options. At the balance sheet date, if it is expected that non‑market conditions will not be satisfied, the cumulative expense recognised in relation to the relevant options is reversed. With respect to share‑based payments, a deferred tax asset is recognised on the relevant tax base. The tax base is then compared to the cumulative share‑based payment expense recognised in the income statement. Deferred tax arising on the excess of the tax base over the cumulative share‑based payment expense recognised in the income statement has been recognised directly in equity outside the SOCI as share‑based payments are considered to be transactions with shareholders. Where the Company grants options over its own shares to employees of its subsidiaries, it recognises, in its individual financial statements, an increase in the cost of investment in its subsidiaries equivalent to the equity‑settled share‑based payment charge recognised in its consolidated financial statements, with the corresponding credit being recognised in equity. T. Exceptional items Exceptional items are disclosed by virtue of their nature, size or incidence to allow a better understanding of the underlying trading performance of the Group. U. Dividends Final dividends are recorded in the financial statements in the period in which they are approved by the Company’s shareholders. Interim dividends are recorded in the period in which they are approved and paid. Stelrad Group plc Annual Report 2022108 FINANCIAL STATEMENTS Notes to the consolidated financial statements continued for the year ended 31 December 2022 5 Summary of significant accounting policies continued V. New standards applied in the year Several amendments and interpretations apply for the first time in 2022, but do not have an impact on the consolidated financial statements of the Group. These include: • Reference to the Conceptual Framework – Amendments to IFRS 3. • Property, Plant and Equipment: Proceeds before Intended Use – Amendments to IAS 16. • Onerous Contracts – Costs of Fulfilling a Contract – Amendments to IAS 37. • IFRS 9 Financial Instruments – Fees in the “10%” Test for Derecognition of Financial Liabilities. W. New standards and interpretations not applied The International Accounting Standards Board has issued the following standards and interpretations with an effective date after the date of these financial statements: Effective date International Accounting Standards (IAS/IFRSs) (period beginning on or after) IFRS 17 Insurance Contracts 1 January 2023 Definition of Accounting Estimates – Amendments to IAS 8 1 January 2023 Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2 1 January 2023 Deferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendment to IAS 12 1 January 2023 Classification of Liabilities as Current or Non‑current – Amendments to IAS 1 1 January 2024 Lease Liability in a Sale and Leaseback – Amendments to IFRS 16 1 January 2024 Non‑current Liabilities with Covenants – Amendments to IAS 1 1 January 2024 It is anticipated that adoption of these standards and interpretations will not have a material impact on the Group’s financial statements. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective . 6 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. Business combinations In July 2022, the Group acquired DL Radiators SpA, an Italian manufacturer of heat emitters, for €28.3m. 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. 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 provisions made 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 provision 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 provision. A reasonably possible change in the estimates surrounding rebates would not result in a material impact to the financial statements. 109Annual Report 2022 Stelrad Group plc 7 Segmental information IFRS 8 Operating Segments requires operating segments to be determined by 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 and foreign exchange differences. IAS 29 was applied for the first time in the year ended 31 December 2022. The impact of IAS 29 has been removed in arriving at revenue (pre‑IAS 29) and adjusted operating profit, as management believe that the pre‑IAS 29 results give a more meaningful presentation of the Group’s underlying performance. Revenue (pre-IAS 29) by geographical market 2022 £’000 2021 £’000 UK & Ireland 138,874 130,405 Europe 147,909 118,063 Turkey & International 25,335 23,817 Revenue (pre-IAS 29) 312,118 272,285 Impact of IAS 29 4,197 — Total revenue 316,315 272,285 Adjusted operating profit by geographical market 2022 £’000 2021 £’000 UK & Ireland 22,716 21,589 Europe 13,877 12,929 Turkey & International 2,055 2,898 Central costs (4,668) (4,247) Adjusted operating profit 33,980 33,169 Exceptional items (1,809) (9,589) Amortisation of customer relationships (57) — Foreign exchange differences (3,446) 2,979 Impact of IAS 29 (6,040) — Operating profit 22,628 26,559 In the year ended 31 December 2022 the exceptional items within administrative expenses relate to redundancy costs and acquisition costs, and the exceptional item within cost of sales relates to the reversal of the IFRS 3 fair value uplift on finished goods and work in progress. The exceptional items in the year ended 31 December 2021 are costs relating to professional advisers employed by the Group to explore the potential sale of the Group and to subsequently execute the IPO. These costs are one‑off in nature and disclosing these costs as exceptional allows the true underlying performance of the Group to be more easily reviewed. 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 (2021: one). Non-current operating assets 2022 £’000 2021 £’000 UK 18,823 20,237 The Netherlands 22,757 23,606 Turkey 26,854 8,362 Italy 22,686 — Other 1,239 1,489 Total 92,359 53,694 Stelrad Group plc Annual Report 2022110 FINANCIAL STATEMENTS Notes to the consolidated financial statements continued for the year ended 31 December 2022 8 Other operating income 2022 £’000 2021 £’000 Net gain on disposal of property, plant and equipment 220 213 Foreign currency gains — 2,575 Net gains on forward derivative contracts — 404 Sundry other income 153 12 373 3,204 9 Other operating expenses 2022 £’000 2021 £’000 Foreign currency losses 3,446 — 10 Operating profit Operating profit is stated after charging/(crediting): 2022 £’000 2021 £’000 Auditors’ remuneration: – Audit of the Company and consolidated financial statements 133 79 – Audit of subsidiaries 265 193 398 272 – Non‑audit services: UK – tax compliance — 14 – Non‑audit services: UK – tax advisory — 30 – Non‑audit services: overseas – tax compliance — 10 – Non‑audit services: services related to the IPO — 523 – Non‑audit services – interim review fee 35 — – Non‑audit services – other 7 — 42 577 Total auditors’ remuneration 440 849 Depreciation of owned assets 7,672 5,730 Depreciation of right‑of‑use assets 2,028 1,679 9,700 7,4 09 Amortisation of customer relationships 57 — Amortisation of other intangibles 106 — 163 — Profit on sale of property, plant and equipment (220) (213) Other exchange losses/(gains) 3,446 (2,979) Research and development costs 1,083 1,047 111Annual Report 2022 Stelrad Group plc 11 Employee benefits expense 2022 £’000 2021 £’000 Wages and salaries 34,546 32,489 Social security costs 5,397 4,079 Other pension costs 2,732 2,411 Share based payment charge (note 13) 250 — 42,925 38,979 The average monthly number of employees during the year was made up as follows: 2022 Number 2021 Number Direct 772 806 Indirect 478 316 Sales, service and administration 233 204 1,483 1,326 12 Directors’ remuneration The Group listed on the London Stock Exchange on 10 November 2021. Prior to admission, it was a private company which operated a customary private equity remuneration model and post‑listing a “listed” Remuneration Policy and practice were implemented. The Remuneration Policy from 10 November 2021 (and currently applicable) is fully described in the Remuneration Report on pages 70 to 83. The comparative figures in the table below represent a full twelve‑month period to 31 December 2021 and are a mixture of two distinct ownership structures and remuneration practices. 2022 £’000 2021 £’000 Aggregate remuneration 1,289 1,911 The amounts in respect of the highest paid Director are as follows: 2022 £’000 2021 £’000 Aggregate remuneration 569 1,083 Aggregate remuneration is inclusive of basic salary, annual bonus (including any accrued bonuses), pension contributions and other taxable benefits. No retirement benefits are accruing to Directors under a defined contribution scheme or a defined benefit scheme (2021: £nil). Further details on Directors’ remuneration can be found in the Remuneration Report on pages 70 to 83. 13 Share-based payments Long Term Incentive Plans The Executive Directors and selected members of the senior management team across the Group participate in the Stelrad Group plc Long Term Incentive Plan (the “LTIP”), which was set up and launched during the year ended 31 December 2022. The LTIP provides for the Executive Directors and selected members of the senior management team to be awarded nil‑cost shares in the Group, conditional on specified performance conditions being met over a period of three years. The LTIP is based on the achievement of two performance conditions, and the awards granted are split equally between the two conditions – adjusted EPS (a non‑market condition) and relative TSR as compared to the selected benchmark index (a market condition). Refer to the Remuneration Report on pages 70 to 83 for further details of the LTIP. The expense recognised for the LTIP during the year ended 31 December 2022 was £250,000 (2021: £nil). Stelrad Group plc Annual Report 2022112 FINANCIAL STATEMENTS Notes to the consolidated financial statements continued for the year ended 31 December 2022 13 Share based payments continued Long Term Incentive Plans continued The fair value of LTIP awards granted (based on market conditions) is estimated as at the date of grant using a Monte Carlo model, taking into account the terms and conditions upon which the awards were granted. The inputs to the model used for the awards granted in the year ended 31 December 2022 and 31 December 2021 were: 2022 2021 Stelrad Group plc: Share price at date of grant £2.15 n/a Dividend yield 0.0% n/a Risk free rate 1.6% n/a Future share price volatility 25.0% n/a Selected comparator group: Future share price volatility 47.9% n/a Correlation between companies 1.0% n/a The fair value of the LTIP awards granted (based on non‑market conditions) is equal to the share price at the date of grant. The following table shows the number of share awards for the LTIP: 2022 2021 Outstanding at the beginning of the year — — Granted during the year 1,011,180 — Forfeited during the year (25,451) — Exercised during the year — — Outstanding at the end of the year 985,729 — The weighted average share price of the share awards at the year end was £1.25 (2021: £nil). The weighted average fair value of awards granted during the year was £1.75 (2021: £nil). The weighted average remaining contractual life of the awards was 2.39 years (2021: nil). There were no awards exercised in the year (2021: nil). Deferred Share Bonus Plan The Deferred Share Bonus Plan (the “DSBP”) provides for the Executive Directors of the Group to be awarded shares in the Group conditional on the achievement of financial and strategic targets. The shares are deferred over a two‑year period. The DSBP awards are not subject to any market‑based conditions. Therefore, the fair value of the awards is equal to the share price at the date of grant. Refer to the Remuneration Report on pages 70 to 83 for further details of the DSBP. The expense recognised for the DSBP during the year ended 31 December 2022 was £nil (2021: £nil). No share awards have been granted under the DSBP during the year ended 31 December 2022 (2021: nil). 14 Finance income 2022 £’000 2021 £’000 Interest on cash deposits 50 141 15 Finance costs 2022 £’000 2021 £’000 Interest on bank loans 2,564 370 Interest on ultimate shareholder loans — 9,117 Amortisation of loan issue costs 492 178 Interest expense on defined benefit liabilities 481 260 Finance charges payable on lease liabilities 124 127 Other finance charges 912 327 4,573 10,379 113Annual Report 2022 Stelrad Group plc 16 Income tax expense The major components of income tax expense are as follows: 2022 £’000 2021 £’000 Consolidated income statement Current income tax: Current income tax charge 4,090 4,179 Adjustments in respect of current income tax charge of previous year (290) (68) Deferred tax: Relating to origination and reversal of temporary differences 2,802 (2,095) Relating to change in tax rates (666) (355) Income tax expense reported in the income statement 5,936 1,661 2022 £’000 2021 £’000 Consolidated statement of comprehensive income Tax related to items recognised in other comprehensive income/(expense) during the year: Deferred tax on actuarial loss (423) (35) Current tax on monetary items forming part of net investment and on hedges of net investment 631 1,235 Income tax expensed to other comprehensive income 208 1,200 Reconciliation of tax expense and the accounting profit at the tax rate in the United Kingdom of 19% (2021: 19%): 2022 £’000 2021 £’000 Profit before tax 10,245 16,321 Profit before tax multiplied by standard rate of corporation tax in the UK of 19% (2021: 19%): 1,947 3,101 Adjustments in respect of current income tax charge of previous year (290) (68) Non‑deductible expenses 147 2,715 Adjustments due to IAS 29 – non‑tax deductible expenses 4,779 — Differences arising due to tax losses (321) (3,052) Other timing differences (161) (271) Benefit of overseas investment incentives (1,042) (1,723) Withholding tax on dividend income 527 — Effect of changes in overseas tax rates (127) (102) Effect of different overseas tax rates 1,016 1,314 Effect of changes in UK deferred tax rate (539) (253) Total tax expense reported in the income statement 5,936 1,661 Stelrad Group plc Annual Report 2022114 FINANCIAL STATEMENTS Notes to the consolidated financial statements continued for the year ended 31 December 2022 16 Income tax expense continued Deferred tax Deferred tax relates to the following: Consolidated balance sheet Consolidated income statement 2022 £’000 2021 £’000 2022 £’000 2021 £’000 Capital allowances 204 579 (730) (42) Pension 806 414 10 134 Fixed asset fair value adjustments (1,711) (491) 116 (41) Losses available for offsetting against future income 5,471 4,440 572 1,659 Other temporary differences (including IAS 29) (1,984) 1,216 (2,104) 740 Deferred tax (charge)/credit (2,136) 2,450 Net deferred tax assets 2,786 6,158 Reflected in the balance sheet as: Deferred tax assets 5,397 6,284 Deferred tax liabilities (2,611) (126) Deferred tax assets, net 2,786 6,158 Reconciliation of deferred tax assets, net 2022 £’000 2021 £’000 Opening balance as at 1 January 6,158 4,342 On business combination 315 — IAS 29 opening balance sheet adjustment (2,284) — Tax (charge)/income recognised in income statement (2,136) 2,450 Tax income recognised in other comprehensive income/(expense) 423 35 Exchange adjustment 310 (669) Closing balance as at 31 December 2,786 6,158 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 £1,821,000 (2021: £581,000) have been recognised in respect of two (2021: one) loss making subsidiary companies; these are recognised on the grounds of future projected performance. Deferred tax asset recognition During the year ended 31 December 2021, the Group chose to recognise previously unrecognised deferred tax assets in relation to tax losses. The newly recognised losses are all post‑April 2017 UK losses and the decision has been taken to recognise the losses in the year because the new capital structure of the Group post‑IPO means that tax deductible interest will be lower which, along with higher UK profitability, will lead to these losses being utilised over a much shorter time frame. During the year ended 31 December 2022, 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 DL Radiators SpA and an increase in interest rates means 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 2022 £’000 2021 £’000 Capital allowances 17 29 Losses available for offsetting against future income 2,810 1,904 2,827 1,933 The Group has tax losses which arose in the United Kingdom of £11,240,000 (2021: £8,653,000) 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. 115Annual Report 2022 Stelrad Group plc 16 Income tax expense continued Changes in the corporate income tax rate The UK corporation tax rate will rise to 25% from 1 April 2023. 17 Earnings per share 2022 £’000 2021 £’000 Net profit for the year attributable to owners of the parent 4,309 14,660 Exceptional items 1,809 9,589 Amortisation of customer relationships 57 — Foreign exchange differences 3,446 (2,979) Impact of IAS 29 13,906 — Tax on exceptional items, foreign exchange differences, amortisation and IAS 29 806 282 Adjusted net profit for the year attributable to owners of the parent 24,333 21,552 2022 Number 2021 Number Basic weighted average number of shares in issue 127,352,555 127,352,555 Diluted weighted average number of shares in issue 127,352,555 127,352,555 Earnings per share Basic earnings per share (pence per share) 3.38 11.51 Diluted earnings per share (pence per share) 3.38 11.51 Adjusted earnings per share Basic earnings per share (pence per share) 19.11 16.92 Diluted earnings per share (pence per share) 19.11 16.92 18 Dividends paid The Board is recommending a final dividend of 4.72 pence per share (2021: 0.96 pence per share), which, if approved, will mean a final dividend payment of £6,011,000 (2021: £1,223,000). 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. 2022 £’000 2021 £’000 Declared and paid during the period Equity dividend on ordinary shares: Final dividend for 2021: 0.96p per share (2020: nil p per share) 1,223 — Interim dividend for 2022: 2.92p per share (2021: nil p per share) 3,718 — 4,941 — 2022 £’000 2021 £’000 Dividend proposed (not recognised as a liability) Equity dividend on ordinary shares: Final dividend for 2022: 4.72p per share (2021: 0.96p per share) 6,011 1,223 Stelrad Group plc Annual Report 2022116 FINANCIAL STATEMENTS Notes to the consolidated financial statements continued for the year ended 31 December 2022 19 Property, plant and equipment Freehold land and buildings £’000 Leasehold buildings £’000 Assets under construction £’000 Plant and equipment £’000 Fixtures and fittings £’000 Total £’000 Cost At 1 January 2021 23,729 11,179 3,412 52,961 7,014 98,295 Additions 138 546 6,379 1,724 863 9,650 Transfers 550 — (4,400) 3,521 329 — Disposals — — (32) (163) (593) (788) Exchange adjustment (2,589) (706) (591) (10,137) (694) (14,717) At 31 December 2021 21,828 11,019 4,768 47,906 6,919 92,440 IAS 29 opening adjustment 7,282 — 31 14,517 1,005 22,835 At 1 January 2022 29,110 11,019 4,799 62,423 7,924 115,275 On business combination 10,608 127 974 4,321 1,498 17,528 Additions 228 427 7,773 1,577 1,276 11,281 Transfers 1,820 — (6,183) 4,068 295 — Disposals — — — (94) (488) (582) IAS 29 adjustment 5,528 — — 13,853 922 20,303 Exchange adjustment (821) 649 (94) (2,760) (193) (3,219) At 31 December 2022 46,473 12,222 7,269 83,388 11,234 160,586 Accumulated depreciation and impairment At 1 January 2021 9,008 2,132 — 21,058 5,073 37,271 Depreciation charge 850 1,151 — 4,688 720 7,409 Disposals — — — (90) (424) (514) Exchange adjustment (556) (160) — (4,340) (364) (5,420) At 31 December 2021 9,302 3,123 — 21,316 5,005 38,746 IAS 29 opening adjustment 1,845 — — 10,748 847 13,440 At 1 January 2022 11,147 3,123 — 32,064 5,852 52,186 Depreciation charge 1,289 1,330 — 5,785 1,296 9,700 Transfers — — — (101) 101 — Disposals — — — (87) (457) (544) IAS 29 adjustment 1,180 — — 7,502 575 9,257 Exchange adjustment (241) 230 — (1,399) (207) (1,617) At 31 December 2022 13,375 4,683 — 43,764 7,160 68,982 Net book value At 31 December 2022 33,098 7,539 7,269 39,624 4,074 91,604 At 31 December 2021 12,526 7,896 4,768 26,590 1,914 53,694 At 1 January 2021 14,721 9,047 3,412 31,903 1,941 61,024 117Annual Report 2022 Stelrad Group plc 19 Property, plant and equipment continued The carrying value of right‑of‑use assets within property, plant and equipment, by line item, at the year end is: 2022 £’000 2021 £’000 Leasehold buildings 7,466 7,814 Plant and equipment 896 911 Fixtures and fittings 1,672 638 10,034 9,363 Right‑of‑use asset additions within property, plant and equipment, by line item, during the year are: 2022 £’000 2021 £’000 Leasehold buildings 418 543 Plant and equipment 153 79 Fixtures and fittings 1,039 382 1,610 1,004 Depreciation of right‑of‑use assets within property, plant and equipment, by line item, during the year is: 2022 £’000 2021 £’000 Leasehold buildings 1,307 1,127 Plant and equipment 282 348 Fixtures and fittings 439 204 2,028 1,679 Land and buildings with a carrying amount of £21,547,000 (2021: £10,890,000) 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. 20 Intangible assets Goodwill £’000 Customer relationships £’000 Technology and software costs £’000 Total £’000 Cost At 1 January 2022 — — — — On business combination 1,222 1,761 713 3,696 Additions — — 164 164 Disposals — — (58) (58) Exchange adjustment 72 104 46 222 At 31 December 2022 1,294 1,865 865 4,024 Accumulated amortisation and impairment At 1 January 2022 — — — — Depreciation charge — 57 106 163 Exchange adjustment — 2 4 6 At 31 December 2022 — 59 110 169 Net book value At 31 December 2022 1,294 1,806 755 3,855 At 31 December 2021 — — — — Stelrad Group plc Annual Report 2022118 FINANCIAL STATEMENTS Notes to the consolidated financial statements continued for the year ended 31 December 2022 20 Intangible assets continued Included in technology and software costs are assets under construction of £345,000 (2021: £nil), which are not amortised. The remaining amortisation period of the customer relationships, being those acquired upon the acquisition of DL Radiators SpA, is twelve years and seven months. Impairment assessment of goodwill All of the goodwill recognised is allocated to a single cash‑generating unit, being the DL Radiators SpA division. Given the proximity of the year end to the acquisition date of DL Radiators SpA on 13 July 2022, the impairment assessment of goodwill has been calculated using fair value at acquisition less costs of disposal. Using this approach confirms that no impairment charge is required. 21 Business combinations On 13 July 2022, Stelrad Radiator Holdings Limited, a wholly owned subsidiary of the Group, acquired 100% of DL Radiators SpA, a radiator manufacturer incorporated in Italy. The total consideration paid was €28,346,000. The fair value of the net assets acquired were as follows: Book value £’000 Fair value adjustments £’000 Fair value £’000 Intangible assets 713 1,761 2,474 Property, plant and equipment 11,054 6,474 17,528 Inventory 24,499 1,034 25,533 Trade and other receivables 17,837 — 17,837 Trade and other payables (28,403) — (28,403) Deferred taxation 1,853 (1,538) 315 Current taxation (49) — (49) Cash and cash equivalents 3,490 — 3,490 Provisions (3,580) — (3,580) Pension liabilities (1,033) — (1,033) Loans and other borrowings (11,360) — (11,360) Total identifiable net assets 15,021 7,731 22,752 Goodwill on the business combination 1,222 Discharged by: Cash consideration 23,974 Goodwill of £1,222,000 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. All of the trade and other receivables are expected to be collected in full, other than those that have been provided for. 119Annual Report 2022 Stelrad Group plc 21 Business combinations continued Transaction costs relating to professional fees associated with the business combination in the year ended 31 December 2022 were £251,000 and have been expensed. DL Radiators generated revenue of £31,541,000 and loss for the year of £405,000 (adjusted profit for the year 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. 22 Interest-bearing loans and borrowings Effective interest rate % Maturity 2022 £’000 2021 £’000 Current interest-bearing loans and borrowings Lease liabilities 1,520 1,794 1,520 1,794 Non-current interest-bearing loans and borrowings Lease liabilities 8,516 7,524 Revolving credit facility – GBP SONIA + 2% 9 Nov 2024 55,250 56,500 Revolving credit facility – Euro Euribor + 2% 9 Nov 2024 10,647 — Term loan Euribor + 2% 9 Nov 2024 25,150 — Unamortised loan costs (1,050) (1,159) 98,513 62,865 Total interest-bearing loans and borrowings 100,033 64,659 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 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. The RCF and term loan facilities are secured on the assets of certain subsidiaries within the Group. 23 Inventories 2022 £’000 2021 £’000 Raw materials – cost 32,111 18,647 Work in progress – cost 3,530 1,293 Finished goods – lower of cost and net realisable value 38,974 34,181 Other consumables 3,236 2,660 77,851 56,781 The cost of inventories recognised as an expense in the year was £236,248,000 (2021: £192,279,000). The provision for the impairment of stocks increased in the year, giving rise to a cost of £138,000 (2021: credit of £127,000). At 31 December 2022, the provision for the impairment of stocks was £2,640,000 (2021: £1,534,000). Stelrad Group plc Annual Report 2022120 FINANCIAL STATEMENTS Notes to the consolidated financial statements continued for the year ended 31 December 2022 24 Trade and other receivables 2022 £’000 2021 £’000 Current Trade receivables 55,739 42,749 Other receivables 4,197 3,314 Prepayments 561 668 60,497 46,731 Non‑current Trade receivables — 10 Other receivables 317 — 317 10 The table below sets out the movements in the allowance for expected credit losses of trade receivables: 2022 £’000 2021 £’000 At 1 January 204 130 On business combination 844 — Charge for the year — 108 Utilised (223) (23) Unused amounts reversed (122) — Exchange adjustment 60 (11) At 31 December 763 204 As at 31 December, the details of the provision matrix used to calculate provisions for trade receivables (with the ageing gross of impairment) are as follows: Total £’000 Current £’000 <30 days £’000 30–90 days £’000 >90 days £’000 2022 Gross carrying amount 56,502 49,403 3,217 3,056 826 Expected credit loss rate (%) 1 — 1 3 77 Expected credit loss 763 — 32 92 639 2021 Gross carrying amount 42,963 38,014 1,464 2,645 840 Expected credit loss rate (%) — — 1 4 10 Expected credit loss 204 — 15 106 83 25 Cash and cash equivalents 2022 £’000 2021 £’000 Cash at bank and on hand 22,641 15,563 121Annual Report 2022 Stelrad Group plc 26 Trade and other payables 2022 £’000 2021 £’000 Current Trade payables 73,903 57,751 Other payables and accruals 18,860 22,198 Other taxes and social security 6,045 3,858 Interest payable 406 76 99,214 83,883 27 Provisions Warranty £’000 Compensation fund £’000 Restructuring £’000 Unused vacation £’000 Total £’000 At 1 January 2021 50 — — 345 395 Arising during the year 30 — — 397 427 Utilised (28) — — (223) (251) Unused amounts reversed — — — (19) (19) Exchange adjustment (17) — — (198) (215) At 31 December 2021 35 — — 302 337 On business combination 587 1,125 1,868 — 3,580 Arising during the year 218 12 — 537 767 Utilised (274) (5) (1,184) (557) (2,020) Unused amounts reversed — — (27) (16) (43) Exchange adjustment 27 67 62 (58) 98 At 31 December 2022 593 1,199 719 208 2,719 Current 162 — 719 39 920 Non-current 431 1,199 — 169 1,799 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 relate 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 DL Radiators 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. 28 Share capital and reserves 2022 Number 2022 £ 2021 Number 2021 £ Authorised, called up and fully paid Ordinary shares of £0.001 each 127,352,555 127,353 — — Ordinary shares of £1 each — — 127,352,555 127,352,555 127,353 127,352,555 Stelrad Group plc Annual Report 2022122 FINANCIAL STATEMENTS Notes to the consolidated financial statements continued for the year ended 31 December 2022 28 Share capital and reserves continued 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 capital and share premium will be transferred to accumulated losses. During the year ended 31 December 2021, the Company carried out a reorganisation of its share capital to facilitate a listing to the premium segment of the Official List of the Financial Conduct Authority and to trade on the London Stock Exchange Main Market for listed securities. This is described below in the detail on transactions in the year. The movements in the ordinary share capital during the year ended 31 December 2021 and 31 December 2022 were as follows: Shares Number Share capital £ At 1 January 2021 263,000 65,000 Issued on incorporation of Stelrad Group plc 50,000 50,000 Redemption of ordinary “C” shares (13,000) (13,000) Noosa Holdings Jersey Limited share reorganisation — (49,500 ) Share for share exchange: – Noosa Holdings Jersey Limited (250,000) (2,500) – Stelrad Group plc 115,658,370 115,658,370 Shares issued 11,644,185 11,644,185 At 31 December 2021 127,352,555 127,352,555 Capital reduction — (127,225,202) At 31 December 2022 127,352,555 127,353 Transactions in the year ended 31 December 2022 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 will be transferred to retained earnings. Transactions in the year ended 31 December 2021 On incorporation on 8 October 2021, Stelrad Group plc (the “Company”) issued 50,000 ordinary shares with a nominal value of £1 each for a total cash consideration of £50,000. This was paid up in full on 10 November 2021. On 15 October 2021, Noosa Holdings Jersey Limited redeemed its 13,000 ordinary “C” shares at par value. On 10 November 2021, the following transactions arose: • Noosa Holdings Jersey Limited redesignated its 200,000 ordinary “A” shares as 200,000 ordinary shares of £0.01 each. • Noosa Holdings Jersey Limited split its 50,000 ordinary “B” shares as 50,000 ordinary shares of £0.01 each and 50,000 deferred redeemable shares of £0.99 each. The 50,000 deferred redeemable shares of £0.99 each were immediately redeemed with the credit applied to share premium. • The Company acquired 100% of the ordinary shares of Noosa Holdings Jersey Limited by way of a share for share exchange by issuing 115,658,370 ordinary shares of £1 each to the shareholders of Noosa Holdings Jersey Limited. • The Company issued an additional 11,644,185 ordinary shares of £1 each at a value of £2.15, giving rise to a share premium of £13,391,000. 29 Commitments and contingencies Commitments Amounts contracted for but not provided in the financial statements amounted to £433,000 (2021: £1,389,000) 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 $22,685,000 (2021: $30,089,000) and $11,175,000 (2021: $40,518,000) respectively. Termo Teknik Ticaret ve Sanayi A.S. has also issued letters of guarantee denominated in Turkish Lira totalling TL13,220,000 (2021: TL9,497,000). 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 2022 is £nil (2021: £nil). 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 £nil (2021: £nil) . 123Annual Report 2022 Stelrad Group plc 29 Commitments and contingencies continued Contingent liabilities continued As part of the £100 million loan facility, entered into in November 2021, and amended and restated 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. 30 Pensions and other post-employment plans 2022 £’000 2021 £’000 Net employee defined benefit liability Turkish scheme 3,546 1,655 Italian scheme 944 — Other retirement obligations – non‑IAS 19 52 73 4,542 1,728 Turkish scheme In Turkey there is an obligation to provide lump sum termination payments to certain employees; this represents 30 days’ pay (subject to a cap imposed by the Turkish Government) for each year of service. The IAS 19 valuation gives a liability of £3,546,000 (2021: £1,655,000). There are no assets held in this plan (2021: £nil). The expected contributions to the plan for the next reporting period to cover benefits paid are £1,342,000. The service cost in the year was £269,000 (2021: £211,000). Italian scheme The Italian pension scheme, the Trattamento di Fine Rapporto, is a deferred compensation scheme established by Italian law. Employers are required to provide a benefit to employees when, for any reason, their employment is terminated. The IAS 19 valuation gives a net liability of £944,000. The expected contributions to the plan for the next reporting period to cover benefits paid are £67,000. The service cost in the year was £nil. UK scheme The UK has one defined contribution pension scheme, following the transfer of all pension arrangements to a Master Trust in 2020. The total employer contributions made in the year were £1,077,000 (2021: £1,020,000). There were outstanding contributions totalling £nil (2021: £nil) due to the scheme at the balance sheet date. Other overseas retirement obligations The Group operates a number of defined contribution pension schemes in its overseas entities and also has certain other retirement obligations. This liability at the year end mainly relates to pre‑pension payments that are due to Belgian employees who have retired early of £8,000 (2021: £39,000). The contributions to overseas pension schemes in the year and any movements in the provision for other retirement obligations are reported as part of the employee benefits note and total £1,369,000 (2021: £1,180,000). IAS 19 accounting – Turkish and Italian schemes Amounts recognised in the balance sheet Italian scheme 2022 £’000 Turkish scheme 2022 £’000 Turkish scheme 2021 £’000 Defined benefit obligation 944 3,546 1,655 Net pension liability 944 3,546 1,655 Stelrad Group plc Annual Report 2022124 FINANCIAL STATEMENTS Notes to the consolidated financial statements continued for the year ended 31 December 2022 30 Pensions and other post-employment plans continued IAS 19 accounting – Turkish and Italian schemes continued Movement in defined benefit obligation Italian scheme 2022 £’000 Turkish scheme 2022 £’000 Turkish scheme 2021 £’000 At 1 January — 1,655 2,390 On acquisition 1,033 — — Current service cost — 216 211 Interest cost 9 377 260 Plan curtailments – service cost — 53 — Plan curtailments – interest cost — 95 — Actuarial (gains)/losses (118) 2,050 141 Benefits paid (39) (548) (233) Exchange differences 59 (352) (1,114) At 31 December 944 3,546 1,655 Amounts recognised in the income statement Italian scheme 2022 £’000 Turkish scheme 2022 £’000 Turkish scheme 2021 £’000 Current service cost — 216 211 Interest cost 9 377 260 Plan curtailments – service cost — 53 — Plan curtailments – interest cost — 95 — At 31 December 9 741 471 Amounts recognised in other comprehensive income/(expense) Italian scheme Turkish scheme Turkish scheme 2022 2022 2021 £’000 £’000 £’000 Experience adjustments – obligation (72) (969) (143) Changes in demographic assumptions – obligation — (197) 1 Changes in financial assumptions – obligation 190 (884) 1 At 31 December 118 (2,050) (141) Principal actuarial assumptions Italian scheme 2022 Turkish scheme 2022 Turkish scheme 2021 Discount rate (per annum) 3.70% 10.60% 19.00% Future salary increases (per annum) n/a 10.10% 14.25% Quantitative sensitivity analysis 2022 2022 Discount rate (per annum) Future salary increases (per annum) +1% £’000 -1% £’000 +1% £’000 -1% £’000 (Decrease)/increase in defined benefit obligation – Italian scheme (75) 83 — — (Decrease)/increase in defined benefit obligation – Turkish scheme (276) 321 319 (279) The sensitivity analysis above has been determined based on a method that extrapolates the impact on the net defined benefit obligation as a result of reasonable changes in key assumptions at the end of the reporting year . 125Annual Report 2022 Stelrad Group plc 31 Related party disclosures Prior to admission to the London Stock Exchange on 10 November 2021, the ultimate controlling party was The Bregal Fund III LP. The ultimate shareholder loans bore interest at 15% and consisted of two amounts: i) an amount funded by the ultimate controlling party of the Group, The Bregal Fund III LP; and ii) an amount funded by certain managers of the Company. The value of the loans at 31 December 2021 was £nil, due to repayment of the shareholder loans and all accrued interest totalling £76,528,000 (The Bregal Fund III LLP: £64,632,000; managers: £11,896,000) as part of the Group reorganisation on 10 November 2021. At 31 December 2021, the Group owed deferred consideration to shareholders related to the sale of a business of £nil as the deferred consideration to shareholders was repaid on 15 October 2021. During 2021, interest was accrued totalling £9,117,000 (The Bregal Fund III LP: £7,700,000; managers: £1,417,000). During 2021, under the ownership agreement, before the Group reorganisation, the Group was charged a monitoring fee of £200,000 per annum by Bregal Capital LLP, which was the management company of the ultimate controlling party of the Group, The Bregal Fund III LP. During the year, the Group spent £6,000 (2021: £9,000) on purchases from Polypal Netherlands BV (whose ultimate controlling party is also The Bregal Fund III LP); the balance outstanding at the year end was £nil (2021: £nil). The key management personnel are considered to be the Executive Directors of the Group. The following table highlights the remuneration that is recorded in the income statement in respect of these personnel, including Company social security costs: 2022 £’000 2021 £’000 Short‑term employment benefits 1,466 2,175 32 IAS 29 Financial Reporting in Hyperinflationary Economies The Turkish economy was designated as hyperinflationary from 19 April 2022. As a result, application of IAS 29 Financial Reporting in Hyperinflationary Economies has been applied to all Stelrad Group plc entities whose functional currency is the Turkish Lira. IAS 29 requires that adjustments are applicable from the start of the relevant entity’s reporting period. For Stelrad Group plc that is from 1 January 2022. The application of IAS 29 includes: • adjustment of historical cost non‑monetary assets and liabilities for the change in purchasing power caused by inflation from the date of initial recognition to the balance sheet date; • adjustment of the income statement for inflation during the reporting period; • the income statement is translated at the period-end foreign exchange rate instead of an average rate; and • adjustment of the income statement to reflect the impact of inflation and exchange rate movement on holding monetary assets and liabilities in local currency. Reconciliation of opening equity at 1 January 2022 The differences between the closing equity of the prior year at 31 December 2021 and the opening equity of the current year at 1 January 2022 have been recognised as an IAS 29 adjustment in the consolidated statement of changes in equity. £’000 Retained earnings at 31 December 2021 57,814 IAS 29 adjustment 8,327 Retained earnings at 31 December 2021 (restated) 66,141 The IAS 29 adjustment at 1 January 2022 is made up as follows: At 1 January 2022 £’000 Property, plant and equipment 9,395 Inventories 1,183 Prepayments 33 Deferred tax liability (2,284) IAS 29 adjustment 8,327 Stelrad Group plc Annual Report 2022126 FINANCIAL STATEMENTS Notes to the consolidated financial statements continued for the year ended 31 December 2022 32 IAS 29 Financial Reporting in Hyperinflationary Economies continued Statement of changes in equity for the year ended 31 December 2022 The impact of the restatement of the opening reserves of entities whose functional currency is the Turkish Lira was £22,982,000; this is credited to the statement of changes in equity in the period and subsequently reversed through the “monetary losses – net” line in the income statement. Year ended 31 December 2022 £’000 Retained earnings credit 22,982 Monetary losses – net for the year ended 31 December 2022 The monetary loss for the year ended 31 December 2022 is made up as follows: Year ended 31 December 2022 £’000 Retained earnings (22,982) Property, plant and equipment 11,046 Inventories 234 Prepayments (16) Income statement 3,858 Monetary losses – net (7,860) 33 Capital management For the purpose of the Group’s capital management, capital includes issued capital and all other equity reserves attributable to the equity holders of the parent. The primary objective of the Group’s capital management is to maximise the shareholder value. In order to achieve this overall objective, the Group’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest‑bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches in the financial covenants of any interest‑bearing loans and borrowings in the current year. The Group manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. Details of the issued capital and reserves are shown in note 28. Details of interest‑bearing loans and borrowings are shown in note 22. 127Annual Report 2022 Stelrad Group plc 34 Financial instrument disclosures A. Hedging activity and derivatives Derivatives not designated as hedging instruments The Group uses foreign exchange forward contracts to manage some of its transaction exposures. Where used, foreign exchange forward contracts are not designated as cash flow hedges and are entered into for periods consistent with foreign currency exposure of the underlying transactions, generally from one to twelve months. The Group did not use any foreign exchange forward contracts during the year ended 31 December 2022. Hedge of net investments in foreign operations Included in subsidiary loans at 31 December 2022 and at 31 December 2021 were Euro denominated borrowings which have been designated as a hedge of the net investments in its overseas subsidiaries. This borrowing is being used to hedge the Group’s exposure to the Euro foreign exchange risk on these investments. Gains or losses on the retranslation of this borrowing are transferred to other comprehensive income/(expense) to offset any gains or losses on translation of the net investments in the subsidiaries. There is no ineffectiveness in the years ended 31 December 2022 and 31 December 2021. B. Fair value of financial instruments at amortised cost Carrying amount Fair value 2022 £’000 2021 £’000 2022 £’000 2021 £’000 Financial liabilities Lease liabilities 10,036 9,318 10,036 9,318 Revolving credit facility – GBP 55,250 56,500 55,250 56,500 Revolving credit facility – Euro 10,647 — 10,647 — Term loan 25,150 — 25,150 — 101,083 65,818 101,083 65,818 The external loan balances are stated gross of any issue costs. The management assessed that the fair values of cash and cash equivalents, trade and other receivables, trade and other payables and other current assets and liabilities approximate their carrying amounts largely due to the short‑term maturities of these instruments. The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties. The following methods and assumptions were used to estimate the fair values: • The Group enters into derivative financial instruments with various counterparties, principally financial institutions. Derivatives valued using valuation techniques with market observable inputs are interest rate swaps and foreign exchange forward contracts. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, interest rate curves and forward rate curves of the underlying commodity. • Fair values of the Group’s interest‑bearing loans and borrowings are determined by using the DCF method using a discount rate that reflects the issuer’s borrowing rate as at the end of the reporting year. As the external debt is all at variable rate, the fair values are deemed to be identical to the carrying values. • The financial liabilities which are not recognised at fair value but for which fair value is disclosed are deemed to be level 2 hierarchy measurements, with the exception of shareholder debt which is deemed to be a level 3 valuation. • There are not deemed to be any significant unobservable inputs to valuation. C. Financial risk management objectives and policies The Group’s principal financial liabilities, other than derivatives, comprise interest‑bearing borrowings and trade and other payables. The main purpose of these financial liabilities is to finance the Group’s operations. The Group’s principal financial assets include trade and other receivables, and cash and cash equivalents that derive directly from its operations. The Group also enters into derivative transactions. Due to timing, there are no unsettled derivative contracts as at the end of the reporting year. The Group is exposed to market risk, credit risk and liquidity risk. The Group’s senior management oversees the management of these risks. All derivative activities for risk management purposes are carried out by individuals that have the appropriate skills, experience and supervision. It is the Group’s policy that no trading in derivatives for speculative purposes may be undertaken . Stelrad Group plc Annual Report 2022128 FINANCIAL STATEMENTS Notes to the consolidated financial statements continued for the year ended 31 December 2022 34 Financial instrument disclosures continued C. Financial risk management objectives and policies continued The Group has established a risk and financial management framework, the primary objectives of which are to protect the Group from events that may hinder the achievement of financial performance objectives. These are summarised below. Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and commodity price risk. Financial instruments affected by market risk include interest‑bearing borrowings and derivative financial instruments. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to long‑term interest‑bearing borrowings. The Group manages its interest rate risk by having a balanced portfolio of fixed and variable rate borrowings. To manage this, where deemed appropriate, the Group enters into interest rate swaps, in which it agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed‑upon notional principal amount. At 31 December 2021 and 31 December 2022, no interest rate swaps are in place. Approximately 10% (2021: 14%) of the Group’s borrowings are at a fixed rate of interest. Interest rate risk – sensitivity The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings affected. The analysis does not include cash balances. With all other variables held constant, the Group’s profit before tax would be impacted as follows: Year ended 31 December 2022 Increase/ decrease Effect on profit before tax £’000 SONIA/Euribor +0.5% (384) SONIA/Euribor -0.5% 384 Year ended 31 December 2021 Increase/ decrease Effect on profit before tax £’000 SONIA/Euribor +0.5% (79) SONIA/Euribor -0.5% 16 Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities (when revenue and expenses are denominated in different currencies) and the Group’s net investments in foreign subsidiaries. The Group manages its foreign currency risk by hedging transactions that are expected to occur within a maximum twelve- month period. There were no foreign currency exchange contracts in place at 31 December 2022 or 31 December 2021. The Group hedges its exposure to fluctuations on the translation into GBP of its foreign operations by holding net borrowings in foreign currencies, including intercompany loans. Foreign currency risk – sensitivity The following tables demonstrate the sensitivity to a reasonably possible change in the Euro and USD exchange rates, with all other variables held constant. The impact on the Group’s profit before tax is due to changes in the fair value of monetary assets and liabilities including non‑designated foreign currency derivatives. The impact on the Group’s equity is due to the monetary items that form part of the net investment in foreign operations. No sensitivity is performed against Turkish Lira on the basis that all Turkish Lira monetary assets and liabilities are held by Termo Teknik Ticaret ve Sanayi A.S., whose functional currency is Turkish Lira. The Group’s exposure to foreign currency changes for all other currencies is not material . 129Annual Report 2022 Stelrad Group plc 34 Financial instrument disclosures continued C. Financial risk management objectives and policies continued Market risk continued Foreign currency risk – sensitivity continued The movement in equity arises from changes in Euro denominated borrowings in the hedge of net investments in European operations. These movements will offset the translation of the European operations’ net assets into Sterling – this movement is not shown. Change in Euro rate (1) Effect on profit before tax £’000 2022 +10% (336) -10% 411 2021 +10 % (915) ‑10% 1,118 Change in USD rate (1) Effect on profit before tax £’000 2022 +10% 1,869 -10% (2,285) 2021 +10 % 2,371 ‑10% (2,898) (1) A + movement indicates GBP strengthening relative to the other currency. Commodity price risk The Group is affected by the price volatility of certain commodities. Its operating activities require a continuous supply of steel which poses a risk due to the volatility of the price of the steel. The Group seeks to manage its exposure to commodity price risk by holding enough stock to negate short‑term price fluctuations and if necessary allow sufficient time to pass price changes through to customers. Demand risk The market for the Group’s goods is subject to movements in demand as the demand for new housing or upgrades to existing housing stock varies. The Group manages these variations through careful forecasting and flexing of production volumes. Financing arrangements anticipate demand changes and associated working capital movements. Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and other financial institutions, foreign exchange transactions and other financial instruments. Trade receivables Customer credit risk is managed by each business unit. Overseas subsidiaries have credit insurance policies in place to minimise the risk of trade debts going bad without recompense. UK subsidiaries have no credit insurance policy in place due to the cost of insurance not being justified by the low risk of non‑recoverability with a large proportion of receivables being due from the three major customers with strong credit ratings. Credit quality of a customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored. An impairment analysis is performed at each reporting date on an individual basis for major clients. In addition, a large number of minor receivables are grouped into homogeneous groups and assessed for impairment collectively. The calculation is based on actual incurred historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets. The Group does not hold collateral as security. The Group evaluates the concentration of risk with respect to trade receivables as medium, as it has several large customers in linked markets. Note 24 discloses information about the credit risk exposure on the Group’s trade receivables using a provision matrix. Deposits with banks and other financial institutions Credit risk from balances with banks and other financial institutions is managed by the Group’s treasury team in accordance with the Group’s policy. Investments of surplus funds are made only with approved counterparties. The Group’s maximum exposure to credit risk is the cash and cash equivalents balance outlined in the balance sheet at 31 December 2022. Stelrad Group plc FINANCIAL STATEMENTS Notes to the consolidated financial statements continued for the year ended 31 December 2022 34 Financial instrument disclosures continued C. Financial risk management objectives and policies continued Liquidity risk The Group monitors its risk to a shortage of funds using monitoring requirements on a daily basis looking out over various time periods. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans, bank revolver and finance leases. The Group’s policy is that not more than 10% of borrowings should mature in the next twelve‑month period. Approximately 1.5% of the Group’s debt will mature in less than one year at 31 December 2022 (2021: 2.7%) based on the carrying value of borrowings reflected in the financial statements. The Group assessed the concentration of risk with respect to refinancing its debt and concluded it to be low. Access to sources of funding is sufficiently available. At 31 December 2022, the Group had available £10,130,000 (2021: £23,500,000) of undrawn committed borrowing facilities. The table summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments. Interest‑bearing loans comprise interest and principal, with interest determined based on rates prevailing at the balance sheet date. Year ended 31 December 2022 <1 year £’000 1 to 5 years £’000 >5 years £’000 Total £’000 Lease liabilities 1,627 6,773 1,911 10,311 Interest‑bearing loans 4,829 94,462 — 99,291 Trade and other payables 93,169 — — 93,169 99,625 101,235 1,911 202,771 Year ended 31 December 2021 <1 year £’000 1 to 5 years £’000 >5 years £’000 Total £’000 Lease liabilities 1,900 5,581 2,173 9,654 Interest‑bearing loans 1,567 62,549 — 64,116 Trade and other payables 80,025 — — 80,025 83,492 68,130 2,173 153,795 The above tables do not include the interest cash flows for the ultimate shareholder loan notes. The amount shown in the tables includes the principal amount plus accrued interest up to the balance sheet date. Stelrad Group plc Investments — Equity Called up share capital Share premium — — — Stelrad Group plc FINANCIAL STATEMENTS Called up share capital Share premium (Accumulated earnings — — — — — — Share for share exchange — — Shares issued — Profit for the year — — — — Capital reduction — — — — — — Company statement of changes in equity Stelrad Group plc • • • Stelrad Group plc FINANCIAL STATEMENTS continued continued indication exists, or when annual impairment testing for an investment is required, the Company estimates the investment’s — — — Stelrad Group plc — Acquisition via share for share exchange Acquisition of investment via dividend in specie — — £ £ — — — — were as follows: Shares Share capital £ Share for share exchange Shares issued Capital reduction — Stelrad Group plc FINANCIAL STATEMENTS continued Country of incorporation United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary United Kingdom Ordinary Radiator manufacturer *Caradon Polska Sp ZOO Poland Ordinary Ordinary Radiator manufacturer Ordinary United Kingdom Ordinary Ordinary Radiator manufacturer China Ordinary Ordinary Ordinary Ordinary Italy Ordinary — Radiator manufacturer in the UK Stelrad Group plc Stelrad’s commitment to environmental issues is reflected in this Annual Report, which has ® which minimises the impact of printing on the environment, with 99% of dry waste diverted from landfill. Both the printer and the paper mill are registered to ISO 14001. ADDITIONAL INFORMATION Registered office Stelrad Group plc 69–75 Side Newcastle upon Tyne Tyne and Wear NE1 3JE Shareholder enquiries: [email protected] Tel: +44 (0) 191 261 3301 Registered in England and Wales Computershare Governance Services, UK 120 London Wall London EC2Y 5ET Registrar Computershare Investor Services PLC Bridgwater Road Bristol BS99 6ZZ Tel: +44 (0) 370 702 0003 External independent auditors PricewaterhouseCoopers LLP Level 5 and 6 Central Square South Orchard Street NE1 3AZ Corporate broker Investec Bank plc 30 Gresham Street London EC2V 7QN Legal adviser Clifford Chance London E14 5JJ Financial PR adviser Powerscourt 1 Tudor Street London EC4Y 0AH Tel: +44 (0) 20 7250 1446 Principal bankers National Westminster Bank plc Newcastle upon Tyne NE1 7EL London Shareholder information Stelrad Group plc 69–75 Side Newcastle upon Tyne Tyne and Wear NE1 3JE Spine to be calculated once all text has been supplied Stelrad Group plc Annual Report 2022
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