Strip Tinning Holdings (LSE:STG) — Pre Close Trading Update

0:01 Good morning, ladies and gentlemen, and welcome to the STRIP TINNING HOLDINGS PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I

0:33 would like to submit the following poll. If you could give that your kind attention, I'm sure the company would be most grateful. And then I'd like to hand you over to CEO, Richard Barton. Good morning, sir. Good morning. Good morning, everybody. Thank you for, Zooming with us today and joining our IMC meeting. I'm Richard Barton, the CEO of STRIP TINNING PLC, and I'm joined today by, Adam Levan, our CFO, and Adam Robson, our executive chairman. We'd like to talk to you today about the our results for 2022 as well as our plans for the the coming years and the improvements we've made during the year.

1:21 Thank you, Adam. So the high highlights. 2022 has been a very, very tough year for us, certainly toughest that I I can remember. Automotive has been very difficult. However, in line with our previous guidance, the revenue will show an underlying EBITDA loss of minus 2,200,000. This is also after adjusting for some further one off costs mainly connected to the with the IPO, which is almost exactly one year ago. This, unfortunately, has had a a an impact on our cash position. So we've worked very hard recently, and we have now secured a CID facility, which will provide us with about another 1,500,000 pounds of headroom.

2:10 Operationally, we continue to manufacture and ship samples and invest in our new EV production cell. This includes some clean rooms, which are being built as we speak. This should be ready in the spring, even at the end of March, and will give us a capacity of about quarter of a million parts per annum, which should generate around £6,000,000 worth of revenue. In glazing, we pushed through two significant rounds of price increases, one June last year and then one again in December. These are now all signed and sealed. And the between the two increases, this is averaged out at about a 40% overall increase.

2:59 The customers have accepted this. I'm not saying they're particularly happy, but they've accepted it and have I think just realized it's the way of the world at the moment. Consequently, underlying gross margins have been improving steadily through 2022 and will improve considerably more in 2023. The outlook. So the improvements we've made have certainly made us some given us a much more robust platform for growth. We expect EBITDA this year to be much better and certainly much better in 2020 form and breakeven this year. Our cash position is okay. We've signed a new CID facility. And despite the headwinds we faced, we do continue to invest in both EV and glazing.

3:50 We are receiving new nominations from our glazing customers. Our sales director is on a sort of worldwide tour at the moment, seeing all our glazing and EV accounts, and I'm sure further nominations will be coming through before the end of this year. So next next slide, please. So we feel that we feel the market outlook is broadly positive. In EV, we we we're getting consistently three or four new inquiries a week for all sorts of different applications, some for scooters, some for bikes, some cars, small volumes, high volumes, and also trucks. And the customers really are trying to develop a new European source. There there are suppliers in China. There are suppliers in Korea, but the market is huge, and we have to find the right partners to work within Europe.

4:41 Already, over 30% of all our sales are into electric and hybrid vehicles. That's both for glazing and obviously for EV.

4:50 So that's very interesting because we're we're already ahead of the proportionally where where where we should be, so it's very encouraging for us for the future. In glazing, shortly after the IPO of last year, the Russians invaded Ukraine. We did have three large customers in Russia. There's no sign of this business coming back. That has hit us. That was a loss of about £1,500,000,000 of the turnover. There is still considerable uncertainty in the market. We've been trying to be very prudent with our forecast for 2023. We think the supply chain is improving. Certainly, chip gate, which is caused big reductions in car volume manufacturing. We think Chipgate is coming to an end and probably will show some upturn in quarter three and quarter four of this year.

5:41 However, there are still some long lead times for some parts, and I think it's quite likely that it could be further inflation. We've reorganized the business during 2022 and have now put our EV production and our glazing production into different buildings. The new clean rooms are being built now. We've spent getting off of £2,000,000 on new equipment, and this should all be ready by the end of March. So it's a tough year, but I think it's made us focus on things that perhaps we wouldn't have even looked at had we not been under such pressure. I certainly feel I certainly feel in a much happier place now than I did six months ago because the improvements and the changes we've made during the year are now starting to come through. We've had flash results of our January figures, and they're certainly very encouraging getting us back into an EBITDA profit position.

6:40 Thank you. Okay. This this is Adam Ross speaking, the the executive chairman. One of the things we focused on this year getting our EV strategy right. And Jake Dee, thank you. You asked a couple of very pertinent questions in in this area. We'll we'll we'll try to address it here. We've segmented the market into three segments. The mid market on the left on this slide, which tends to be smaller, lower volume, slightly lower volume applications from specialist vehicle manufacturers. We already have five production nominations in that area. We're shipping parts to those. Those are all for electric sports cars in in different shapes and forms.

7:40 So they're, you know, specialist vehicles, perhaps 300 off, but they they you know, they're good. They they bring in some revenue for us, and they certainly allowing us to develop our capabilities. What we're targeting is the next raise, the sort of 1 to £3,000,000 per annum sales opportunities. We have a number of them in the pipeline where we're we're supplying samples, and and we hope to to get some first nominations this year. The the vehicle you see there illustrated is the Amazon Zoox vehicle, and that that is exactly, you know, the the type of vehicle that we're targeting.

8:34 And and, you know, one of the attractive things about that Amazon vehicle is that it's a very financially well backed program and with its own customer, which makes it much less risky than some of the other new EV, new entrants we've seen in the marketplace like Arrival, which have certainly caused problems. And and that would certainly be one of the lessons learned from the the track wise problems. What what you see on the extreme right is the very high volume applications and new vehicle platforms which are going to the the skateboard bike type design design with a single very large battery pack in the floor plan of the vehicle.

9:25 And those vehicles are looking for very long flex, sort of 1.5 to 2.5 meters long for that single large battery flex, that typically does need reel to reel manufacturing. And that is the market that, track wise, have been developing and which the other very large electronic suppliers are targeting. Typical value of those contracts is maybe 20 to €30,000,000 per annum. We regard those as too big a step for us at the moment, and we're not targeting them. And, again, Jake, you asked about that difference between us and track wise. Track wise has been exclusively focusing on that right hand segment. I think that's so where do we see ourselves as different? We see ourselves as different because we're starting on that left hand side, which for a a a new entrance is a sensible start point.

10:23 We also think that based on our success in that segment, we'll increasingly grow ourselves in the mid market, midsection, which is the middle of the three segments, which are still slightly smaller flex typically of applications like truck, which will have multiple battery packs within a single vehicle. And And so that's well within our production capabilities. And the and the contracts may be a little smaller, perhaps typically £10,000,000 per annum. So we see ourselves progressing from the left, first mid market, probably getting real traction this year, moving in the next year or two into the the the volume central segment, that's the beginning of volume automotive, and then with that's proven in that, entering into the very high volume market.

11:15 So that's the strategy we we've been setting out. And and, Jake, you also asked a question about the lessons learned from the loss of the that our lead EV customer last year. What the the lessons we learned are that that was in that middle segment. And a year ago, we had no proven production line. And I think that customer just saw us as a very high risk choice at that time. The steps we've taken to so far are, firstly, to put our greater focus on the left hand mid market as a more logical entry point for us to really win our spurs. And secondly, we've spent in the last year a lot of time and a lot of money to put in place the full EV production line that Rich talked about on the previous slide, which will be ready in March.

12:11 So compared to a year ago, the customers making purchasing decisions now can come and visit the line on which their parts will be manufactured. We've got enough capacity to make those mid market products. And so we think we're we're in a very different position, and and customers will have a very different perception of us than they would have done a year ago. So this strategy we've got of market market focus and investment in our production capabilities is what else makes us confident that we're gonna make real progress in the EV segment in this coming year. In in general, in the EV segment, good progress has been made. We had sales of 1,100,000 last year. That's both some production segments, as I said production parts, as I said, plus samples.

13:11 We see the coming year being similar, probably just a little bit stronger. We certainly just received one very large order for a whole set of samples for for one of our active programs. We also got the Serve grant, which we announced last year. That's worth £1,400,000 to us. That's going well and is being largely used or used to pay for the new production line. So that's been exceedingly beneficial from a cash perspective. The total spend on that production line now is 1,600,000. We've spent more money in the past. So in total, we have over £2,000,000 invested in that that capability.

13:57 And we've increased the capacity now up to around 220,000 units per annum, which probably gives us a revenue capacity of something around €5,000,000 just on the flex. We that will be up and running in March, and we hope later in probably May in the time frame of our result full of results announcements for this year to hold an investor day where people can come and see that new facility in production. Recruitment has progressed well into plans. We've got a a new engineering manager to be appointed, and that will complete our our senior team, which we're now we've been very pleased both over the glazing and the EV business with the team we've pulled together.

14:51 And they're one of the the foundations which is driving the ever improving production and capabilities within the business. And as I said earlier, we have a couple of good sales prospects for this year. We've got two nominations in particular that we're targeting for for the summer of twenty twenty three, obviously, highly dependent on on how the engineering development of those programs. I put a note at the bottom about our update on on the the loss loss of of that that lead EV customer that we discussed earlier that Jake asked about. Obviously, we're we're in a sensitive phase with them. We're we're negotiating a settlement agreement with them.

15:39 But But we we think think we'll we'll we'll reach a satisfactory point on that.

15:48 Adam, would you like to take over and discuss the the glazing progress? So on the glazing side of the business, as Richard said in his introduction, we've been through two rounds of price increases with customers. First one, July last year, we put through around about 8% across all of the glazing products. But shortly after that, we realized with the ongoing price inflation that it was not possible to make money on the connectors at that level of of price increase. So as of January 1, the average increase across our connector biz glazing connector business has been up by 30%. That that's an average. Some have been much higher than that.

16:34 Some have some have been a little bit lower to keep hold of them to to maintain the customer relationships. So that's been a tricky that's been a tricky process to go through. The customers have been relatively accepting, but we've been very, very brutal with them in terms of if you can't accept these price rises, you will need to resource. And on that basis, we are expecting to lose around 40% of our volume in 2023 on connectors, albeit revenue will be close to flat because of the because of the price rises. And on that basis, the gross margins increased very materially. So we we get up from the kind of 17% that we exited 2022 on, up towards 30% across '23.

17:31 And then with the full year impact, 40% targeted in 2024. Overheads, we've been reducing. That's all all been by working a little bit smarter, combining roles. So we've we've lost some people actively and not replaced others. But, obviously, we've needed to keep the overhead intact to a degree to support the growth in EV. But the big improvements that we've been seeing and that have been coming through in the January results that, again, that Richard mentioned are from improvements in productivity, which is a combination of big reductions in direct labor. We we've trimmed 60 heads during q q four and automation.

18:21 And we've we've ended the night shift by improving the capacity and throughput. So that's not any that's not a volume impact at this

18:27 stage. That that's purely the productivity improvements that we've been working on over 2023. So our closing customer relationships actually, despite the price rises, remain positive, we will we will see growth restart later in the year. We're already being asked to quote on new products and new nominations.

18:54 So in terms of resilience within the glazing business as well, we've we've strengthened the team and how it works and and the accountability and reporting structure. We've developed a second lower cost source of supply of copper and taken all of the slicing slicing operations in house, which has lowered cost quite substantially, £3.50 per kilo on on copper. All of as you saw from the pictures involved in our in our factory cell layer in our factory relay out, all the assembly operations are now reorganized into cells, and that's improving the the quality and the process flow. That's what's that's what's driven the the direct labor headcount reductions down from a 169 to a 109.

19:40 That will improve further, in fact, during March. And our quality performance is at a record high with our customers and shipping costs have halved as we were planning better on production. And we've also had very strong performance in all of our health and safety and quality audits. Again, they're they're critical that that some of the quality accreditations that we hold, IATF, which really mark us out in this market without background in volume automotive supply, which is a differentiator against, say, someone like like Trackwise who who haven't served towards Motiv previously. In terms of CID, facility, we, had a bit of a competitive tender, to to source a CID provider who could cope without almost 100% export concentration.

20:39 We've we've got up to £3,000,000 facility, which allows for the growth that we anticipate in 2024. We've it's a twenty four month twenty four in fact thirty month with notice period facility that we've got. We've got we're getting a 75% advance rate, which may be increased 85%, depending on on performance and and comfort that, that Protrura get. And, basically, we're we are covered, over the the whole world in in in reality. So we have some key covenant tests to to to follow with them, but they're they're all they're all in hand. We're comfortable with those at this point in time. And and probably worth worth adding in in response to one of those questions that we are now with this facility in place and with the prospect for the year of a breakeven EBITDA, we're comfortable that we're getting to a a cash breakeven position for this year and and not expecting to need to return to the market for funding for just pure working capital basis.

21:55 Although, of course, if we do are successful in in major new nominations, we will need further funding for increases in capacity and the whole growth strategy of the business. The the the other task as executive chairman that I've been focusing on is developing our our relationships with potential partners in in all shapes and forms. We spent a lot of time getting out, meeting other people in the industry, people we could work with as as development partners, technical partners, and as production relationships, as co marketing partners, and even as as potential acquisitions.

22:48 We have seen in the glazing sector some consolidation this year in response to one of the questions, which has come about because for connectors, we previously had two main competitors in Germany, FEW and MEGtech, both referenced in the admissions document. MecTech have pretty much with we are told withdrawn from this market. Our our customers tell us that they are no longer quoting for business because they're devoting a 100% of their attention to the emerging EV opportunities for them, which are very significant. MEG Tech is a very large German industrial group.

23:39 This has meant that our customers have been very concerned to see us remain in the industry. And one of the encouraging factors, and again, in answer to one of the questions from Michael D, that we saw is that whilst we have lost volumes, we are losing volumes this year from the price increases we put through, our relationships with those customers customers remain strong. They're keen to see us remain a a customer to that. We already have RFQs beginning to flow into the business again. And we remain confident that we can expand and grow our glazing business. The the the sum of these partnership opportunities is that we do think it's important to have partners.

24:34 We want to work with others cooperatively to you know, the the the market opportunity is very large, and we are relatively small. So it's advantageous to work with partners. We have nothing absolute and imminent in the pipeline. I would like to suggest that to anyone, but we're alert, working on developing relationships with with a with a broad range of different players on both the glazing side and the EV side. Just just to finishing questions, not directly related to that, but involved with partners, there was a question from one of you about grants. Do we see other grants in the pipeline? We are working on one other significant grant with one of our technology partners, which should be a grant to develop next generation technologies, but we have not that is being worked on, but we don't we we do not have it yet.

25:37 And we're we're always alert to to further further funding opportunities. The the British government is very keen to support people, particularly in in the electric vehicle segment where we're very active. And and we are you know, we'll we'll look to get further grants in in the future. So in summary, you know, then looking backwards in the rearview mirror, it's a year we're glad to see behind us. It was exceedingly painful due to all the external headwinds with which I'm I know you're you're familiar. And, you know, the the good news is we've come out of it a much stronger business, much leaner, much improved internally in the way we operate.

26:28 And we're encouraged, as Richard said, by our January 1 results and our budget for this year with with a with a good outlook, and and and we expect to see much more progress in '24 with both sales growth and profitability growth. So we actually, as a management team, come come into into this year feeling surprisingly buoyant with a very positive view of the year ahead. And that's that's, if as much as anything, being based on the quality of our customer relationships, the the the strength of those relationships which has survived all the the the challenges of the last year, and on the fact that we managed to maintain the investment in the business and, and, in particular, on the EV side that we have this new production facility up and running. In fact, I think probably some of you on this call could hear some of the construction work that I got in the background.

27:33 The outlook for 2023, '24, as we said, is a return to positive EBITDA in '23 with further growth in in in in significant growth in in '24. We're targeting our first significant production EV nominations for the summer of twenty three, and our cash position, we think, is satisfactory for the year ahead. So So our clear priorities for '23 is particularly a focus on winning those new customer projects in EV in particular, but we expect significant ones in glazing too. We we definitely have a two pronged strategy to maintain and grow glazing as a good cash generator for the business whilst in whilst investing in the the higher growth EV market.

28:31 We're We're continuing to improve on our capabilities, our quality, our delivery, our productivity in both EV and glazing. We've got good momentum there, but but much more to do. And we we look all the time at enhancing our capabilities with partners to help us accelerate our growth. So thank you very much, all of you, for taking the time to listen to us today. I I hope and I think we've answered all your questions, that we can answer, and, thank you for joining us. Adam, Richard, Adam, that's Graham. Thank you very much for your presentation and for answering all of those questions that came in from investors this morning. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended for you to review to then add any additional responses, of course, where it's appropriate to do so.

29:29 Adam, perhaps before redirecting those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, I could please just ask you for a few closing comments to wrap up with, that'd be great. Yes. Thank you. So so the the the summary is it's been a very difficult year for us, come through it stronger. And we we go into the coming year with a a good degree of optimism, with the wind in our sails, with good support from our customers, and a belief that we have a lot more to to take the company forward and hopefully recover the the the share price deficit that that many of you who are existing investors have suffered and and take the company back to where we we first thought it could be a year ago before August to the day President Putin launched his his tanks into the Ukraine.

30:36 Adam, Richard, Adam, that's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of STRIP TINNING HOLDINGS PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.