5 September 2023

Strip Tinning Holdings plc

("Strip Tinning" or the "Company")

Interim Results

Strip Tinning Holdings plc (AIM: STG), a leading supplier of specialist connection systems to the automotive sector, is pleased to announce its unaudited results for the six months ended 30 June 2023¹.

Key Financials:

·      Total Revenues of £5.6m (H1 2022: £4.7m)

·      Glazing product sales up 23% to £5m (H1 2022: £4.1m)

·      EV product sales of £0.6m (H1 2022: £0.6m)

·      Combined Gross Margin of £1.5m /26.7% (H1 2022: £0.4m / 8.8%)

·      Adjusted² EBITDA of £0.05m (H1 2022: loss of £1.6m)

·      Cash generation from operations of £0.1m (H1 2022: -£3.5m); cash balance of £0.7m with no draw down against the CID facility

·      Basic EPS³ of (2.85)p versus H1 2022 (17.8)p

·      The Board remains confident of meeting market expectations for FY23

Operational updates:

·      Completion of new production line for flexible printed circuits ("FPCs")

·      Production line benefitted from the £1.4m of funding provided under the Advanced Propulsion Centre's ("APC") Scale-up Readiness Validation ("SuRV") scheme, awarded in September 2022

·      Transfer and re-layout of Connectors production into a single building completed, improving productivity

·      Multiple further improvements including automation projects, improved ERP functionality, implementation of EDI with our customers, cross training and improved communications

Adam Robson, Executive Chair of Strip Tinning, commented: "I am pleased to be able to report the significant turnaround that the Company has achieved over the last 12 months and the positive outlook we see ahead.

Over the past year, we have focussed on strengthening our business and enhancing our capabilities. We are pleased with the platform for growth that has been developed. Converting these growth prospects into production nominations is now a key priority. 

To capitalise to the maximum extent possible on the growth opportunities we see ahead of us and to fully satisfy our customers with delivery of the new production nominations we have won, we plan to continue to ramp-up our investments in people, including engineering, project management, quality sourcing and sales.  We remain optimistic about our promising sales pipelines for EV and Glazing beyond 2023, with potential new profitable nominations in the near future."

¹ Comparative numbers for the half year to 30 June 2002 are for Strip Tinning Limited.

² Adjusted for FX impacts, share based payments, restructuring and IPO exceptionals

³ Based on weighted average number of shares in the period

A copy of this announcement will be available to view on the Company's website at www.striptinning.com.

Chief Executive's Report

Introduction

I am pleased to be able to report in these results the significant turnaround that the Company has achieved over the last 12 months and the positive outlook we see ahead.

Our key financial metric is Adjusted EBITDA and this has been positive in each of the first six months (H1) of 2023, totalling £0.05m (H1 2022: -£1.6m) a very significant improvement over 2022.  The Board is confident that the Company will meet market expectations for the Full Year.

We have also been pleased with our cash performance in H1.  Cash generated from operations was near break-even at £0.1m (H1 2022: -£3.5m) and as at 30^th June we had no draw-down on our CID facility.   We have taken this opportunity to change CID provider to one that gives us lower costs and preferential lending criteria which has improved our actual available credit to about £1.2m based on our current customer receivables book. 

There have been a number of key drivers of the improvement in EBITDA, the most significant of which are:

·      Increased sales with £5.6m being reported in H1 2023 (H1 2022: £4.7m);

·      The price increases we agreed with customers during 2022;

·      The leadership of the strengthened senior management team, working under Mark Perrins, our MD who joined us in March 2022; and

·      The improvements in productivity, quality and customer service that the team are delivering.

It has been gratifying to see the results of the many improvements we have made to the business being reflected in both our financial results and in our new business pipeline, a key indicator of customer satisfaction.  We are now a significantly healthier and more developed Company compared to a year ago. We have grown stronger by successfully navigating through the challenging obstacles and severe headwinds of 2022, which included the Russian invasion of Ukraine, shortages of materials, intense inflationary pressures and the aftermath of COVID.  Consequently, we are better placed than ever to capitalise on the increasing momentum we see across the business and our markets. 

As ever, I must also thank all of our employees for their determined efforts that have brought us this far and who are the foundation of our successes, past and future. 

Market Opportunity

In both the markets we serve, we are seeing an improved market position with strong customer demand and our enhanced competitiveness is opening the door to accelerating growth. 

The market for EV battery packs continues to grow at very high rates, supported by the governments' determination to address climate change, consumer enthusiasm and the strategic drive of the automotive industry.  For H1 2023, registrations in Europe⁴  (EU, EFTA and UK) of battery electric powered vehicles (full and hybrid) grew by 27.2% year on year (and by 45.0% for full BEVs) meaning that 47.3% of all vehicles registered in this period contained a battery pack.  Similar high growth rates are being seen in the mid-market which is our primary target market.  In the truck market, registrations in Europe⁵  (EU, EFTA and UK) of battery electric powered vehicles (full and hybrid) grew by 385% year on year (although the total share remains low at 1.8% of all vehicles sold in H1 2023). Investment in new electric mobility and delivery vehicles, from autonomous delivery vans to e-VTOL aircraft continues apace.  These mid-market customers are highly attracted to working with European suppliers such as Strip Tinning who can provide local, highly responsive, full service, engineered solutions for their battery pack developments. 

For our Glazing connectors business, we benefit from having a high share of higher specification vehicles that we supply onto (including many BEVs), so by capitalising on the higher volume growth rates seen in these vehicle categories as well as higher product prices based on enhanced electrical functionality within the glazing products.  Year on year Glazing sales growth in H1 was 23.5% which is higher than the overall growth of 17.6% in vehicle registrations, which is encouraging.  We are seeing a two tier structure appear in the industry supply base in Europe with commodity products being increasingly sourced from Asia, whilst the supply base for higher value added products, on which we are focussed, has seen a contraction with smaller competitors leaving the industry and very large competitors refocussing on other larger market segments (such as battery packs). 

⁴ ACEA New Passenger Car Registration 19 July 2023 https://www.acea.auto/files/20230719_PRPC_2306-FINAL.pdf

⁵ ACEA New Commercial Vehicle Registration 27 July 2023 https://www.acea.auto/files/20230727_PRCV_Q1-Q2_2023.pdf

Review of Operations

Our operations continue to benefit from the integrated sales, engineering, programme management, purchasing, quality, production and HR team which operates across our site, optimising the skills of the team and the transfer of capabilities and capacity between our two lines of business.

EV

The major step forward made in the first half of 2023 has been the completion of our new production line for flexible printed circuits (FPCs), used primarily in our Cell Contact Systems ("CCS") but also increasingly for high end Glazing connectors.   This line benefitted from the £1.4m of funding provided under the Advanced Propulsion Centre's ("APC") Scale-up Readiness Validation ("SuRV") scheme which was awarded to us in September 2022.  The line has a capacity of around 180,000 units per annum, depending on the dimensions of the pieces.  The new factory layout has this FPC line adjacent to the laminate busbar production line and both lead directly into the CCS assembly and test operations.  Investment in these facilities continues, in particular, as we enhance our laser assembly capabilities - requirement is currently estimated at £1.8 million.  The total value will depend on the exact size and terms of nominations received over the coming months.

We also continue to engage with a growing number of mid-market actual and prospective customers.   We are today producing production parts for two active customer CCS programmes and samples for multiple programmes in development.  Total revenues from these activities in H1 were £0.6m (H12022: £0.6m). 

Our pipeline for new EV programmes is developing strongly, with leads exceeding our ability to respond in all cases, a factor that emphasises the value of our strict mid-market focus and the significance of our plans to further grow our people resources.  At the end of the half year, our Top 15 sales leads (based on strength of engagement) had a total annualised sales value of £88m, with typical annual sales ranging from £1m to £10m+ and with production nomination dates ranging from 2023 to 2026.  We remain optimistic that we will be able to announce a next major EV nomination in Q3.

We announced last August the notice purporting to terminate our contract with a Croatian electric vehicle technology innovator for the supply of cell management systems to a leading German OEM.  We believe we have reached an amicable settlement with this customer which leaves us free of any further costs arising from this dispute.

Glazing

Sales in H1 were £5.1m (H1 2022: £4.1m) which was ahead of our expectations.  This growth is the net outcome of increased prices and demand partially offset by reduced volumes and we have (in agreement with our customers) been stopping production of loss making products.  These changes will be completed in H2 2023 and as a result we expect sales in H2 to be lower than in H1 2023.  However, gross margins have improved, from 8.6% in H1 2022 to 27.1% in H1 2023 and further improvement is expected in H2 2023 despite the decline in sales. 

Throughout 2022 and into 2023, we have been working on a lean turnaround of our Glazing operations and we are pleased with the progress made which has been a further contributor to the improving gross margins.  The most obvious manifestation of these improvements has been the transfer and re-layout of Connectors production into a single building, which has improved productivity and when combined with selective investments to reduce bottle necks has allowed us to stop our night shift production (leaving this to provide a future capacity increase of up to 50%).  In addition to this change there have been multiple other improvements including automation projects, improved ERP functionality, implementation of EDI with our customers, cross training and improved communications.  In aggregate, our production headcount is now 90 lower than its peak level in November 2023 and we expect to see further rationalisation in H2 2023.

The Glazing business is now looking to return to growth with new production nominations being won or in the pipeline.  We are intent on delivering growth in both sales and margins through a focus on higher value added products and our selective pipeline for these types of products is developing strongly.  At the end of the half year, our top 15 leads (based on strength of engagement) had a total annualised sales value of £2.9m with production nominations expected over the next 12 months.  We are optimistic that this will deliver net Glazing sales growth in 2024 from its low point in H2 2023. 

Outlook

For the full year 2023, the Board remains confident of meeting market expectations.

Over the past year, we have focussed on strengthening our business and enhancing our capabilities. We are pleased with the platform for growth that has been developed.   Converting these growth prospects into production nominations is a key priority. 

To capitalise to the maximum extent possible on the growth opportunities we see ahead of us and to fully satisfy our customers with delivery of the new production nominations we have won, we plan to continue to ramp-up our investments in people, including engineering, project management, quality sourcing and sales.  Consequently, we do not expect to deliver profitability ahead of expectations. 

Looking beyond 2023, we are greatly encouraged by the strength of our new sales pipelines for both EV and Glazing and we expect to be able to announce material profitable new sales nominations over the coming months.  

 Financial Review 

Glazing sales were up 23% compared to H1 2022, with EV sales up over 40% on the same period after stripping out sales attributable to the cancelled Croatian EV contract.

The price rises achieved on the Glazing products combined with progress on materials cost reductions and reduced direct headcount increased gross profit by £1.1m in absolute terms, and gross margin from 8.8% to 26.7%.  Overheads increased by 8% in H1 2023, reflecting continued investment in the EV business and full period run rates compared to 2022. The benefit to the business is deemed greater than the percentage increase indicates as the total increase from new hires improving capability and effectiveness was partially offset by combining other roles to improve efficiency, limiting the net headcount cost increase. H1 2023 also benefited from £0.7m of SuRV Grant income.

The combination of an improving external market and the proactive actions taken by the Company have led to a positive adjusted EBITDA for H1 2023 of £0.05m, compared to an EBITDA loss of £1.6m in H1 2022.

Financing costs have increased due to asset finance investments and fees associated with the CID facility, but the Company has benefited from high R&D Tax Credit payments, evidencing the Knowledge Intensive Company status held and additional patent applications are under active review.

Capital investment has been considerable, including for additional Clean Rooms, Ink Jet Printer, upgraded Flexible Printed Circuit wet cell and Automatic Optical Inspection unit to deliver industry leading capabilities.

The stock reduction between H1 2022 and H1 2023 is flattered by provisions made at the 2022 year end, but real improvements have been made in H1 2023 and true reductions in stock holdings are expected to continue in H2 2023, with this a priority focus for management. Debtors have not increased in line with sales growth due to improved debtor collections, with reduced overdues. 

The Company has signed a new Confidential Invoice Discounting facility ("CID"). The key terms of the CID are a £1.5m facility limit, based on a 75% advance rate against eligible debtors, at 2.85% above base rate. Cash stood at £0.7m as at 30 June 2023, with no draw down against the CID facility. The Company continues to benefit from the government grant award to assist with the scale-up of the EV business and R&D Tax Credit claims.