Strip Tinning Holdings (LSE:STG) — Interim Results

0:00 Good afternoon, and welcome to the STRIP TINNING HOLDINGS PLC Interim 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 received during the meeting itself. However, the company can review all questions submitted today and publish responses, which is appropriate to do so. Before we begin, I would like to submit the following poll. And I

0:32 would now like to hand you over to Executive Chair, Adam Robson. Good afternoon to you. Good afternoon, everyone. Thank you very much for taking the time to join us today. I have with me on my right, Mark Perrinz, now group CEO. I think this is the second time you've met him, but promoted in June to be group CEO. And on my left, Kevin Edwards, who joined us all in August as our new group CFO. And I'll just let them introduce themselves very briefly. Hi. Mark Perrin's here. Nice to meet you all today. Just a brief introduction. I spent the last twenty years in automotive for various tier ones, LEO, plastic, omnium,

1:23 in holding many roles in plant management, operations, quality. Spent my early part of my career with a Japanese automotive business. It was a Toyota group company, so I've learned a lot there about lean manufacturing, which has really helped, throughout my career. Thank you.

1:43 Hi there. My name is, Kevin Edwards. I just joined STRIP TINNING. I spent really the last twenty years in manufacturing and bench capital backed, businesses, working working on supply chain and manufacturing and, you know, trying to be, make businesses as efficient as they can be. So good to meet you.

2:05 Good. So let me move forward then. I I think some some of you may not have come across us before, and for those who have, I hope you'll forgive me, but let me just briefly introduce what we do. We have two divisions, the glazing division and the battery technologies division. And this little map of a car shows how the parts we made fit onto the car, but also gives a little history. So if I start at on the left hand side where it says $19.90 slash €3, that's a picture of our original BuzzBar product, which we when we invented the front window demist with Ford, that product was launched, that was really the the formation of of the the company in its current format.

2:54 At that time, our average spend per car was about €3 in today's money Oh, €22. We then moved in. If we go upwards clockwise to to the connectors, we began to do the connectors, which connect any electronic wiring in the glass to the car electronics. And those connectors over time have got more and more sophisticated. So that if you see on the going again round clockwise on the right left right hand side, connectors now will be anything from sort of 10 to €20 in price, and that says more and more functionality has gone into the glass. So we've got, antennae for for radios and for telephones in the glass. We've got demist.

3:43 We've got, sensors of all sorts, particularly, radar sensors and video cameras and rain sensors. All of those need electronically collecting, and that's our specialist area because a connector for the glazing of a car is different to any other connector. It both has a very harsh environment to live in, and it has to be part of the manufacture of the glazing, which means it goes through an autoclave at high temperatures and pressures. So what you see is that's driven growth in our glazing business over time as more as more glass appears on the car and gets bigger and more functional electrical functionality is put into that glass.

4:28 And that the highlight of that today, our current big market, is what we call smart glass. This is glass which at the touch of a button changes tint from being totally open to be fully light reflecting. And that that's creating for us now a whole new market for quite specialist connectors, which are very suited to the move we started three years ago to be making flexible printed circuits or FPC. And an FPC is just what it says. It's a printed circuit printed on a flexible membrane, which can use it can be very easily fitted fitted around curves and so on, is lighter and thinner than a traditional wiring harness and usually lower cost.

5:15 That launch of FPC also led us to realize that all the things we'd learned how to do in the glazing market was very applicable to battery construction. And the product we call a cell contact system, which sits in a battery module and provides the electronic connection between all the little battery cells that make up the battery module. So, you know, a 100 volt battery cell typically has about a 101 volt batteries in it, And we join them all up, and then with a flexible printed circuit layer on top, we monitor the charge and temperature across all the cells, connect that information to the battery management system so that the battery can be properly managed.

6:01 And that's taken our product point to about a €100. And so from that, I hope you see that's what we do. That's what's driving the growth of the company.

6:14 So if I take you through to the highlights of the first half, it's with both of those, two new product areas, battery technologies and glazing PDLC wins. We added 61,600,000 to the value of our nomination lifetime nominations. And if you think the average life of each of those nominations is is six years, that equates to about £10,000,000 per annum of sales. And it's on that basis that we're confident that we're gonna double the sales of our company by 2026 with those three big contracts. We've also, though, been very pleased that we've been we're getting seeing very strong demand for our products with more and more opportunities to sell further business coming through from our customer base. So the market feedback to the to our product capabilities and our positioning in the market is very healthy.

7:16 In the short term, there's some challenges in the market. You you you you're all aware, I'm sure, that the automotive sector is having a bit of a slowdown, and we'll give you some more data on that later. That's affecting us as it as it's affecting all all automotive companies. That's led to a so which will be particularly present in the second half of this year, slightly recovering into to 2025. And we've also been increasing our our overheads in response to both the complexity of those new orders that we won, which actually is a good thing because it allows us to add more value on those products, and also that raft of new further business that we see ahead of ourselves.

8:05 So looking forward, for the rest of this year, we haven't changed our guidance that was given out in, July. We we we see no change for for the EBITDA outcome of this year. We see that the long term growth drivers for our business remain, and that we're we're, you know, excited by the ability to to, as we say, double the size of our business with further wins adding robustness to that forecast. So with that, let me hand over to Mark who's going to now take you through the market information. Sorry. I'm jumping ahead to Kevin who's gonna take you through the first half results. Hi there. So this is our income statement for the first half of twenty twenty four versus the first half of twenty twenty three.

8:58 As you can see, sales have declined, but this is mostly in line with our expectations as we work to improve the product mix and the margins. So about one about £11,000,000 of the reduction was forecast in our in our budget and was a was a planned reduction in non non profitable business. The other point is the the excellent results in our gross margin and our our work to move our gross margins up from 2027% to 35% is definitely going in the right direction, and we we carry on working towards our 40% targets that's in our numbers. As Adam said, our overheads have gone up slightly as we rise to meet the challenges of the new engineering work that we're working that we're getting.

9:53 And next, I'll take you through the bridges that the way we we bridge our revenue from the half one twenty three to half one twenty four. So as you can see, what we've done is we've created a bridge from half half one twenty three where we we ended at 5,600,000, and we've we've taken ourselves to our budget budgeted numbers that we we had at the beginning of the year, 5,200,000, and then we worked to the right to where we ended up of $4,800,000 As you can see, the large as I said, the large majority of that is the reduction in planned exit of some of the glazing business where the margins weren't weren't favorable.

10:39 So that accounts over those two segments to about $909,100,000. We've also had some success in retaining our grazing work, and that accounted for about 250,000 of extra extra sales. And then on the right, we see really the new business that we've we had intended to win hasn't come through in this year at all, this this half as strongly as we had hoped, and we it has moved out to the right. It is definitely there. It's just some of the programs are a little bit slower in coming than previously well, than budgeted. In our gross margin in our gross margin story, we've got we moved from 26% through to 35%, and you can see that we look to be far more efficient in materials and labor, and we were working to get to our 40%. We have achieved a fair amount of extra efficiency in materials and labor, partly held back by the exchange rates being as high as they are and also copper pricing being very high in the first half of this year, but still a very good result to go from 26% to 35%.

11:59 Moving on to the EBITDA bridge that we've got, same format. We were 51,000 in half one twenty three, moving across to where we thought we'd end up with the budget at a 137,000. We we had planned the the main the main reason for the decline was last year, we had a Serve grant, and that revenue that that grant money has is not is not there this year, although we are applying for other grants and other other support. As you can see, the gross margin was where we predicted most of our most of our extra income would come from. However, that hasn't come through quite as strong as we had hoped, and we end and so it's slightly down.

12:53 In the 281 number on the overheads portion, this is rarely by design because we are having to do a formal engineering work on the new products. We're we're having to spend more money on engineers, which although is a negative in terms of cost, it will have its benefits as we move forward with those new programs in the future.

13:18 This is our cash flow segment and that's in the results. I think the only thing to say here is the noncash item of 791,000 of the convertible loan notes that we that we got at the beginning of the year. That convertible loan note has had to be revalued at the June 30, and that revaluation has caused the $791,000 negative. That's a noncash item and largely will reverse as we move into half into the second half and into the end of the year. So it's important to note that that is a non cash item. And lastly, come to our net debt position. At the end of last year, we were at $2,500,000 net debt position, which is cash less our borrowings and our lease liabilities.

14:12 And due to the raise that we got on January,

14:16 that's mostly reversed and our net cash position now is largely neutral and so our cash less our lease liabilities and borrowings is broadly neutral. So we ended the year sorry, we ended the first half with 2,000,000 in cash on the on the balance sheet. Very good. Now this time, hopefully, I'm right, and and Mark is gonna take us through the the business up market update. Okay. So as Adam talked to at the start of this presentation, we have two divisions. We have the glazing division and the battery technology or BT division. What this slide's talking you through is that our target market for the BT division is what we call a mid market, so it's not volume automotive vehicles.

15:01 It's off highway, it's buses, trucks, e bikes, static battery storage. Those are the kind of niche areas that we're focused in. And I know you may be reading a lot about the sort of volume automotive market being a little bit softer right now. In this area, we're finding that things are very buoyant. So buses and trucks, you can see some of the numbers in the in the table still showing strong growth. We recently attended the battery show in in in Stuttgart in Germany and have a a number of inquiries that have come out of that that we're working through. But we're starting to be a little bit more selective of of which ones we we work on. Okay. Just building on that. When we spoke last in April, we had a pipeline in the BT division of 80,000,000.

15:51 We've since converted 43 of that. So the autonomous taxing vehicle that we won is is accounting for that 43,000,000 of of nomination. But also on on the positive side, the pipeline has grown significantly. So the net has gone up to a 121 with the additional inquiries that we've got. So we've got a strong pipeline to work at, and we are seeing some of that conversion of nominations coming through. Think we'll move on. Yeah. So in terms of the glazing, here we we're looking at our products are exported globally, but end up invariably on European vehicles. So this is the car registrations for Europe.

16:37 We actually saw it as reasonably strong in the first half of the year. But from around May, we've seen some softening as our tier one clients on the end OEM rationalize their stock position. We work with S and P Global who's a market forecaster to do detailed analysis of automotive. They're predicting 4.3% decline for 2024 in the volume automotive area and then a point six growth in 2025. So on a glazing side, our products end upon multiple vehicles, multiple OEMs, both combustion engines, EVs, and hybrids. So there's there's some mix between those vehicles. There's there's ups and downs.

17:23 That that's the global forecast. And as as before with the with the BT division here, you see the the glazing. So, again, back in April, we had a pipeline of 31,000,000. We've been able to convert 18.6 of that, which is sort of amber color you see there on the right. We've also still got 24,000,000 of pipeline that we're going after, and there's some quite exciting opportunities in there largely focused around the the PLC class sector.

18:02 We have converted three nominations, so you may have seen some of the RNS announcements around those. The this is the table. So the the top one is is the first to launch, and that's scheduled to launch in q two twenty five. We believe that's still to be on track. That goes into a premium German OEM, which is going on to both EV and internal combustion engine vehicles. We're generally on target. We're laying down the tooling. We're going through all of the sample phases and expect to get the the PAP, which is a sort of approval June next year. The next one is in the BT division, which is our autonomous taxi, which is a very exciting opportunity, very big.

18:49 We've just completed a sort of sample phase of around 1,500, and that's that's currently being extended by another 500 units. So that one's very exciting for us, and I'll talk some more about that when when when answering some of the questions. And the last one again is is PLC. This is on an ICE vehicle, not an EV this time. We're working very closely with the clients, helping them with the the design development on this product. And that's scheduled to be on time as well in q three twenty twenty six. Okay. Aside from those three major projects, which is obviously taking a large focus of the for the business, we're very heavily focused on making sure we launch smoothly on those. But also, we're still working on continuous improvements in the rest of the business.

19:44 That includes taking a lease on another unit on our industrial estate to give us the necessary footprint for those projects. We've introduced laser welding this year. We've completed some automation projects which help us with our labor efficiency. So we we we continue to move forward with the the base business as well. Just on that, this is an aerial footprint. That building highlighted in the the sort of amber color is the union that we're looking to take. So we're looking to add an extra 7,600 square feet to our existing buildings, which are the ones in the red. We do anticipate with the potential sales growth that we're forecasting in the longer term to need to move to a larger site, but that's in around 2027.

20:34 And we've also got a a grant application which we've passed the first stage of which should support with that site move.

20:46 Good. Thank thank you, Mark. So if, you if we could sum that up then, it is that the the the transformation of the business is well in hand with the the three very big orders that we secured in 2026, which are all on time and and and going to plan, we expect to be able to more than double our sales, and we have 85% coverage for for those forecasts today from the from the work in hand and a good pipeline of further business, which will further add to that robustness as well as Mark said, the the some of those contracts due to all the engineering we work we're doing, the scope is increasing on those programs, and that means they'll probably get more valuable over time.

21:36 We've got strong demand from customers to support us on further new vehicle programs, and so we expect to see further conversions from our sales pipeline. They do give us upside sales, but more than anything, in the face of quite challenging market conditions, as you all know, they add robustness to our growth prospects, which I think is the best way to think about them. The medium term challenges for us are, of course,

22:06 the the current market weakness and the the some inflationary cost pressure still coming through, particularly from copper, although that is now down from its May peak. So hopefully, that is passing, and that is certainly challenging some of our our short term cash flows. And also, we have to put a a great deal of attention to making sure that those three new programs are all launched successfully, and we're certainly doing that. That is the primary focus of the board today. So thank you all, and I think we'll move on to respond to the questions now. That's great. Adam, Mark, Kevin, thank you very much indeed for your presentation. I will now bring your cameras back up for the Q and A session. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on

22:57 the top right corner of your screen. While the company take a few moments to read those questions submitted today, I would like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can be accessed via our investor dashboard. Adam, Mark, Kevin, as you can see, we have received a number of questions throughout today's presentation. And Mark, if I may now hand back to you to chair the Q and A and kindly ask you to read out the questions where appropriate to do so, and I'll pick up from you at the end. Thank you. Sure. Thank you very much. So, yes, starting with the first question, which was even

23:28 with the challenging market conditions, the company secured record nominations. Can you share how these successes position the company for long term growth? Thank you very much for that question. We would say that it positions us very well. We've talked a little bit earlier about how we've we've won projects within both the glazing and the battery technology division. So we diversified in that regard. We've also got the products going into internal combustion engines, hybrids, and EVs. So, again, we have a level of diversification there.

24:04 And also on the major BT nomination, there's some secure business with quite deep funded pockets offering some security there. So we we think with the nomination we've won, it does position us very good for the long term.

24:21 Okay. I'll move on to the second question, which was how confident are you in the doubling the sales of the company by the end of twenty twenty six? To answer that, very simply, we'd say we are very confident, and the reason for that is that we already have 85% of our target secured in in contracted nominations. So we're we're very confident around that one.

24:46 Try to add anything? Yeah. I mean and we have added robustness both from the growing value of those already received nominations and from from the and a good pipeline of prospects in both glazing and battery technologies, which will convert the last 15% that's yet not yet nominated. Thank you, Adam. So moving on to the next question, from Richard. Thank you, Richard. So smart glass is exciting.

25:18 However, new technologies often have applications in areas not yet envisaged. Any thoughts on this idea? So I would agree that smart glass is very exciting.

25:30 I would link it to autonomous vehicles. So with the the move to fully autonomous vehicles, that offers an opportunity for a completely different experience. If you're already in the back of a fully autonomous vehicle, then the glass has many potentials, you know, having sort of video images on the glass interactive. So as you drive along, you could click on, you know, a building and get history or information about that building. There's all sorts of opportunities where where we really lead smart glass to autonomous vehicles. You know, some of those things,

26:06 you know, there'll be many more that we may not have thought out there come out opened up by those opportunities. And, And, of course, we're well positioned with our with our products to to support those kind of growth areas. And we're also seeing new applications outside of automotive, Mark, particularly in architectural glass where where the same features are being deployed. Absolutely. So glass,

26:33 smart glass that changes color, etcetera. There's many opportunities. Okay. So I'll move on to the next question from Rob. Thank you, Rob. On cash management, with the general slowdown in demand and some lingering supply chain inventory issues, are you experiencing problems with collection or changes in payment terms? Thank you. I'll I'll hand over to Kevin for this one. Yeah. No. Not not not at all. If anything, you the collections on on our on our desk book is is very good, and our customers are, you know, very, very large global businesses that, you know, pay pay on time and according to contract. So, no, it's a it's a very robust from that perspective.

27:19 Yeah. We do we do monitor where we are and we're we're in a good position. Of course, we like all our customers to

27:24 pay on time. Most businesses work, but as long as you're on top of it, that's that's the main thing. Okay. Thank you for that. I'll move on to the next question from Liam. Thank you, Liam. What portion of the 95,000,000 of lifetime sales value is under firm contracted versus under negotiations? I'll hand over to Adam for for this one. Yeah. So and the the essentially, it is all if firm contracted, although we should be careful what we mean to that. So when we we publish that number, none of it's still under negotiation. If it's under negotiation, that's in our business business development pipeline, which is the other numbers we give. So so the the 96,000,000 is all under what we call nominated. Nominated means that the customer has told us that we have a contracted supplier of that part for that vehicle platform, and they give us at a agreed price and on agreed terms, what what is they give us indicative volumes, and when we put a volume number, a value, it's based on those indicative volumes.

28:34 It is not a guaranteed contract though to take all of those volumes. That can go up or down depending on the success of that vehicle in the marketplace. But unless it's almost never that we're dual sourced. So if we're the unique source on that, we will get whatever volumes emerge from the success of that vehicle, And, you know, the volumes we put forward and use from them are a reasonable view of the lifetime volumes for that vehicle. That's great, Adam, Mark, Kevin. I believe you have addressed all the questions for investors today. So thank you very much indeed. And of course, the company can view all questions submitted today, and we'll publish those responses on investment company platform. But before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Adam, could I please ask you for a few closing comments?

29:26 Well, firstly, thank you all for joining us. Thank you for your interest. Thank you for your questions. We're very optimistic about the journey ahead, very optimistic about the the the pace and success with which we're we're growing the company, and, we look forward to coming back to you in six months' time and telling you the the next stages of the journey. Fantastic. Adam, Mark, Kevin, 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? 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.

30:17 Thank you.