Strip Tinning Holdings (LSE:STG) — Investor Presentation

0:00 Good afternoon, and welcome to the STRIP TINNING HOLDINGS 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 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'd like to submit the following poll. I'd now like to hand you over to Richard Barton, CEO. Good afternoon, sir.

0:32 Good afternoon. Hello, everybody. Thank you for joining us today. I'm Richard Barton, the CEO of STRIP TINNING. With me today are Adam Robson on my right, our Executive Chairman and also Adam Levan, our Chief Financial Officer. We're delighted to be sharing with you our interim results for the first six months of 2023. And quite delighted that they demonstrated significant turnaround from last year, which is certainly be very, very difficult and lots of headwinds. We're pleased to have an adjusted positive EBITDA albeit pretty small, nevertheless set against a considerable loss for 2022.

1:20 Similarly, from a cash generation point of view, again, there is one quite small, but again, against a considerable loss for the previous year. We've managed to improve the business considerably operationally. We hired a new managing director, Mark Perriens, who joined us a couple of months after IPO. I think he was in the prospectus, but really his work didn't start until probably May or June time. And it's his efforts that have driven a lot of the improvements that we'll be talking about later. Our glazing order book remains strong and the pipeline is growing. Some of you who have listened in before and read some of the notes from the broker, you may be aware we had some significant amounts of price increases last year.

2:07 Despite those, we've managed to catch good friends with our key customers. And indeed, the business is now growing again with them. We do expect our major EV nomination shortly, could even be today. Certainly, we're hoping quarter three, it may slip into October. When that comes, it will be quite transformational for the business. And so we're positive really for the rest of 2023 and

2:39 also into next year. The order book is strong, 3,600,000. It's showing an upward trend. And us as a Board, we can confirm the performance for 2023 will be in line with the information that's already out into the market. And, our liquidity position remains satisfactory. Thank you. Next page, please. So so the market outlook is positive. EV is exploding. I'm sure you're reading as much as we are, both in the mid market and the volume market. These are our figures, but the EV sales in Europe generally are up 27%.

3:30 Also, there's more and more electrification going on in big trucks, albeit from a very low base, but it's interesting that trucks are now catching up with passenger cars. So another market for us to really be looking at. And really to say that the customers are actively seeking to develop new European sources for both cell contact systems and also generally for flex. There's a lot of activity in China, but there's a huge amount of manufacturing in Europe. And it simply is not the supply base. For glazing, our established existing business that we've been really doing since 1960s, new car registrations are up, the chip date is over, the supply chain issues that have really hampered car production seem to have come to an end. So car ratios are up nearly 18%, which is good for us just in general terms of order intake.

4:30 And we're seeing continued innovation in glazing products. More and more cars being launched these days have an entirely glass roof, which is a great base for some increased functionality, which is giving us lots of opportunity for some new innovative, high high value products to our existing customer base. Thank you. Adam, please. I'm gonna talk to you a a little bit more about our progress in the EV market. This is a chart that we've we've shared with you before, and it shows our our market segmentation with the left hand side focused on the mid market, which is typically vehicles of under about 50,000 units per annum.

5:23 There there's all sorts of things in there from from the sports cars, trucks, off highway, specialist autonomous vehicles, vertical electric taxis, vertical takeoff taxis, a whole raft of different things. And that compares to on the right hand side, the volume automotive market. You know, it's a major platform programs for VW, for Fiat, etcetera. Typical volumes there will be anything from the hundreds of thousands to a couple of million per annum. We have more and more come to focus on the mid market As as as we get more and more exposure to that market, we find it more and more attractive.

6:16 It's a market that works well for us. We we like it that those customers tend to want a full cell contact system rather than just the flex, which is often what we find on the the right hand side. We like it that they want a full engineered solution from us, gives us more value added on the product, a more differentiated product, whereas serving the right hand volume market perhaps is more akin to a make to print type situation. And the level of competition we're finding is lower in that mid market.

6:52 We do face in the right hand volume market, very large competitors, companies like Nectech or Amphenol. And what we see is that they are relatively reluctant to serve the mid market. There are such big wins for them to happen. The growth is so explosive in the high volume market. But they're tending to feel that the left hand market is too small for them, too bitty. And perhaps they're not geared up to give the sort of highly responsive engineered solution that we are able to give the customers. So for all those reasons, our focus is increasingly on the mid market and we're finding that an attractive place for us to be.

7:51 The we'll year. Question. Next recruited a new question. Chief engineer who we're hoping will will will join us at the end of this year. He's got a good background in in electric vehicles. He is a and that's attractive in many ways. Those Asian customers have been leading the world in electric vehicles. So that's a great pedigree and a very good new heart for us. In terms of our CapEx program, our flexible printed circuit production line is now complete. It's in production, working today.

8:41 We've got the next round of automation to put in for the full assembly of the cell contact systems. We're developing a specification for that that's both able to make the the products we're expecting in in the

8:56 new nominations and also flexible to be able to be adapted to future nominations. So that will be an important step forward for us.

9:14 Alex has asked us if the time is right to look to diversify into additional markets. I think for us definitely not on the EV side, We're very focused on that mid market. There's a lot for us to do there. Huge sales growth opportunities. Richard will talk to you a bit later about the glazing side where it does look like we may maybe diversify buying into the area of architectural glass rather than automotive glass. We're targeting three major new nominations at the moment. As Richard said in the introduction, a very important one, which we hope will come through in quarter three.

10:03 Another one for another battery pack for another battery pack maker, where we are hoping that we will proceed towards B samples in the coming months. And then a couple of e mobility projects where we have supplied one set of samples already and we're looking forward to those projects moving forward as well. And just for those who know those who been following us, you'll recall that last summer, almost exactly a year ago, we had to report the loss of what was then to be our lead customer, Croatian EV vehicle developer. We had a dispute with them, and we've now reached verbally a satisfactory commercial settlement, which we have to put into writing shortly.

11:01 So in terms of our our routes to market, our our our clear preference is this what you see on the left hand side, where we are a tier one supplying the battery module manufacturer. We provide them with an integrated cell contact system using flex that we've manufactured for ourselves. That's a very good high value, highly engineered product. We're developing a number of key relationships with certain value factory. Of them we certainly are in front of it. We have very much a preferred supplier status with and we're looking to expand that base of key customers we work with. In the higher volume market, we're typically limited as I said to be just the the tier two supplying the flex only.

11:53 And that at times will make sense. It's perfectly decent business, and and we have a number of leads we follow through on that, but we're we're quite selective about those. And then on what we do find on certain cases from the left hand side is that Flex is beyond our current capabilities. And then we we are developing a supply relationships in China with people who have ability to buy more more specialist types of flex. And obviously, we'll be thinking in the future about the extent to which we we develop these capabilities further to be able to do that in house as the markets develop.

12:40 Alex has also asked, we talked in our intro about having £88,000,000 of opportunities. That's a lifetime value of those contracts.

12:55 And what can impact closing this to get contract? Well, I mean, two things. The first thing we have to almost work through to the appropriate level of sample development. So that's usually the end of the B samples. So for them to be pushing ahead and then there's it will typically be competition and we need to to win that competition based on price, the quality of our design performance and our proximity and closeness to the customers to to win those orders.

13:32 Super. Thank you, Adam. Richard's gonna talk now a bit more about the glazing side of the business. Thank you. So glazing is really what we've been doing since the nineteen sixties, And it's interesting now, again, that after the carnage of the last few years, pipeline is

13:51 growing again and the prices have really rebalanced. We did put our prices up considerably during last year. We've stayed friends with our customers. They're now returning and placing regular orders. We have a number of new prospects with Tier one glazing companies. Even in China, there are some new products coming along. From a connectors point of view, connectors and buzz bar are about equal share of GBP 4,000,000,000 in the glazing division. Smart glass is now being reinstalled in new vehicles, more and vehicles have 100% glass roofs and having a glass roof is an opportunity to put adding functionality into the roof. You can touch it and move your finger and it turns opaque. You can house a new

14:47 almost solar panel. It can house special WiFi integration. So lots of opportunity for us to develop high end, high margin connectors, is replacing some of the older style, low margin business that really chose to move away from.

15:10 Alex did ask earlier also about this in other applications. So obviously, we're really hugely largely an automotive company, but on on our travels, our commercial director, Steve O'Connor, has now been out to know about traveling with one other constantly. We've come across smart glass also in architectural applications, similar functionality, and again, demands of technical demands of connectors and also on busbar. We've come across companies that are producing glazing for skyscrapers, but the glazing is completely see through, but it's actually now a solar panel. So who knows where that may lead, but just very interesting that the market is there's lots of opportunities for growth we think both in automotive, certainly in architectural.

15:59 So it's another string to our bow certainly. So the legacy improvements, the EBITDA has continued to improve significantly. You can see the sales for the first half of this year, we're up GBP 1,000,000 on 2023. The gross margin has improved from eight to nearly 9% to 27%. And we're targeting, we're working very hard to get that to return to the 40% level. Lots of things driving this. You may remember before we talked about some of the significant price increases we put through in a few stages during 2022, but averaging and totaling about 40% on our connectors and on the busbar products, which is a high margin product. Anyway, we did, nevertheless, manage to get a a further 8% increase.

16:57 Mark Perry is the MD that joined us after we did the IPO. He's been strengthening the management team. We've brought in a couple of new guys. Tarek is helping us on quality control. Damien is helping us on procurement, and they're certainly driving through the number of the improvements. We think the improvements will continue into half two. The gross margin will strengthen. We think some more we put some automation in, which is just sort of coming online now. We've managed to eliminate really the last of the loss making products.

17:36 Nevertheless, glazing sales will be lower in half two, but that's really as expected, and that's in tune with the information we already have out in the market. Thank you. Adam will take you. Adam, the bat will take you through our financial results. So we had a big uplift in a million pounds of sales uplift compared to the same period last year. I think that's that's reasonably commendable since there was a couple of months of sales to Russia, in the same period last year. So that there's a there's a an even bigger increase than that in there. The the big driver has come from the glazing business, partly driven, as Richard and Adam were explaining, by the price rises and partly driven by the, volumes from the end of the supply chain issues, particularly around microchips, that affected a lot of 2022.

18:45 So that was pleasing. Whilst the on one level, the EV sales were flat. If you adjust for the contract that we we lost, then, again, we show good progress over 40 growth with the other EV customers as we move through those programs. So some some good progress on the on the sales side. Again, progress on getting material costs and labor costs under control. So the, connector business is now showing a 30% gross margin, so we're confident it will move on to our target of 40%. Buzz bars remains very strong, products profitably wise for us. The sales increases were more modest there, but we've also been identifying material purchase improvements and also material usage improvements. So I think we're gonna get further boost on the, on BuzzBar margins going forward. So all that has translated so far to almost 27% gross margin compared to just under 9% in that same period last year.

19:54 And, obviously, that's a big uplift in absolute terms as the contribution to overhead. In terms of the overhead, there has been a increase in overhead compared to the prior period as we continue to invest in the EV part of the business and strengthen the foundations around that. There's obviously also been a little bit of a, well, a six months full year, whichever way you wanna phrase it, effect, from the recruitment that took place after the the IPO. But I think this is giving us a much stronger, stronger foundation to move forward with. Mark Perrin has brought in additional people from his experience elsewhere to help on the operational side. But what we've also done is we've we've let people go or not replace people that have left. So although we've ended up with some more expensive people, we've also lost people that mitigate that those that cost increase, and the people that we've brought in are considerably more effective, and roles have been combined. So they've got more they've got more responsibility, more accountability.

21:02 So that's working that that's been working very, very well, and we'll see the benefit of that as the sales start to grow again. And what that what that translates to as per the headline, is that on an adjusted basis, we we've managed to, to to turn, an EBITDA, profit compared to the £1,600,000 loss that we had for the equivalent period last year. So that's moving in the in the right direction. In terms of our balance sheet, the we've been making investments in property, plant, and equipment. The movements are a little bit deceptive because we we changed our depreciation policy from a reducing balance to to straight line, so there's some corrections at at the year end.

21:53 But examples of the capital investment we've been making are the inkjet printer that we've installed, the clean rooms, the automatic optical inspection for the flexible printed circuit line, a new polyimide cutter. You know? So so this totals all over a £1,000,000, invested in into the EV, business. We've been reducing inventories. We we have had to make some provisions at the actual year end, and we're keeping an eye on that all related to the EV contract and the the termination of the sales of our our business relations with with Russia. So we're having to keep an eye on on on stock, and that accounts for some of the movement on this on this slide from the the the, two point three in June 22, down to the one point five nine now.

22:49 But there are real improvements within that as well, because, we we've improved the manufacturing resource planning system, and and we're migrating to a a a proper SAP b one system that is intended to go live at the end of the year or beginning of next year after the year end close. And and that's a that's allowing us to schedule what we buy a lot more accurately. And so we've got a big target to reduce inventories down. We haven't got a timeline on it yet, but the target will be below 1,000,000. So that that will release some working capital as well. And then on the, trade, the the receivables, they've not increased in line with the sales movement compared to this period last year because we're doing better on our on our collections as well. There's a big big push on that, a real combination between finance and sales and operations team to make sure that we we get the money in from our from our customers.

23:48 On the liability side, all of our we're we're under control with the trade payables, our our trade creditors. We we've got a happy enough supply base. Our debt as at June compared to the prior year or sorry, compared to year end is actually a little bit down. There's there's been some of our our debts being actually paid off. But, clearly, we are taking more on. And as you'll be aware, interest rates have gone up. So there is there is an increased cost to go from the the debt borrowing that we've that we've been making to to finance to offset some of the finance investments. So moving on to the cash flow.

24:35 You can see some of the impacts of the changes in the depreciation policy and the adjustments, but the the real takeaway from this slide, I don't think there's anything much more to say other than the we we we were cash positive in a very modest way for the six months to, June, from operations, which is which is good for the business. And then talking about liquidity, the the cash movements excluding overall, excluding CapEx. It it could always be better. You'd always like a bit more a bit more float. But with the invoice finance facility that we have that we can draw down against the debtors that we have on the balance sheet, We have an an acceptable position for for business as normal.

25:27 We we can manage our operations in this steady state with with the facilities we've got around us. And in terms of the continued investment that we want to make on the EV side, we've got, scope for vendor finance, for for a lot of the the laser weld equipment that we're after. And we're also in discussions with a fund called the advanced manufacturing supply chain initiative, which is which would provide a soft load, and, we're working towards that over the next couple of months. So we've we've had initial meetings from them. They've encouraged us to apply for that facility. So that that's how we can afford to continue to invest and fund on the CapEx.

26:17 And Richard T, you asked the question, are you still looking at grant opportunities EV? Yes. I mean, that Adams key loan that that Adam just described is is is a form of grant in a way being a soft loan. We have applied for other grants. We're hoping to get one shortly to allow us to do a full strategy study around our requirements for further investments on the EV side. And hopefully, that will be a foundation against which we can get future grants. So definitely grants are still very much part of the landscape for us. Richard, you also asked a couple of other questions.

27:04 What what about is there a read across lessons from the demise of track wise? I think for that, I think the important thing that we would say is track wise, we're very ambitiously aiming to develop into the high volume automotive market. They invested very heavily in a very impressive high throughput production line. That is targeted at that high volume automotive market. We while our being different requires a difference and indeed less capital intensive approach for the mid market. So I think the lessons we draw from them is they were up against the very large competitors in that market.

27:58 Those competitors are generally, as we said before, whilst capable of serving the mid market and not really minded to do so at the moment. So we're not facing the same competitors and we're not facing the same capital challenges. And and lastly, you know, I think always a challenge for track wise was that they didn't have an automotive pedigree, whereas we're coming forward as a proven automotive manufacturer with, in fact, products already that we have two sports car battery packs that we're making the cell contact system as of today. So I think that greater credibility is perhaps the third thing that gives us more confidence than we feel than Trackwise could have.

28:50 All the idea we're full of aberration for their ambition and for the steps they've taken. I think that also, Richard, slightly answers your question about competition. To be honest, in Europe, we haven't really identified any explicit competitors who are really focused on the mid market. The biggest challenge we find is from people looking towards China, which always remain very advanced in terms of developments of all sorts of electronic electric vehicles. But we have some protection from that for the mid market where people want an engineered solution. That's obviously harder to get from a Chinese supply base just as much as anything because of the distance away and the communication issues.

29:45 Hope that answers your questions. So I'll just go forward to our summary slide. So we're pleased with that progress in the first half and we look, we see that continuing into the second half. As Adam told you, the sales will be slightly down in the second half as the last of the loss making products drop away. But we're still expecting to maintain that full year forecast for EBITDA and to be EBITDA positive in the second half. The business that is on a sound footing for growth that's evidenced from the pipeline of sales opportunities we see both for glazing and for EV.

30:35 We hope to get our first major EV, new EV nomination now in quarter three. It could just slip into quarter four, I think. And we think from that position where our cash position is satisfactory. So our priorities now are to converting those EV and glazing sales, continuing to develop our capabilities to better serve customers in both those markets and to do so more profitably, particularly strengthening our engineering and product launch team so that we can address more and more of the sales opportunities we we see ahead of ourselves and continuing to look for the right partners to work with who can bring extra know how resources, people resources, and financial resources to help us accelerate our our growth journey.

31:31 So thank you, everyone. Thank you very much for for tuning in again with us. Does anyone have any last questions they want to ask? I think we've answered all the ones that came up on the Q and A. I hope it's satisfactorily. Richard, any last words you'd like to say? Yes. Thank you. Any further questions, please type and send them on anyway. We will endeavor to get them answered as soon as we can. Thank you very much for your interest in our company and listening, and I'd take the opportunity to hand it back to Investor Meat Company. Richard, Adam, Adam, thank you for addressing those questions throughout the presentation this afternoon, and thank you for updating investors today. Can 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?

32:28 This may only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team STRIP TINNING HOLDINGS PLC, we'd like to thank you for attending today's presentation. Good afternoon to you all. Thanks, guys.