Strip Tinning Holdings (LSE:STG) — Investor Presentation

0:00 Good afternoon, and welcome to the STRIP TINNING PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it received during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Richard Barton, CEO. Good afternoon.

0:31 Good afternoon. Hello, everybody. Thanks for joining our investor meet call today. I'm Richard Barton, the CEO of STRIP TINNING. The company was founded in 1957 by my father, and I started working with him about thirty years ago. At the time, we had, I think, eight employees, and we we became a public limited company in February 2022, just over a year ago. With me today are Adam Robson, our executive chairman, and also

1:03 Adam Levan, our CFO. And I'd just like to ask Adam Robson, first of to introduce himself, and then Adam, and then I'll talk a bit further on the following slides. Adam. Yes. Hello. Adam Robson speaking. Very good to be talking to you all.

1:19 My automated background started with Perkins engines in Peterborough, merged into the Varity Group, then into the Lucas Varity Group, then into TRW Automotive, where I worked on everything from radars to cars to diesel injection systems. So a a broad background on the business development side in in the automotive sector.

1:47 Hi. I'm Adam Levan. So I've also got a long history in automotive. I'm a qualified chartered accountant. I did a lot of work at KPMG in The Midlands and Germany on automotive clients, and I've worked at Jaguar Land Rover two and in the and in other tier one suppliers prior to joining STRIP TINNING. And I've also worked on a lot of high growth type projects as part of as part of my experience, which is it's quite applicable to, what we're doing on the EV side here at STGTINNING. Adam, Adam, thank you. So if I can just start to talk to you about, 2022 and the the highlights, certainly a very difficult year for us. I think our most our most difficult in our sixty year history, we did our IPO in February 20 February the sixteenth last year, and I think seven days later, the Russians invaded Ukraine.

2:45 This had a big impact on, our customer base. As we had three significant customers in Russia, we were suffering from all sorts of inflationary pressures, the cost of energy, raw materials, labor rates. So a really, really difficult start for us as as a as a public limited company. Our financial results, unfortunately, obviously, were poor. The underlying EBITDA was minus 2,200,000. This is after adjusting for about 1,600,000 of of some nonrecurring one off items. The net cash is minus 1.4. However, this is before we have a new CID facility, which is bringing us plenty of headroom. Through the year, I think because of the pressures we were under, certainly, we have made significant improvements operationally.

3:35 We had a new managing director that started shortly after the IPO called Mark Perrins, who has a big automotive background, and he's made lots of improvements from the manufacturing point of view for the for both glazing and EV. Despite the difficult year, nevertheless, our glazing order book is extremely strong. The overall order book for both glazing and EV stands at nearly £4,000,000, which is very encouraging. We put through some two rounds of significant price increases to our customers during the year. These were received. The customers I wouldn't say we're happy, but we managed to stay friends with the customers, and we certainly haven't lost any.

4:18 We've removed some of our loss making product lines and are certainly focused on, the more profitable items moving forward. Very, very encouragingly, we we've achieved positive EBITDA for every month so far this year, which which tells us that the the certainly, the future is looking much brighter and the really, the turnaround that we feel is being is being completed, it feels to us as though we're really out of the woods. Generally, the market is is starting to come in our favor. Believe over 45% of our sales are already into, electric and hybrid vehicles compared to the sort of average for Europe of about 37%.

5:05 We have lots of new opportunities for electric vehicles. We had an exhibition recently at the Stuttgart battery show. We had probably 32 leads that that we consider to be quite significant, and it's still the same story we're hearing that the market is extremely busy. The customers are really actively trying to develop new sources for cell contact systems and flexible printed circuits. There are other producers out there in the market, but but that really we we have this ability to do the flexible printed circuit as well as the cell contact systems that we're offering something different from some of the competition, and we're working more in the smaller and the mid mid section of the markets. From a glazing point of view, the car industry is up. The new car interest rates in Europe are up 17%, so that's all in our favor.

5:57 And particularly, the use of flexible printed circuits and some of our products into roof glazing are becoming more popular on on higher tech vehicles as they're as they're being released. We've also taken the opportunity during the year to really have a reorganization of the company. We've now moved all of the the automotive glazing production into one unit. You can see that is what we call our unit seven on the left hand side. Mark Pernins, again, has driven this through. There's brought a number of efficiencies and has reduced our scrap count. And with with the some of the money in the grant that we raised during 2022 has been spent on the new, EV line, which is fully operational. That's actually quite a big room. It looks quite small, but it's part of a a clean air module within the building.

6:48 And we're we're very pleased now that that that line is fully operational. So I think probably over to Adam Robson now. The things we did in the last year, if we talked about it in the last call as well, if some of you are on that as well, is to get clearer of our market focus because what we found was we were in a an an enormously growing market with a huge number of opportunities that we couldn't respond to. So we need to be able to focus our resources. On the left hand side is is what we call the mid market, which is where we're finding the most attraction. This this is either very small volume vehicles such as new electric vehicles, sports cars, and that's where we've had our first production success, and we're in fact in production on a number of small electric vehicles already.

7:46 But that that that market actually moves into other areas of quite significant volume. There are truck projects in there. There are specialist bus projects there. There are new autonomous vehicles like the one shown in the the picture, which is a is an Amazon developed vehicle.

8:04 There there are small mobility solutions, e mobility, little delivery vans for use in city centers and so forth, and there's the off off highway sector. So we're actually finding that a a very it's quite a substantial market, but also particularly placed to our strength, which Richard described earlier, of being able to provide the integrated engineering solution in the form of a cell contact system, highly adapted to the specific needs of each application. So that's where we're having a lot of success and where we have our initial sales. We then are looking in in time to develop into the mid volume market, which is a little hard, tends to be automotive or or high volume truck.

8:59 We have some leads in that area as well that we're we're working on at the moment. And then on the right hand side, there is the very high volume market. This would be, you know, new battery platform for the the VW Golf and so on. The what we've determined, there are very large electronics manufacturers pursuing that segment at the moment, and that doesn't seem like an effective place for us to compete. So we are we are focused then on that that left hand mid market side, whereas I say we we feel we have a particular advantage through a differentiation of being able to offer an integrated solution.

9:44 And secondly, the very big this this is a market that's growing so fast. There's there there are more opportunities that everyone can deal with. What we're finding is the large competitors are focused on the right hand side of the page, which are very, very, very big contracts and makes sense for them, but they virtually refuse to supply the left hand mid market. So it's a leash which is we're finding that we have quite a unique positioning in, and we seem to be one of the preferred suppliers for customers in in in that segment. We've got if we move on to the next slide, we'll talk about the specific opportunities we're working on, but we have a large number of opportunities in mid market.

10:34 We've got our new production line ready, and two new customers have already now quality audited that line, and it is passed those audits with flying colors. We haven't failed any audits in case we have any doubt about that.

10:52 We've been spending our serve grant, which was worth 1,400,000, which has allowed us to put in place this this higher volume, highly automated line, and that that's in production now. And and we have a second 1,100,000 grant that we're we're applying for, and we hope to see a decision on that by the end of June when when when we hope we'll be able to announce some good news. What's significant about these grants is that from a cash perspective, they they go straight to the bottom line. They the the the they're they're they're providing cash for for overheads and capital expenditure, which we were making anyway. So they're they're highly attractive to us.

11:41 We also have a a small APC grant that we've applied for to to to do a feasibility study for moving into the higher volume production, which we see happening in in some years' time. But a a a feasibility study is a first grant securing further grant funding for that. I see James h has just asked the question, would we consider to buy track wise if it came available to scale up our production? And the answer is yes. It would be a very relevant investment they've made in that high volume area, and we think it would be attractive for us to add our automotive credibility, which I think has been one of the things that holds them back today.

12:34 The the 1,600,000 of CapEx we spent has increased our own capacity to 220,000 flex units per annum, which which is a good start for us. Our first major production nomination, as I said, we're already in in in in production on three smaller platforms, but we have a very high volume with annual sales in certainly in several million per annum initially and with the potential to rise to over 10,000,000 per annum. And we hope to get that nomination in the next quarter, in the current quarter, quarter three of this year when when, obviously, we announced it. We're the moment we are making samples on that program. We we're delivering today the b four samples. So this is, I think, the the fourth set of samples we've provided.

13:37 That that in itself was worth 800,000 to us this year. We have another important nomination that we're working towards as well on on another off highway vehicle battery pack. And we have another one that's worth noting for an on highway battery pack as well where we're looking to get the first samples, but we're not yet at the production nomination stage. So there's a lot of activity. As Richard said, when we went to the Stuttgart battery show, we came back with 32 good quality leads, most of which were in that mid market segment. And we're we're in the process of following up with those customers. We think that will lead to a significant boost in our our active production lie sorry, active pipeline for the EV segment.

14:35 Some of you who who've been on these calls recall and been following us will will will recall that we lost a lead customer just over a year ago. That that that was a a a Croatian specialist vehicle, electric vehicle developer for a German OEM. That that was a very unfortunate incident. I think, you know, it it resulted from a number of organizational changes on their side, and perhaps we were slightly trying to run before we could walk at that time. We learned a lot of lessons from that, and we've worked through those lessons in our in in in everything we've put into the current production line and how we're working with our our current customers.

15:30 So we're we're we're certainly a much stronger organization than we were and increasingly confident that we'll be winning new nominations, as I say, in quarter three of this year. Steve Kaye has just asked what are our typical contract lengths. A typical contract length is five plus years. Because people are developing a platform for a vehicle, a typical automotive platform has a seven year life or even ten year life, may go through cosmetic upgrades, but that doesn't change the fundamental. So so whilst we mostly see an initial nomination expressed as five years production, we'll often expect them to last seven or ten years.

16:22 Moving on to now the glazing side of the business. This year has what what you're we're seeing is that glazing sales will be flat this year, but that masks a number of different things. We we've raised our prices on average by 30%, and so that should lead us to a 30% growth in in the the revenue numbers. But but as as Richard told you, we've eliminated a lot of loss making products as well, which removes 30%. So net net, our glazing business is flat this year, But we're now having got those pricing increases behind us, which were obviously a major distraction and and for for us with our customers.

17:10 We're now seeing growth in our very important BuzzBar business. We're beginning to to reengage with a set of new customers, including on the architectural glass size, which is taking us into new markets. Our tungsten market, we've we've got one large RFQ out at the moment that could could grow that significantly. And in connectors, we've been quite selective now about the work we go after. We we we learned lessons about where we were losing money, but we're particularly focused on new roof glazing applications, which is the a very innovative area. And if any of you've been on a a Dreamliner or or or in such an office, you see glass which when you touch it, you turn a switch, increase changes color to become sun resistant.

18:06 And all of that needs specialist connectors, which we we are equipped to make and, indeed, we are shipping today on one very major program. But we have, here I say, a first prototype purchase order received. That's the first prototype for this new OEM. We're already in production with those products for another program. We're also working interestingly with one of our major customers on a program to put LEDs within a truck glass. A heads up display doesn't work on a truck window because the angle of the of the windscreen is more vertical, so so you can't get the reflection. And people are now looking at embedding LEDs within the glass to to put a sort of head up display for truck drivers. Again, that needs a specialist connector, and and we're working on that.

18:59 Similarly, camera bracket flexes within the glass is more and more cameras, particularly particularly on on autonomous vehicles and the preparations for autonomous vehicles. And we have another major RFQ we're working on now for another luxury SUV. I I I think as as as Richard was showed you on the slide earlier, 45% of all our sales today are into either electric vehicles or hybrid vehicles, which are obviously the highest growing parts of the market. And so, you know, we do try to focus on these higher volume platforms and higher value added platforms.

19:51 And as I said earlier, we we've received some new new purchase orders both both for a smart glass architectural application and for smart glass applications within the automotive sector. The other thing we've been able to do this year is substantially improve our business and particularly on the glazing connector side where we were losing money last year. So whilst we have put through 30% price increases, what you'll see is that our at the bottom of the table there, our gross margins have improved from minus 13% to plus 15%.

20:38 So that's a 28% increase. But I'm sure you recognize there's been a lot of inflation in this period in labor costs, energy costs, material costs. And so we've had to offset those other inflationary increases with with a substantial increase in productivity. And you see that on on on this chart that we we've reduced particularly materials wastage and through better purchasing. We've reduced materials as a percent of sales from 48% to 37%. Although the head the the sales are roughly similar, we've we've substantially reduced our headcount from 98 to 74 on the shop floor, and that's increased sales per head from about 55,000 to 68,000 per head. We've also reduced shipping costs, which had rocketed, particularly post Brexit. We're we're finding smarter ways to ship now.

21:40 So all in all, that the business has improved substantially this year. And, of course, in '23, you're only seeing the part year effects. There'll be further impr there are further improvements to come, further automation programs to come as well, and we expect to see further improvements in gross margin as as we go into 2024. The the last thing that I particularly have been working on is partnerships. We we're we're a relatively small player in our industry, and we're constantly looking for for partners to help us grow. We're we're looking particularly in China about the potential to to develop a partner, not to supply the full CCS, but possibly the flex element of that, whether there's a lot of installed capacity in China.

22:41 We we're looking to to develop with one particularly CCS tier one of preferred supplier relationship, and and that is indeed beginning to bear some fruit. We we're looking at an engineering partnership to to to to help us both accelerate our development and provide more innovative solutions to our customer. And and we we particularly with one engineering group now, we have a very strong relationship. And on the back of that, I think, will will will take us soon to taking production into North America. We're we're always alert to to m and a opportunities, although none of those are are actively active at this moment.

23:33 And on the glazing side, we're exploring opportunities to develop our trading relationships. And with with one partner, we're we're now looking at a a possible JV to move manufacturing into a low manufacturing economy. The timing hasn't been for that right for that so far, but but those discussions will will be ongoing. So, Adam, why will you take us through the the '22 financial results? Yep. So the '22 financial results echo the narrative that Richard and Adam have given you. So as Richard said, it's been a very poor set of results, but there are some crumbs of comfort we can try to take from it.

24:26 In terms of sales, down about 1,000,000 on last year, but it should be factored in that we had 1,500,000 of sales that we would have made to the Russian market prior to the Ukraine that that obviously wouldn't didn't happen post the invasion by Russia of of Ukraine. So as soon as those factories got mothballed, we we lost that we lost that revenue. So if you adjust for that, there is sales momentum there. Connectors would have been up or the glazing side of the business would have been up and EV sales trebled. And, again, that's despite the loss of the major EV contract. So we have momentum with our other customers as well.

25:16 In terms of gross margin, that fell to 5%, a a terrible result. There is a number of factors in that. Part of that was product margin. The the mix was unfavorable. The first part of the year, in particular, our profitable very profitable BuzzBar and Tungsten sales, which are very late very low labor content, very high automation content. They were down as customers destocked from 2021. I think that was because the market didn't pick up as as as quickly as people want as people anticipated. They wanted to expected the COVID bounce, and the demand was there, but the microchips weren't. So although we don't rely on microchips, our customers do.

26:04 Not as many cars were being built. So we suffered a little bit on that. And then we still had problems with staff production and reliability of material supply. So that was very, very disruptive to staff to production planning, which caused excess freight, excess overtime, excess temporary labor, and we obviously made a conscious decision to make sure our staff were paid the national living wage. And then on top of that, we had the, inflationary pressures from our supply chain as well that are well documented. So that that significantly damaged gross margin over the year. We also suffered on stock write offs.

26:51 Lot of it linked to the loss of the Russian loss of the Russian market. So we're actively seeking a way to reuse and redeploy that stock, but prudence has dictated we we have to make a a provision for it within the accounts. On the the the one thing I should say, half one, half two, half two was showing momentum and improvement. So, internally, we we had been showing, 9% gross margin, before provisions in half one. That had risen to 17% in half two. Sales were a million pounds higher in half two as well. So it was out of the 10.2, so so virtually 60% in the second half versus 40% in the first. So we have momentum, which we've taken into 2023, and gross margin is is over 30% now year to date in, 2023.

27:53 So so things are are moving well on that front. In terms of the overheads, we suffered in 2022, a big increase compared to 2021 prior year. The factors in that, included big rise in energy costs as would be expected. We obviously had big continued investment in the EV side of the business, and it wasn't deemed appropriate with the momentum we had to cut despite the loss of that contract. The staff were redeployed on on making a success of the other pipeline that we've got that Adam was describing. And then as we as we try to get firm foundations to move forward, we picked up significant extra costs from the factory moves that and kit outs that we made to increase automate automation and improve production efficiency and and get quality up as well, reduce our scrap.

28:55 So those invest those programs led by Mark Perrinz obviously came as a cost, but have got benefits going forward for the long for the long term. And then if you want to be truly like for like, obviously, the the overhead is now including a significant cost for operating as a as a PLC, unfortunately. Moving on to the balance sorry. Sorry. So we have adjusted for, obviously, for the the for some of the nonrecurring charges to get to our adjusted EBITDA of 2,200,000 for the for the year when you take out those nonrecurring IPO costs, some of the restructuring and factory move. So so still not good, but but that's that's what we're turning around from in 2023.

29:44 In terms of balance sheet, the we have we've we've continued investing in the business as as Adam was saying. So we did suffer an impairment on an intangible assets from write off some capitalized costs to do with the EV contract, but we've been doing work on inventory management, carried on the capital investment program. We've we're making increased r and d tax credit claims. They've they've been historically too low for a business with 16 patents about to become 17, for the amount of r and d effort that goes into our product. So that that that that's helping. And we've paid down significant amounts of, of trade payables compared to 2021.

30:34 So so cash has gone out the door, but it's it's it's given the business a a firm footing. So we've ended the year with £1,300,000 of cash. The despite the investment program, obviously, unfortunately, a lot of money was burnt on funding the losses that were incurred in 2022 and paying down the payables. But we ended the year with 1,300,000. And if unless there's any burning questions on that moving into the kind of liquidity side of things, we continued our investment program in the first part of twenty twenty three. We closed end of April with around about 300,000. And May, we had neutral cash burn.

31:23 So that that's a a a pretty good step, a milestone. And then with with grants, r and d tax credits, and the improvements in in business, we, we we slow, and, we we slow all the cash burn, and then we're covered by the financing facility that Richard mentioned at the beginning of the invest beginning of the presentation so that we have good liquidity, good visibility going through this year and 2024. And all of these cash flows are being put together excluding the potential for any new grants in 2024. So we're in good shape liquidity wise to carry on our program of investment, keep the business moving forward. Good. Thank you, Adam.

32:12 We'll talk talk a little bit the outlook. Just before I do, Steve Kaye had just going back a bit asked a question, with a large pipeline of opportunities, how do you manage executing these from a sales perspective along with competing with the larger suppliers? And and the answer on that, Steve, is that we we compete with them by outservicing the larger suppliers. As I said, they're very focused on the very high volume contracts and so is is the first thing. So they tend to be ignoring the mid market. Secondly, on they are used to a structure where they provide the cell as a tier one, the cell contact system, but they buy in the flex from another source, we are able to do that as a one stop shop where we provide an integrate an integrated service for that.

33:10 And out of that, we're able to provide a more flexible, more responsive engineered solution. So I think we out service the customers. We provide a a very customized service, and we're we're very, very responsive to them. And our organization and our production facility is tuned for the mid market size of opportunities. So all of those things together, which seems to be working for us. On the outlook, certainly, as we've said, last year was a a transitional year for us. But I think, you know, the positive we take out of it, we came out of it much leaner.

33:55 We've learned a lot, and we've improved a lot. And that's definitely showing through in 2023. So we've been EBITDA positive every month so far this year up to the the flash results in May, which we find in very encouraging. And I hope you you've all seen the the the market expectations put out by our brokers, and we certainly expect to meet those market expectations for the year. We we more more fundamentally, that's putting us on a a a sound footing for growth next year. We've talked about the growth opportunities on both the EV side and on the glazing side. So we we expect significant sales growth next year.

34:48 And and with that and with our ever increasing productivity, we're we expect raising to raise profit margins as well in 2024. So we think we're we're very much on an an upward trajectory. The first of those big and really strategic new EV nominations, we we hope to be able to announce to you in the coming quarter. And as Adam said, our our cash position remains satisfactory. We're we're able to continue to invest in our business and fund it as as we need to do.

35:34 So we have very clear priorities for for for this year. It's it's to deliver these lead customers and lead projects for EV in particular, but also for glazing that will will drive our growth next year and move us strategically forward. It's to continue to improve our capabilities, quality, delivery, productivity in both EV and glazing to to to retain the the support of our customers and grow our margins. And we're hoping to secure new grants. We told you about the two new grants that we've applied for worth 1,300,000 between them. And we've got further asset backed funding to to secure with with the next round of investments into our production facility.

36:28 We we'll be very pleased to to take any more questions any of you may have. And and if not, I'll ask Richard perhaps just to say a few closing words. Yes. Thank thank you, Adam, and also Adam. So in in in summary, certainly a very tough year for our first year as a public limited company, but I hope you can see a a huge amount of work has been done to strategically position us to be in a better place for this year and the years coming forward. We've obviously managed to maintain our investment program, and the we hope there to be some very good news to be announced in the next quarter or so.

37:14 The investor pack that you've been looking at today is available on our website for you to take away. And I think, really, just to say thank you, Adam and Adam, and thanks for tuning in. And I think I can perhaps hand back to Lily now. Thank you. Adam, Richard, Adam, thank you very much for your presentation this afternoon and for responding to the questions throughout the presentation. And, of course, the company will review any further questions submitted today, and we will publish those responses on the investor meet company platform. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of STRIP TINNING HOLDINGS PLC, we'd like to thank you for attending today's presentation.

37:59 Good afternoon to you all.