Strip Tinning Holdings (LSE:STG) — Full Year Results

0:00 Good afternoon, and welcome to the STRIP TINNING HOLDINGS PLC Full Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time using 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 or receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll. And I

0:31 would now like to hand you over to Executive Chairman, Adam Robson. Good afternoon to you. Good afternoon, everyone. Thank you very much for joining us in good numbers. We're very pleased to talk to you today. We're here to tell you about our 2023 results and also give you an outlook for the business. Our results are, as we indicated in January, good progress on sales and EBITDA, we'll go into more details on that, good progress on cash. And I think for me, the most important metric in the business is that our gross margins in the glazing division, which as you know, is the core cash generator for the business, improves from 3.6% to 28.7% in the year. And that was a run rate improvement actually exited 2023 at a higher rate.

1:30 And we look like we're reaching 40% in 2024, which is our target rate. And that returns the glazing division to being the profitable cash generator that we've expected to be. And you'll also hear it's also a high growth part of the business with the significant new wins we have. So close to year end, we had two important events. One was the fundraise, which again we were delighted with and pleased with the response again from some of you. Raised £5,000,000 gross to to invest in the the further developments of the battery technologies division. And on the glazing side, in the last month, we've announced two major PDLC wins, which we'll again talk much more about with a total lifetime sales value of $18,600,000,000 And that further such wins in our pipeline.

2:34 So our outlook for this year is very positive. We've now increased the lifetime sales value of all our nominated business to EUR 53,000,000, which is a substantial improvement of where we were at the start of the year. And we expect a further major battery technologies nomination. Still we've been forecasting it for the first half of this year and we continue to maintain that guidance. And we'll talk to you a lot more about that. There was a question from one of you pre submitted with Window. Would this change to lead to any change in our guidance?

3:20 It's first worth making the point that it's not our guidance. It's SIGNAT who would decide if they did make any change to their guidance. But what I would say for this point is with the wins we have and that were expected, they that will take us firmly to be able to meet the market expectations set by STGRs. But I don't expect that immediately they would be changing their guidance. One of the things we wanted to do today was just talk to you about an organization change that we've announced. And the key organization there is that Mark Carrians is, as of the June 1, takes the role of group CEO. And I'm delighted that Mark joins us today, and I'll let him introduce himself briefly.

4:20 The Mark has been the managing director for the last two years. He's been absolutely forefront of transforming the business operationally and having driven those two large set PDLC

4:35 sales wins. And so this is a succession planning exercise that we've had in mind for some time. We now think Mark is ready to take on the full leadership of the group. And to facilitate that, Richard Barton, as you know, has led the company for many years, will be stepping to the role of Deputy Chair. So that will be a non executive on the role role on the Board, although I'm sure he will remain very influential in us in sharing his wisdom and insight on our sales focus and our sales execution, which is where his track record of the success has been with the business.

5:20 Obviously, no change in my role and no change of that of Adam LeBan, our CFO. Just let me let Mark introduce himself now. Hello. I joined STGPTLIN in in March 2022, so just the the month after the IPO. I have a a career in automotive tier ones just in time, just in sequence with plastic aluminum, with LIA, with COITO. I grew up in a Toyota group company, so learned in the manufacturing. I held various roles within this business, European quality director, cluster chromium, various ops roles, plant director roles, which is very useful for knowing what good looks like in terms of bringing that to to STRIP TINNING. So nice to meet us. And then Richard, anything you want to say? No. Just as Adam mentioned, this has been part of the

6:14 strategy and the evolution of the company and the board. I'm delighted Mark has joined us. He's taken over the the engineering, the day to day management and the the manufacturing side, things that I wasn't especially good at. But certainly, you know, now it gives me much more time to concentrate on the strategy, particularly in developing more of the PDLC business and strengthening the contracts and the customer relationships. So I think now a very strong team that is has all the skill sets we need to move forward. Thank you. So what we'll do now is hand over to Adam Levant who will We got one extra slide. Sorry. Yes. You, Adam. The other thing we were just announcing, which doesn't reflect any change in strategy, but just a clarification, we've renamed what we were calling the EV side of the business to battery technology. So there's two reasons for that. One one is that EV is very important to the glazing side of the business. About 40% of all our glazing sales go onto EV platforms.

7:27 And so so it's sort of with some clarity needed there. And then on the battery technology side, whilst we do work on what people think of EVs, which is typically cars, we also work on trucks and off road vehicles and even non vehicles at all like static storage. And so I thought it was important to reflect that broader market focus for our battery technologies activities. So from now on, we will refer to them as the battery technologies division and the glazing divisions. Adam, the 2023 results. Okay. So picking out the highlights as we see them.

8:13 Sales have increased by 6%, partly driven by the price rises we put through in at the beginning of twenty twenty three. But yes, good growth for the business. And the main point is the recovering gross margin. So we've had a £2,800,000 swing on the gross margin and that's restored the gross margin percent to 31%. And the average selling price is up, productivity up with the number of production heads reduced. And most pleasing well, we've got a gross margin bridge. What that's resulted in is EBITDA for the trading business at 800,000 and on a consolidated basis for the group with the PLC costs in line with market guidance at just under 100,000 The overall loss for the year, again, of £4,100,000 swing. So the business is back. In terms of the cash flow, we have started generating cash at operational level again compared to prior year.

9:28 And that was at £1,700,000 before the PLC cost, so $1,000,000 coming into the business. We continued the investment into battery technologies. So $1,650,000 has been spent on predominantly on new capital equipment for that division. And actually, at this stage, we actually repaid more debt than we took on during 2023. And although we were utilizing our invoice discounting facility working capital facility at the year end, We that's now currently undrawn post fundraise in January. In terms of balance sheet,

10:09 I think the key point on the balance sheet is around the working capital. We've reduced the stock by $600,000 and we're intending to get that reduced further, a target to get below $1,000,000 and that's proactive management, better control of the supply chain, better ordering from our new SAP B1 system and the ERP system. Debtors, despite the high sales are lower again. We're pulling our cash investment. We have a good process for that, for collecting that. And the only issue we've got to work on a little bit more now is actually on the trade creditor side. During 2022, we had built up quite a few creditors, and we've had to pay down non production suppliers.

11:01 It's swung a little bit. The pendulum swung a little bit too far the other way. We'll boost creditors up again. But as part of the material price improvements that we've been generating, The we've ended up with some suppliers on worse payment terms, but we're in the process of negotiating better ones over 2024. Okay, next. So one of the really good things one of the things I'm most pleased about on the gross margin improvement is that it's been across all areas of the cost of goods sold. So obviously, the sales were up, material prices down and shipping also down, all through management actions contributing to that. So for instance, on the shipping side, we're getting alternatives to DHL, who've been our preferred supplier before on certain routes, but also the operational improvements that Mark Perrin has put in has meant we have we're able to use scheduled freight services a lot more than we were in 2022.

12:10 That's all moved in the right direction. And then the one that I'd really pick out that I'm pleased with is labor. So there's all the cell layouts I'm stealing marks under really, but all of the cell layout changes and factory reorganizations he's put in place have reduced headcount substantially. And that will continue as well through 2024. So we'll see further improvement on that on sales per head and productivity due to some automation and the final implementation of a single piece flow methodology that he's brought to us that will also improve quality as well. Adjusted EBITDA, we talked about that on the opening slide.

12:56 So the one thing that I will just draw out for you is within those numbers, the static count presentation, there is grant income included. That will not we have some grant income in 2024, and we're actively being encouraged to apply further grants, but we expect that to be greatly reduced within the 2024 financial year. So we won't have the benefit of that. And then you can also see on the engineering staffing costs bar that's a negative, but that's obviously a reflection of the increased headcount and investment we've put into developing the battery technologies business. And although that will continue, we will have to continue to increase that to meet the demand we're seeing for the pipeline that we've got. Obviously, that will cap at some stage in the not too distant future. And then we'll be leveraging that as the sales grow and that investment by me to continue to be made.

13:55 And then on net debt, this does include our lease liabilities as well. Click this bar, not just bank debt. We have moved from $1,400,000 at 2022 year end to 2,500,000 at 2023 end. And the majority of that has been the cash burn. As I said, the debt itself hasn't really moved, but the cash burn that we had, we generated cash, but then deployed it on capital

14:25 assets. That's increased it. Post fundraise, we were at $1,600,000 net cash rather than debt. So yes, we're obviously in a good place following that fundraise.

14:43 Good. Thank you. Now I'll go on to the business update. I just had a few questions come in for Nicholas. Let me just address those quickly. Nicholas, one thing you asked about the hyperinflation environment and how well placed we are to to deal with that. I think the last two observations on that. One is that the la that recovery from 2022 and us getting the gross margins back up to towards 40% this year is a demonstration of our ability to respond to significant inflationary pressures. And also we have learned some lessons. We are now very strict in our contracts on materials inflation in ensuring we have materials inflated clauses now in all our contracts.

15:37 Nicholas, you also asked about the possibility of a future fundraise. I can't really go into that except to say clearly, there are no plans today for any further fundraise. And then lastly, you asked us how confident we are in the EV division and that's exactly what we'd like to come on to next. And Mark is going to take you through and answer exactly that question. Okay. So yes, on our battery technologies now we won a grant last year. We conducted a study with FEV Consulting. So FEV, a large German consulting group, and a half thousand employees, 750,000,000, have a lot of know how in in batteries, in e powertrains.

16:31 So this study covered many aspects from our competitors, addressable markets, technologies. It involved battery teardowns, involved expert interviews with competitors, with suppliers. The slide I wanna talk to you about here today is about the addressable market. So we've, together with FEV, narrowly defined our addressable market to not volume automotive, so off highway, electric motorbikes, static battery storage, autonomous taxis. Not the volume automotive. We do have some hypercars and clients that we're talking to. Quite a niche focus for which we found that there are really only two competitors.

17:19 So our specialists and listeners to be agile and focus on those niches. Do you see on the graph, we have the European market for CCS or cell contacting system product that we make and The U. S. Market on the right. Europe being bigger, of course, at this stage. We're looking to take 15% of the market share by 2025, which is around $11,500,000 And with pipeline and where the advanced stages we're at with some of our customers, we believe that to be quite achievable. And I'll come on to talk a little bit more on the next slide about our pipeline and where we are. The other thing the study did was identified 19 battery pack assemblies.

18:08 Some of those we know, we already have inquiries or have supplied sample parts to and others renew that we're reaching out to. Okay. So in this chart here, when we last provided an update, there was 12 inquiries. Two of those have dropped out, which is in red to talk a little bit more about, and three new ones that have come in, the green ones. So we've got 13 active programs. Some are in production, some quite stay in some ways. We supplied sample parts for our supplier. I won't go through them all, but the the ones to really focus on is number one in terms of that program reference, which is an off highway vehicle.

18:57 We're in running for that. There's there's three players in that in that race. We expect to to know where we are in in h one of this year. And then reference program reference four. So this is the autonomous taxi. We've been working for quite some time on this. We've supplied in the thousands of samples, many design iterations. We've worked with the client. The clients sent their quality auditors in. They've audited us. We passed that audit very convincingly. We're approved on their global supply list. We've also done a lot of contract negotiations. So we're very confident on that nomination. And in our numbers, we're modeling to win one of those two projects, reference one or reference four. And again, we should know that within H1 of this year.

19:57 The ones in red that are drop type were really where we chose to prioritize our resources on other programs with better capabilities. So these are sort of university spin outs and start up businesses where it may take a very long time to get anywhere in all honesty. So we're focused on some of the bigger projects. Good. Thank you, Mark. What we'll do now is hand over to Richard, who will give us an update on development sales developments in the glazing division.

20:32 Thank you. Thank you, everybody. So very pleased to talk about the glazing market and generally the outlook in the market is positive. We know vehicle manufacturing volumes in Europe are really remaining steady. We think there may be about a 4% growth this year. But we're seeing a much, much higher growth in technology for glazing connectors really being driven by this new smart glass product. If we could just flip to the next page. Thank you. Sorry. That's a that's a much better picture. So this is this is this is smart glass. This is the the two big wins that we've reported recently in our in our two RNSs.

21:20 You you can see the the roof in the car. This is actually the BMW iX. There's there's a trend for more and more vehicles now to have entirely glass roofs. The the trouble is when the sun comes out, the car gets very hot. You can have a blind, but if you have a blind, there's the cost of the blind. The actual roof itself has to be about 50 millimeters thicker. And, of course, when the blind is shut, you have no light into the vehicle.

21:48 You can't, as with the Tesla Model three, an entirely glass roof, but they are tinted. So, again, it doesn't let much light into the vehicle. The PDLC roof as featured here, when when it's either completely clear, so you're in a it's a nice space to be even which is really light, and it's just a nice place to be. When the sun is out, you can push the button and it becomes opaque. And that's a bit like a net curtain. It still lets in lots of light, but it cuts out the EVs and it starts the vehicle getting hot. So we have and I've been banking on about this since the IPO, but we have been had this product in production for two years on the BMW iX. We were the first to market with the product, so there are probably now three or half well, three or 400,000 BMW iXs on the road.

22:42 The connector itself is is as pictured there at the bottom left, albeit this connector is actually about a meter long or a meter and a half long. The technology itself not really much different from connectors we've been making for a number of years. This connector has some flexible printed circuit technology within it, but the the best thing is that the unit price is is more like €25 per part. And you some of you who have been following us for a couple of years may know that the traditional automotive connectors we've been making really since time began, really EUR 1, EUR 2 or 3 each. So we found here a niche high volume. We refer to the market and an absolutely cracking price and a 38% margin on the product.

23:36 The two recent wins have been from two two out of the three largest Glazers, existing customers of ours. And it's interesting that these are now for not not particularly for high end vehicles. I mean, the BMW iX is a 100,000 pound car, but the new wins we have are really now filtering down to the sort of more mediocre and cheaper vehicles. We're talking about Renault, we're talking about the BMW C Class. So we're very pleased that quickly this product is spreading right across the car range. European producers are awful lot of electric vehicles come to Europe now from China, incredibly cheap prices and actually very, very good cars.

24:24 And the way Europe is combating this is to load their cars up, Mercedes particularly load their cars up with lots of add ons, lots of added value extras, the PDLC roof being one of these. So we're seeing a big driver. And the estimates from our existing customers for this product are that by 2028, we think there will be 5,000,000 cars produced per year with PLC roofs. As I said, we were there first. We are the favorite supplier from two of the three producers in Europe. Indeed, we have inquiries from the third supplier. We do have competition.

25:12 This company we have talked to you about previously, FEW in Germany, a very good automotive supplier that they've been in the market, pitched up against us for a number of years.

25:24 They don't have their own flexible printed circuit manufacturing in Europe. And we're our customers have certainly told us it's key to them that this product is manufactured within Europe. They don't want this product to be imported from the Far East or even parts of it. So we're extremely well placed. We have further inquiries from the two customers who have given us the recent nominations. We have further inquiries from the same two customers for a further GBP 20,000,000 of the business, which we will be quoting on over the coming weeks. As I said, we anticipate this market becoming probably GBP 80,000,000 a year by 2028.

26:17 With our position and with our determination, we certainly are going to concentrate heavily on this product. It isn't something particularly new to us with the incumbent supplier. We have samples and prototypes going to one of our customers in America. All the innovation on automotive product starts in Europe is closely followed by America. So we're pleased that we have some prototypes going to America to a glazing company who we already deal with. We have a sales team in South America and North America at the moment who have 17 appointments with glazing companies that we already work with, really spreading the word about PDLC as we believe they will be coming on stream following Europe maybe a year or two later. So now is the time to get out there to see them to be discussing this. But this is something we promised at IPO. It's taken a while to come around. But as you know, with automotive, once we get the order, we have the order for the lifetime of the vehicle.

27:22 So it's kind of guaranteed work for five or seven years. I'm very excited about it. It's it's a it's a it's a big win for us, and we're very progress we've And very some of your questions we've around gross margins and pricing and so on in that as well. Okay. Thank you, Adam. So here we just have some of the key topics of where we've been working so we can prove safety. Safety is always top of our priorities. Customer service, we've made a lot of improvements in terms of our delivery performance, our on time in full and reducing quality incidents.

28:10 We've been very busy certainly this year with customer audits. We've had four customer audits this year and we had a number of them last year as well as our external certification bodies. And those all installed on very well with the past with some good compliments. We're working to strengthen the organization. So in terms of people, I brought in a new chief technology officer who spent the last eight years in China and Vietnam working with Tata Technologies and working on many Chinese EV vehicles, so he knows the the EV and battery space very well. I'm also a supply chain director, thirty years in automotive.

28:57 And really this kind of links into the question there from Lacey on the breakdown of gross margin. So we have worked on a number of areas. So Adam already talked earlier in the financials about gross margin improvement. You can see it there in the productivity item. But also working capital, you can see inventory reduced. This new supply chain director has been able to bring in a new ERP system. It's helped us with our scheduling and our inventory control. So in terms of, again, productivity there, you see the the sales per direct head has improved between 2022 and '23. So it's it's labor.

29:46 It's it's shipping. It's inventory. There's a number of items, scrapping. Scrap is also scrap are being done too on the next slide. Thank you, Adam. Yes. So in terms of 2024, 2025, those are our main priorities. We've talked about some of the new wins we've had for PDLC, glass. It's very important that we deliver those to our customers in a in a smooth way. So we're we've got key focus on our project management organization. We will continue with the automation. So we've delivered some automation projects. We have some that we're still working on, and we have ones identified for the future. Single piece flow, this is where we're we're no longer batch and flow in terms of our production, so it's more lean.

30:38 There's not in money tied up in inventory cash. There's also not quality problems hiding in batch production. And and STRIP production is another area where there's more work for us to do to help improve gross margin going forward. In terms of '26 and beyond, so we'll continue with that automation, as I mentioned. Digital transformation, our clients certainly are interested in far more traceability and data related to production. And our growth will potentially mean some expansions. So we're reviewing our footprint and so that's decided by client choices on design, but that's understudy at the moment.

31:25 The FEV study that I mentioned to you previously certainly supports a business case for investment. It shows us in a clear market. We're in a good position to exploit that. With that, we'll be some some expansion in our footprint. We're also working in a consortium towards another grant for some innovation on some different products around the battery technologies division that potentially could bring higher margins than the current ones. In terms of the other question, there was a question from Nicholas about price increases, how much could we leverage further price increases with our customers. We don't feel at the moment that we could.

32:12 When we had a sort of hyperinflation environment, our customers were very supportive with us when we went to them with price increases. That has calmed down and we are in contracted long term business with contracted prices. Of course, if that macroeconomic situation changes drastically, we may go back. But in our current view is that no, we wouldn't look to leverage our customers with further increases. Okay. I've seen another question here from Colin. Following the price increase in your pricing products, how has the market responded in terms of sales volume and customer retention? So we did know at the time of those price increases that there was a potential to lose some customers.

33:03 And that has been the case. 2024, we have some business that's dropped out. Some of we chose to remove because it just wasn't at the right profitability level. So we're far more focused on which products we're targeting. And of course, we're now building, as Richard spoke about, the PDLC, the kind of products that we have dropped out of the much lower selling price, lower margin, sort of backlight business, for example, for your rear screen. We're focusing the higher tech PDLC roofs segmented where you can vary how opaque. You can have passengers in the rear, passengers in the front with different levels of of shading, far more technology. The client's far more interested in in a partner that can help develop the design with them, and therefore, it's it's a more attractive product for us in terms of margin.

33:58 Good. Thank you, everyone. Just to sort of wrap up then, so 2023 was a turnaround year for us. We've laid the foundations for a return to profitable growth for the business. We see, as we've talked to you today, very significant growth opportunities in the glazing side, particularly related to that emerging PDLC market for smart glass connectors and on the battery technology side where we've already got a good pipeline. And based on the market research done for us by by FEV, a strong sense of a lot of new battery pack assemblers in in in Europe and North America that we can and are beginning to form relationships with.

34:53 Trading this year has been good so far, in line with expectations. And our guidance for the full year remains unchanged. Or Cigna's guidance, we think, is solid. The one thing we're seeing though is anticipating that perhaps there's even faster growth and more growth opportunities ahead of us than we might have imagined. And that may lead us to pull in faster some of the increases in overheads that we were expecting next year into this year in order to be able to really address and secure as much of these emerging markets as we can. So our priorities for 2024 are secure these next nominations, most importantly, our first major battery technologies wins. As you know, we're in production with three programs already, but these would be much higher value wins.

35:55 We want to we have to build up our team with lot of new people to recruit. I noticed that there was one column for a question from Nicholas about that. How is retention of people and the answer to that is we're retaining our people well. They're very motivated and excited by the progress. But it still remains a relatively tough market for recruiting new people. And then our last thing is we're hoping to get some more grants. That FEV study we had done was funded by a grant, and we're hoping that that's a signal that funders are interested to provide further funding to us in the future.

36:46 What we'll do now is just go through and try and respond to any questions we haven't asked. Ken Lee has asked about opportunities or threats from China. Certainly, they're real. They're different on the two sides of the business. On the glazing side, I think at the lower end of the market, there's increasing competition from China. But that's the part of the market we have never been focused on and are not focusing on now. Conversely, say that PDLC market is essentially we haven't yet encountered any competition from China. Our customers are looking for Eurosupply on the one side, as Richard talked earlier, and they're looking for a good engineering partnership as this technology emerges and we're very able to provide that.

37:42 On the battery technology side, whilst there is both threats and opportunities very much in the volume automotive side because of our focus on the mid market, that focus is much less. And again, our customers are coming to us because of our engineering capability and responsiveness. We're working in highly iterative design programs with them. And I think that gives us a strong protection from lower cost economies. I think there was another question earlier about sort of what we would be looking at emerging markets and new markets.

38:31 And I think that that was from Marcus. The answer is probably not to a great extent. We have such a wealth of opportunity in Europe and in North America that for the time being, I don't think we stretch our resources to more widely than that. And with that, I think we've answered all the questions. That's great. Adam, if I may just jump in there. And thank you for addressing those questions for investors today. And, of course, the company can review all questions submitted today, and we will publish those responses on the investment company platform.

39:19 But before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Adam, can I please ask you for a few closing comments? Well, first, thank you all very much for joining us. We're very pleased by your presence and indeed the growing number of people who are following us. And we're pleased with our progress so far. You know, Cigna's in their latest notes and us described us being at a growth inflection point. And I think that's a very good description of where we are, and we're very excited with all the challenges Mark has going ahead. So thank you, everyone. Great, Adam, Richard, Mark, Adam. Thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations?

40:14 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, and good afternoon to you all.