Radiator giant Stelrad to go public to fund major expansion

Manufacturer Stelrad, which currently dominates the steel panel radiator market in the UK, with over 50 per cent market share, is considering going public to fund a major expansion which would see it diversifying into other low carbon heating products and moving into new markets geographically.

The group, headquartered in Mexborough, Yorkshire, sees a three-pronged growth opportunity that would see organic growth; leverage of its distribution and brands to move into new territories; and diversification into product areas such as air movement

The group has manufacturing and distribution facilities in the UK, Netherlands and Turkey, together with additional distribution facilities in Poland and Denmark and sales personnel in seven other countries, including China.

It claims number one positions in five markets (UK, Ireland, Netherlands, Belgium and Denmark) and top three positions in a further six markets, posting turnover of £197 million in 2020.

However in the 12 months to 30 June 2021, that figure grew to £242.5 million and profits rose 63 per cent to £32 million, as customer demand increased after lockdown. The group puts the total market in its six core countries at £1.1 billion, or approximately 24.4 million radiators.

Expansion potential

Now the company says it is poised to play a significant role in the decarbonisation journey so wants to use Stelrad’s brand strength, channel access, logistics capability and customer relationships to extend its product range into ‘emerging and fast-growing categories suitable for a low or zero carbon future’. Amongst these it names, air management and heat recovery; hydronic convectors and electric heat emitters; alongside more conventional products such as water treatment, valves and controls.

It says a flotation would help the business to react to market shifts resulting from the decarbonisation drive, developing its product portfolio and introducing products which are compatible with low carbon, low temperature heating systems.

Stelrad adds: “The Directors also believe that Stelrad has the opportunity to strengthen its market position in the heating sector through complementary acquisitions providing further product breadth and geographic expansion opportunities.”

Chief executive Trevor Harvey said:

“Our successful growth strategy has been built upon a combination of standardised product design across all our manufacturing facilities, a key focus on specifiers across all of our end-markets and continued range innovation, alongside our multi-brand strategy that enables products and brands to be tailored to specific channels…Hydronic systems dominate the heating market and steel panel radiators remain by far the most popular heat emitter with demand driven by both first-time installations and replacements. The overall market value is growing thanks to positive underlying market activity and continued adoption of premium panel radiators with the move towards decarbonisation presenting numerous opportunities and limited disruption to our longer-term growth plans.”

He added: “Our extensive product offering, strong relationships with all major distributors and specifiers plus this supportive market backdrop mean that we are confident of delivering further upside as part of our growth plan as we continue to play a leading role in keeping Europe warm.”

Resilience

Thanks to its market position and manufacturing base, the company has ridden out the disruption to the market of both Brexit and Covid-19 it says, with only limited impact from the pandemic.

Stelrad also boasts major storage facilities and its own distribution which has enabled it to supply merchants and retailers in the midst of the current supply chain challenges.

The company said: “The Group’s extensive steel panel radiator range shares a common core design, providing product consistency alongside significant production flexibility and associated manufacturing cost advantages, as well as a platform for innovation that enables rapid and cost-effective development of new products.”

But it is the potential for other low-carbon heating technologies that is spurring the business towards expansion. It said: “Whilst there is widespread expectation that the use of heat pump technology will increase in the short to medium term, all the indications point to the continued importance of hydronic heating systems which use water to move heat from the heat source, such as a gas boiler or a heat pump, through piping to heat emitters in each room. It is anticipated that whichever future heat source technology is used is likely to provide lower temperature systems than traditional gas boilers. This will result in the need for either larger surface area heat emitters to provide equivalent home heating or increased insulation of the building fabric, or most likely, a combination of both…The Directors believe the Group is well positioned to benefit from the expected increased adoption of heat pumps in the next decade through existing and planned product sets and the Group has been proactive in introducing and promoting compatible products.”

Diversification

Stelrad is eyeing five key areas for diversification:

• air management and heat recovery – bringing ventilation systems alongside its radiator range as building airtightness increases; lower system temperatures
• hydronic convectors represent a potentially important future product category, it says. “Hydronic convectors are particularly suitable for the replacement market where material changes to the fabric of the building are more difficult to achieve than in new construction;”
• electric heat emitters – enabling Stelrad to offer new build specifiers a heat emitter solution irrespective of the heat source technology adopted, it says
• Water treatment – offering water treatment products and services to maintain the long term health of the hydronic heating system.
• Valves and controls – the Directors says they believe offering TRVs and associated products is a logical and complementary extension of the product range.

Chairman Bob Ellis said: “The European countries where the Group operates have been progressive in advancing the decarbonisation agenda through strong regulation and policies and Stelrad’s products will play a key role in the longer-term transition away from traditional gas boilers with larger surface area radiators in particular being well suited to low temperature systems such as heat pumps.”

He added: “The Group’s highly experienced management team have a wealth of industry experience and a long-standing commitment to the business having put in place a strategy that has seen the business deliver a resilient financial performance in recent years and, as a result, the Group is well placed to build on the strong momentum through both organic and inorganic growth opportunities.”