Strip Tinning Regulatory News (STG)

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR. Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered in the public domain.

14 February 2023

Strip Tinning Holdings plc

("Strip Tinning" or the "Company")

Pre-Close Trading Update

Operational Progress

New Invoice Discounting Facility

Strip Tinning Holdings plc (AIM: STG), a leading supplier of specialist connection systems to the automotive sector, today provides a pre-close trading update for the year ended 31 December 2022 ("FY22"). The figures set out in this statement are subject to audit.

The Board is pleased to confirm that FY22 revenue is expected to be in line with market expectations(1) with underlying EBITDA loss of -£2.2m(2) and net cash/debt of -£1.4m (FY21: -£2.7m).

Performance during the period has been improving steadily with sales in the second half of the year recovering significantly from the first half low. That said, sales remain below the 2021 level as a result of the ongoing impact of the war in the Ukraine and supply shortages reducing automotive vehicle production worldwide. The Company's glazing customers are multi-national Tier One suppliers, through which its products reach the majority of global OEMs in multiple global locations which as announced in May 2022, then included some OEM production facilities in Russia. The Company estimates, the 2021 to 2022 variance on the loss of such product shipments to Russia amounted to a £1.5m adverse impact.

Underlying gross margins(2) improved in the second half due to stronger pricing and improved operational control, despite significant inflationary cost pressures on energy, materials and labour. It has been a transitional year for the Company and the substantial improvements made will be further progressed throughout the coming period as final loss-making glazing products are phased out and as additional operational improvements are completed. The Company expects all these improvements to be largely completed by mid-2023, building a foundation for further sales and profits growth in 2024.

Balance Sheet & New Facility

Net cash/debt at 31 December 2022 was £-1.4m (2021: -£2.7m), which comprised cash balances of £1.2m (2021: cash £0.3m), and lease and HP obligations of £2.6m (2021: £3.0m).  

The Company is pleased to announce that it has signed a new Confidential Invoice Discounting facility ("CID"). The key terms of the CID are a £3m facility limit, with a 75% advance rate, at 2.95% above base rate, for eligible debtors(3). The CID will initially provide the Company with up to £1.5m of additional financial headroom.

Strategic

The Company continues to engage with a range of competitors, customers and technology partners to explore opportunities to access technology, develop strategic relationships and provide opportunities to further accelerate sales growth. 

The Market

The Company's products are used across all classes of automotive light vehicles, predominantly in Europe where ACEA(4) have reported that car registrations fell by 4.6% in 2022. Overall automotive light vehicle markets are expected to see positive growth in 2023 as the threat of recession diminishes, supply chain shortages ease and pent-up demand is satisfied. Consensus industry forecasts are for 2% growth.

Strip Tinning has a strong and diverse base of end-user OEM customers and good exposure to the fast- growing electric vehicle (EV) sector, both through its glazing products and its products for EV battery packs. In 2023 the Company is expecting to make over 30% of all its sales onto electric and hybrid vehicles, and growth for this market is forecast to remain very strong driving high demand in particular for the new EV battery related products manufactured by the Company.

EV Summary

The Company has made good progress in 2022 in securing entry into the market for Cell Contacting Systems (CCS) and Flexible Printed Circuits (FPCs) for EV battery packs, despite the serious set-back caused by the unexpected termination in August of the contract with a Croatian EV technology innovator with whom settlement negotiations remain ongoing.

Total sales in 2022 were worth £1.1m which included shipping production parts to three customers for use on their niche high performance vehicles and prototype parts for three other vehicle programmes, for which production nominations are to be made from mid-2023 onwards. Good progress has been made in preparing the new production line which will be able to manufacture up to 220,000 FPCs per annum.  The launch of this line has benefited from the £1.4m grant received from the Advanced Propulsion Centre ("APC") Scale-up Readiness Validation ("SuRV") programme which was won in June 2022. In total investment of over £2m has been made in EV production capacity. The line will be completed in Spring 2023. 

Going forward sales efforts are focused on two segments: Initially, the "Mid-market" for small to medium sized, lower volume CCS solutions (such as those on which we are already nominated), which will then provide the platform for success in the larger "Volume" market for medium sized (

EV sales in 2023 are forecast to be comparable to 2022, with growth then expected to accelerate in 2024 as a result of new mid-market nominations anticipated to be won during 2023 for production supply programmes, with Volume market production nominations expected to follow later.

Glazing Summary

The Glazing business has benefitted greatly in the second half from the leadership of Mark Perrins, the recently appointed Group MD, as well as the continued support of customers. We have been broadly successful in putting through price increases in the context of maintaining key customer relationships. Two rounds of price increases have been secured, the first of which averaged 8% and took effect from July 2022 and the second which averaged 30% on Connectors only and took effect from January 2023. Furthermore, significant operational improvements have been achieved by the move of all production into a new existing building, thereby streamlining cell working. Efficiency will be further improved by the completion of the SAP implementation. These improvements have offset the considerable cost pressures faced on materials, energy and labour costs, and to begin to grow gross margins which have improved steadily on an underlying basis(2) in H2 2022 and which are set to improve further in 2023.

At a time of significant copper market supply constraints, the Company has now successfully expanded its international supply base, building on historic relationships, and this has helped ensure supply to customers. In other product areas, such as connectors, supply still remains constrained. The supply base has seen significant consolidation and in consequence prices and lead times have risen considerably. The Company is actively working to protect itself and its customers against these developments.

Customers have engaged constructively with our price increases, and appreciate Strip Tinning's commitment to remain a strong, long-term supplier in the Glazing market. However, it has not made sense to continue to supply all the products manufactured in 2022 as a result of our focus on profitable production. Sales in 2023 are forecast to decline marginally, before recovering in 2024, during which we expect to secure new nominations, based on continued investment in Glazing products, production capabilities and on the support our customers are showing for the business.

ESG

In January 2023 Strip Tinning pleasingly received confirmation from Integrum that it has maintained its best-in-class A grade ESG rating, first obtained at the time of the IPO.

Outlook

Whilst the FY22 result will not be what the Board had originally set out to achieve for shareholders at the start of the financial year, it nevertheless believes that material progress has been in 2022 which will bear fruit in the medium term. Despite the challenging macroeconomic outlook, a return to -EBITDA breakeven is expected to be achieved in FY23, putting the business onto a sound footing for success in 2024. With the headroom provided by the new CID facility, the Company is able to manage cash requirements whilst maintaining EV and Glazing investment plans to build capacity, improve capabilities and drive productivity. Strip Tinning is confident that these investments, coupled with strong customer relationships, will lead to valuable new supply nominations in 2023, taking the Company back to growth in 2024.

Richard Barton, Group Chief Executive Officer of Strip Tinning, commented:

"Although we have been hampered by unfavourable market conditions, it has been a transitional year for Strip Tinning in which we have carefully managed resources and built a foundation for a return to growth moving forwards, typified by our steadily improved revenues in the second half of the year. We remain well-positioned to benefit from the fast-growing EV sector, as well as a reputable, long-term supplier in the glazing market. The Board remains confident in the prospects of Strip Tinning and is focussed on creating value for shareholders"

(1) Strip Tinning understands that market expectations for the year ended 31 December 2022 are for revenues of £10.4m, EBITDA loss of (-£2.1 m) and net cash/debt of -£1.9m (Source: FactSet)

(2) Underlying EBITDA is stated after adjusting for £1.1m of non- recurring one off items, principally relating to contract termination costs for the Croatian EV technology innovator, such as tooling and stock provisions, as well certain factory reorganisation costs and the £0.4m of exceptional IPO related expenses reported in the H1 FY22 interim results.

(3) Debtors in approved territories: UK, Europe, USA, China, South Africa

(4) https://www.acea.auto/pc-registrations/passenger-car-registrations-4-6-in-2022-12-8-in-december/

The person responsible for arranging the release of this information on behalf of the Company is Adam Le Van, Group Chief Financial Officer.

Enquiries:

Strip Tinning Holdings plc

Adam Robson, Exec Chair Via Alma PR

Richard Barton, Chief Executive Officer

Adam Le Van, Chief Financial Officer

Singer Capital Markets (Nominated Adviser and Sole Broker) +44 (0) 20 7496 3000

Rick Thompson

Alex Bond

James Fischer

Alma PR (Financial PR) striptinning@almapr.co.uk

Josh Royston +44 (0) 20 3405 0205

Joe Pederzolli

About Strip Tinning:

Strip Tinning Holdings plc (AIM: STG), is a leading supplier of specialist connection systems to the automotive sector.

Founded in 1957 the Company has a rich history in providing components to a global Tier 1 OEM base for use in the world's most recognised car brands. In 2019, Strip Tinning adapted its expertise to create ST Flex, a growing range of flexible printed circuits for use in the fast growing EV market.  

Strip Tinning manufactures specialist flexible electrical connectors related primarily to heating and antennae systems embedded within automotive glazing and to the connection of the cells within electric vehicle (EV) battery packs, increasingly using flexible and lightweight printed circuit technology.

The Company is headquartered and operates from its site at Arden Business Park Birmingham with 95% of all sales exported worldwide to meet the needs of most of the world's leading automotive OEMs.

For additional information please visit www.striptinning.com