20 September 2022

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 the unaudited results for Strip Tinning Limited ("STL") the Group's wholly owned operating subsidiary for the six months ended 30 June 2022¹.

Key Financials:

·    Total Revenues of £4.7m (H1 2021 :£5.8m)

·    EV product sales of £0.6m (H1 2021: £0.1m)

·    Glazing product sales of £4.1m (H1 2021: £5.7m)

·    Combined Gross Margin of £0.4m / 9% (H1 2021: £2.3m / 40%)

·    Like for like adjusted² EBITDA loss of £1.4m versus profit of £1.1m in H1 2021

·    Reported loss after tax of £2.5m compared to reported profit on £0.1m in H1 2021

·    Cash of £3.1m with asset finance borrowings of £1.5m (Net cash £1.6m positive versus negative £0.7m in H1 2021)

·    Basic EPS of (£0.18)³ (H1 2021: £0.01⁴)

¹The Company was incorporated on 6 January 2022 as Strip Tinning Holdings Limited and on 7 February re-registered as public company changing its name to Strip Tinning Holdings plc, ahead of its admission to AIM. The Company is the holding company of the Group. Save for the Company and STL there are no other companies within the Group.

²adjusted for FX impacts, share based payments, and IPO exceptionals plus £0.2m of PLC costs not relevant in H1 2021

³based on weighted average shares

⁴based on shares in Strip Tinning Limited immediately prior to IPO

Operational updates:

·    Increased sales across EV side of the business highlight the continuing focus of vehicle manufacturers on electric ranges, a continuing trend which the Company is well-positioned to benefit from

·    10-year supply agreement for €3m incremental Busbar sales with second biggest customer

·    Glazing revenues hampered due to the deterioration in the automotive sector as a result of well publicised external factors heightened by Russia's invasion of Ukraine

·    Prudent action taken to accelerate the capture of the EV opportunity as well as profitability in Glazing, with investment into people, operations and product

·    Strengthened management team with extensive experience within the sector

Post period end developments:

·    Confirmation of successful government grant application worth  £1.4m, over the period to January 2024, to support production scale up of the EV business

·    Successful set-up of employee Share Incentive Plan, comprising a free share award based on length of service for all employees with service of 6 months as at 30 September 2022 to reward loyalty and aid retention of key skills

·    Termination of contract with a Croatian electric vehicle technology innovator for the supply of cell management systems to a leading German OEM

·    Subsequent to successful delivery and completion of milestones on major EV series production programme, Purchase Order for £0.5m received for next build phase

·    5-year nomination to provide Glazing connectors for panoramic roofs of the new range of electric BMW iX vehicles expected to generate revenues for FY 2023 of c. $1.2m

·    Securing a low volume, high margin prototype order from a EV new entrant

Board Changes

·    Adam Robson to move to Executive Chairman with immediate effect

·    Appointment made in order to leverage Adam's long standing relationships within the sector and explore partnerships to accelerate EV division progress

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

"In spite of a challenging backdrop, in which the automotive sector has sharply declined amidst sector-wide headwinds, the Board still retains a strong degree of confidence in the medium-term prospects of the business, typified by the recent £1.4 million government grant award, which will be used to scale up EV production and increase market share.

Although the EV contract termination request is an undoubted setback for the EV division as it provided a visible validation of the Strip Tinning EV product offering, the business is working hard to ensure that the contract is respected and a fair settlement is reached. With a fast-growing pipeline across the EV side of the business, we look forward to progressing further and continuing on our growth trajectory.

The Glazing side of our business has been impacted by the wider decline in the automotive sector, catalysed by global supply chain disruptions, higher inflation in material and labour costs, Russia's invasion of Ukraine and Covid-19 lockdowns in Shanghai, all only partially offset by price increases. That said, thanks to operational adjustments and productivity improvements, we are starting to see an improving picture and progress made in sales developments but we continue to monitor progress carefully with a view to optimising the focus of our activities across Glazing and EV.

We are strengthened by a robust cash position, an established reputation within the automotive sector and a highly experienced management team. I am confident in the continued growth of our EV division and further improvements in Glazing."

Enquiries:

Strip Tinning Holdings plc                                                                                                                 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

Will Goode

Alex Bond

James Fischer

Alma PR (Financial PR)                                                                                                  [email protected]

Josh Royston                                                                                                                             +44 (0) 20 3405 0205       

Joe Pederzolli                                                                                   

Chief Executive's Report

Introduction

I would like to take this opportunity to thank our shareholders for their continued support and advice. In the face of what has been a challenging backdrop, in which the business has had to deal with the implications of Russia's invasion of Ukraine, spiralling inflation, and the softening of the automotive sector, to have such continuing support is highly appreciated and an endorsement of Strip Tinning's significant growth potential.

Although the business has not been able to advance as quickly as we would have liked in some areas, and has had a setback  in EV, there is plenty to be optimistic about. The strength of our relationships with our Glazing customers built over many years remain very strong and we are confident that this line of our business will recover in line with the wider recuperation of the automotive sector. We are seeing a strong pipeline of opportunities within the EV division and are well positioned to exploit the opportunities which we anticipate to receive in such a fast-growing space.

I am delighted that Adam Robson has agreed to take on an executive role within the business. As a Board we have been impressed by his automotive experience and believe that he can add significant value in a more hands on role, particularly in identifying and progressing potential partnership opportunities that could accelerate our growth in the EV market.

I would also like to take this opportunity to thank the entire Strip Tinning team for their continued hard work. In the face of an unprecedented backdrop, the resilience of the business reflects the quality and diligence of all our people and on behalf of the Board, I wish to offer them my sincere thanks.

Review of Operations

EV

EV revenues in H1 increased to £0.6m (H1 2021: £0.1m) reflecting strong progress on this side of the business, and the Company is well-positioned to exploit further growth opportunities within the fast-growing EV space. The request to terminate the contract signed in December 2021 with a technology developer to supply series production parts to a major German OEM with a Start of Production date in H2 2023 is clearly disappointing. Negotiations have begun with the contracted party to settle the liabilities arising from the decision and we will provide further information as these progress.

This aside, the opportunity for the EV division continues to grow and we remain very confident in its future. All other EV programmes are progressing towards expected milestones, with indications that volumes will exceed original forecasts.  During H1 we started shipping production parts to two customers for use on their niche high performance vehicles, and we have received the nomination to supply the production parts on a third niche vehicle.  We also continued to deepen our connection with our key UK technology development customers, with whom we have nominations to supply the production parts on five vehicles and from who we have had orders worth £0.9m for samples to be delivered in 2022. Beyond these customers, we have a further four projects for major OEM customers with whom we are actively engaged at the quotation stage. In the first half of the year we started working with a German business development adviser who is helping us to market our growing proposition within the EV market. He has proved instrumental in our progress with these new major potential European OEM customers. 

The recent government funded grant award of £1.4 million through the Advanced Propulsion Centre ("APC") Scale-up Readiness Validation ("SuRV") competition underpins this confidence and is the foundation for further grant applications, the first of which under the APC's Faraday programme we have applied for in partnership with one of our key UK customers. The grant will be used in its totality to fund the development and validation of a pilot production system for the manufacturing of our Cell Contacting and Management System (CCMS) product, and will be received via six quarterly drawdowns covering the period to end of January 2024. The CCMS product is an integral part of the power electronics system in battery electric vehicles, providing electrical connectivity and utilising an array of sensors and other surface mount electronics devices to monitor the performance and safety of batteries. The project will produce a pilot production line capable of 80,000 units per year, presenting a clear route to scale up and increased market share. The Company continues to explore further grant opportunities.

Glazing

Revenues in Glazing decreased to £4.1m (H1 2021: £5.7m) due to the macro-economic conditions which continue to affect the automotive industry. Despite these challenges, our relationships with our customer base built over many years remain particularly strong and we do not believe that there has been any impact to Strip Tinning's market share. As well as reduced volumes in the first half of the year, margins have been impacted by higher costs of raw materials, labour, energy and shipping. They have also suffered from an adverse mix change as customers have destocked busbar during the early months of the year. 

Despite these difficulties, there continue to be a number of reasons for optimism within the Glazing division. Mark Perrins joined us as Managing Director of the division in February in line with our plans stated at the time of IPO. Mark brings with him 20 years of Tier 1 automotive senior management production experience, with a particular focus on quality and process improvement. Since joining and as part of a review into our product ranges, he has been identifying those areas in which we can most effectively invest and focus our improvement activities, as well as those that are most difficult to improve. 

Alongside the previously announced 10 year deal for increased Busbar volumes with Sisecam Automotive worth an incremental €0.3m per year, we have also commenced trials with a potential new busbar customer which provides an opportunity for significant growth. Furthermore, the Company will benefit in H2 and beyond from price increases agreed with customers coming into effect.

Our growing reputation for delivering innovative connectors to the EV market was also evidenced by the award in July of a 5 year nomination for a BMW electric vehicle line. This contract is due to commence in Q4 of FY22 and is expected to generate revenues for the full year ending 31 December 2023 of circa $1.2 million. Additionally, we were pleased to announce a 45% connector volume uplift on a 5-year nomination for use across the Skoda electric vehicle range.

We plan to increasingly focus on higher margin products where we can generate a return in spite of higher raw material, energy and labour costs, whilst retaining the ability to ramp up production across all product ranges when conditions normalise.

Outlook

Sales in the second half of 2022 continue to improve.  However, the rate of market recovery has been slower than previously envisaged and the business has now also stopped production of some low margin Glazing products. 

EBITDA losses have been steadily reducing and this trend is expected to materially continue into the second half of 2022.  However, with lower sales than previously anticipated and harsher headwinds from market weakness, high inflation and slower progress than expected on automation, the Board still expects that EBITDA in the second half of 2022 will remain negative.

Beyond 2022, external headwinds are expected to remain and trading in the Glazing business overall will remain challenging. However, the Board believes that further improvements can be made and that the business is well placed to benefit as these changes are delivered into 2023 when eventually the headwinds ease and conditions normalise.    

The loss of the EV production supply contract with the technology developer will have a minimal impact this financial year, but the short-term outlook for the EV division is subject to ongoing discussions with the customer to resolve contractual liabilities.  

The medium to long-term prospects for the EV division and the Group as a whole continue to be very positive as discussed above. With our reputation for innovation and excellence, our world-class customer base and increasing exposure to the fast-growing EV industry, we are well placed to succeed.

Financial Review 

Glazing sales declined £1.6m / 28% compared to H1 2021. This decline reflected the overall 14% reduction in passenger vehicle registrations versus the comparable period in 2021 reported by ACEA, compounded by Strip Tinning's direct exposure to 3 glazing plants owned by multinational glazing customers located in Russia which have not been calling off product following the Russian invasion of Ukraine.  

Busbar accounted for £1.3m of the sales decline as customers unwound stock holdings from 2021 with the declines in the production of new vehicles. This had a significant impact on overall gross margin for the group in H1.  

In common with the wider economy, the business has experienced significant inflationary pressures for materials (metals and plastics). London Metal Exchange (LME) copper and tin prices peaked in H1 2022 at US$10,730 / US$50,050 at 15% / 53% higher respectively than 2021 averages. By 30th June 2022, prices had fallen back to US$8,245 / US$27,050 (below 2021 average prices) and the LME stock index had increased. This indicated less demand pressure, which is a positive, especially in conjunction with the additional sources of supply the business has been developing to diversify supply and improve pricing. The weakening of the £ versus the € and US$ is also helpful to cash flows as the majority of sales are in these currencies versus the majority of costs remaining in GBP. 

The tight labour market in the UK has also resulted in the need for over-time and more expensive agency staff to cover production staffing requirements. The well-publicised cost of living pressures have led to an average pay rise of 6%, lifting production worker pay above the National Living Wage, to assist with retention and recruitment. Investment into engineering, quality and programme management has also increased administrative costs. Direct labour costs have been, and remain, the biggest challenge to profitability in the glazing connector business, particularly as disruption to planned production from material or staff shortages inevitably leads to premium freight costs to ensure customer schedules are met.   

The reduced sales and gross margin % therefore provided insufficient contribution to cover the overhead cost base that has been built up in the previous 12 months to support the EV growth strategy and PLC structure, resulting in the £1.6m EBITDA loss for the period (inclusive of all PLC costs incurred). 

Cash stood at £3.1m as at 30 June 2022. Together with the government grant award to assist with the scale-up of the EV business and R&D Tax Credit claims in preparation, this underpins the investment programme to meet the requirements of customers.  

Statement of Comprehensive Income for the six months ended 30 June 2022