9 July 2024
VELOCITY COMPOSITES
PLC
("Velocity", the "Company", the "Group")
Unaudited Half Year Results
for the six months ended 30 April 2024
On track to achieve
profitability and be cash generative in H2 FY24
Velocity Composites plc (AIM: VEL),
the leading supplier of composite material kits to aerospace, is
pleased to announce the Company's unaudited results for the six
months ended 30 April 2024.
Financial Highlights:
|
·
|
Revenue increased 53.9% to £10.7m
(2023: £7.0m) with UK sales up 4% and a £3.6m contribution from the
US as programmes continue to transfer and ramp up
|
|
·
|
Gross margin was 22.5% (2023: 21.8%)
with UK margins slightly lower and US margins benefitting from
increasing site utilisation as the programmes transfer
|
|
·
|
EBITDA loss of £0.2m (2023: £0.9m
loss)
|
|
·
|
Loss before tax of £1.1m (2023:
£1.4m loss)
|
|
·
|
Cash at bank as at 30 April 2024 of
£1.8m (30 April 2023: £1.2m)
|
|
·
|
Net cash of £0.6m (H1 FY23: net debt
of £1.7m)
|
|
·
|
UK invoice discounting facility of
£3m is undrawn
|
Operating Highlights:
|
·
|
As announced on 11 March 2024, the
Company received OEM approval for phase 4 of the First Article
Inspection ("FAI") process. As at 22 May 2024, Velocity has
completed FAIs which enable the Company to satisfy 91% of FY24 US
revenue and 85% of FY25 US revenue, with the remainder expected to
be completed in FY24. This supports the £79m in revenue expected
under this US Contract over the five years from 1January
2024.
|
|
·
|
Robert (Rob) Smith was appointed to
the Board as Group Chief Financial Officer (CFO) and Company
Secretary, on 3 June 2024.
|
Outlook:
|
·
|
Group guidance for FY24 remains
unchanged, with H2 revenue attributable to inflationary price rises
for existing contracts taking effect and production rates
increasing in the US facility.
|
|
·
|
In line with previous guidance,
Company expects to be profitable and cash generative in H2 FY24
underpinned by contracted revenues for FY24 of £27m (FY23: £16.4m)
growing to £33m in FY25.
|
|
·
|
OEMs continue to announce increases
in long term production rates. For example, Airbus 350 rates are
set to double for 2028.
|
|
·
|
Price increases continue to be
agreed to reflect previous cost increases and these are expected to
be in balance by end of FY24, along with extensions in UK customer
agreements.
|
|
·
|
US demand on current contracts
continues to be strong with the potential to exceed the original
$20m expectation in FY25.
|
|
·
|
Issues at Boeing and its supply
chain have had no impact on the Company's FY24 revenue or
forecasts
|
|
·
|
The Board is confident that it will
meet market expectations for the full year.
|
Andy Beaden, Chairman, Velocity,
said: "The
successful onboarding process of our first US customer, and
increasing global production rates in the aerospace industry mean
that we are on track to be profitable and cash generative in the
second half. The Board is confident that it will meet market
expectations for the full year. The first US project is delivering
the expected efficiency gains to the customer which acts as a show
case for future large-scale projects. The industry trends of
increasing use of composites to meet net zero targets, and greater
outsourcing as manufacturers look to reduce costs means Velocity is
primed for a successful future. We have a large, qualified pipeline
of potential contracts in the US and Europe of £200m, which makes
us excited about the Company's long-term prospects."
Enquiries:
|
Velocity Composites plc
Andy Beaden, Chairman
Jon Bridges, Chief Executive
Officer
Rob Smith, Group Chief Financial
Officer
|
+44 (0)
1282 577577
|
|
Canaccord Genuity Limited
Nominated Adviser and Joint Broker
Max Hartley
George Grainger
|
+44 (0) 20
7523 8000
|
|
Dowgate Capital Limited
Joint Broker
Russell Cook
Nick Chambers
|
+44 (0) 20
3903 7715
|
|
SEC
Newgate
Financial Communications
Robin Tozer
George Esmond
Harry Handyside
|
+44
(0)7540 106 366
velocity@secnewgate.co.uk
|
About Velocity Composites
plc
Based in Burnley, UK, Velocity is
the leading supplier of composite material kits to aerospace, that
reduce costs and improve sustainability. Customers include
Airbus, Boeing, and GKN.
By using Velocity's proprietary
technology, manufacturers can also free up internal resources to
focus on their core business. Velocity has significant
potential for expansion, both in the UK and abroad, including into
new market areas, such as wind energy, urban air mobility and
electric vehicles, where the demand for composites is expected to
grow.
Chairman's
Statement
Overview
The first six months has been one of
further operational and financial progress. Group guidance for FY24 remains unchanged, with H2 revenue
growing through increasing production rates on the US Contract,
where we have substantially completed the extensive onboarding and
approval processes of new business at our new facility in Alabama.
H2 revenue has also benefited from price rises for existing
contracts to recover the impact of cost inflation.
I am pleased to report that we are
on track to be profitable and cash generative in the next six
months underpinned by our contracted
revenues for FY24 of £27m (FY23: £16.4m) growing to £33m in
FY25.
Across the global aerospace
industry, production rates continue to recover. Airbus has
announced a doubling of A350 production rates through to 2027. The
Company is continuing to work on securing additional contracts and
has live bids in with customers in the US and in Europe.
Although progress has slowed in some cases in the US due to the
well-publicised issues with Boeing, these issues have no impact on
the Company's contracted revenues for FY24 or FY25. The industry's
biggest challenge is to now increase production rates in civil and
military aircraft, to meet longer term demand. Back-logs on
order books have grown and our services can support the need for
sustainable and efficient production expansion at Tier 1 and OEM
level. There is clear long-term demand for the productivity gains
our services provide.
Velocity has a balanced pipeline of
current and prospective contracts, civil and defence sectors, and
is focusing on non-Boeing customer engagement in the short term in
the US and winning additional business with existing European
customers.
Financial Performance
Revenue during the period increased
53.9% to £10.7m (2023: £7.0m) as production rates have increased on
the Company's initial major US contract. Price increases have been
agreed with key customers and will provide greater benefit in the
second half.
Gross Margin rose to 22.5% (2023:
21.8%). Investments in the new US facility in Alabama began to bear
fruit. Margins will continue to improve in H2 with the benefit of
inflationary price increases, to recover inflationary cost
increases and the US volumes increasing further, which gives better
recovery against fixed costs.
As planned, administrative expenses
of £3.3m were 18% higher (£0.5m) than FY23 with all of the increase
in cost relating to the higher US overheads and depreciation
following the investment.
EBITDA loss was £0.2m (2023: loss of
£0.9m), with the expectation that the Company will have positive
EBITDA and Profit before tax in H2. The operating loss reduced, as
the US production increased. In H1 there was still some impact of
the lag in cost inflation versus price increases, we expect this to
reverse in the remainder of the year.
The loss before tax reduced to £1.1m
(2023: loss of £1.4m). This was reduced to £0.7m after recovery of
the R&D tax credits. We remain on track to achieve an
operating profit in H2.
Cash at bank as at 30 April 2024 was
£1.8m (30 April 2023: £1.2m), with net cash of £0.6m (H1 FY23: net
debt of £1.7m). US working capital has been supported by supply
chain finance lines provided by our lead US customer, helping to
provide the additional working capital required until profit from
the US contract can fund working capital in the long term. In H2 we
start the transition which will continue on a phased basis into
FY25 to take on the direct purchase of raw material from suppliers
in the US. The Company continues to have access to its invoice
discounting facility in the UK of up to £3m which was undrawn at
the half year and also holds debt relating to Coronavirus Business
Interruption Loans of £1.2m (2023: £1.8m), which are being repaid
by instalments with final amounts due in 2026.
US
Contract
Velocity signed a five-year contract
with expected revenue of £79 million ($100 million) in December
2022 (the "Contract") with a leading US manufacturer ("The
Customer"). The Company was selected to improve efficiency and
support increased production rates, building on Velocity's
long-standing relationship with the Customer, which it also
services across existing UK sites.
To deliver the Contract, the Company
developed its first advanced manufacturing facility outside of the
United Kingdom, a 40,000 sq. ft facility in Alabama. Velocity
invested £3 million to develop the facility which has capacity to
deliver $40 million revenue per annum.
Since completing the construction of
the facility in Alabama in 2023, Velocity has been on-boarding the
new business for the Contract. This is a complex and lengthy
process, including a detailed qualification procedure known as
First Article Inspection ("FAI"). The total project is split
into a number of individual aircraft programme blocks, to be
delivered sequentially within a 12-month transfer plan. The project
involves close co-operation between Velocity and the Customer to
verify that the kit engineering data for each block had been
transferred accurately, followed by the manufacture of the first
kit for each component manufactured for evaluation by the Customer.
Once transferred, Velocity becomes the sole approved supplier of
the kits. Only once each block completes the FAI process is
Velocity then able to build towards full volume
production.
Following a key OEM approval in
March 2024, Velocity expects the FAI process to be fully complete
for all the programme blocks by the end of FY2024. To date,
Velocity has completed FAIs which enable the
Company to satisfy 91% of FY24 US revenue and 85%% of FY25 US
revenue.
It is encouraging to see that our UK
sites have seen production rates start to rise, particularly around
the newer programmes such as A350. With Kevin Hickey re-joining
Velocity as Chief Operating Officer ("COO") last year, he has
reviewed the operations structure needed for the future growth of
the Company and made structural changes to deliver this. Each site
now has a standard management structure focused on the Site
Operations Manager role, leading teams with clearer, real-time
performance management of safety, quality, cost, delivery and
people to ensure each customer programme is operating in line with
targeted levels. This not only brings stability and efficiency to
existing customer programmes but provides the sound basis for
expected growth.
Investment in Growth & Customer
Proposition
Velocity continues to maintain the
required investment to support its growth and R&D activities.
The Company has been able to self-fund this through the pandemic,
which suppressed short-term demand in the aerospace manufacturing
sector, with the UK civil aerospace sector particularly hard
hit.
This includes further development of
the Company's TCO (total cost of ownership) Business Case process,
which allows Velocity business development staff to accurately map
the current, internal costs of customers in-house processes. This
includes detailed breakdown of the key areas - raw material, labour
resources, packaging and logistics, overheads and supply chain
finance costs, and for them to be compared to Velocity's proposal
forming a very thorough and proven business case document for
review by senior stakeholders.
In addition, work has been done to
develop the Company's customer proposition through investment in
R&D. A new "Digital Manufacturing Cell" that enables further
standardisation and automation of production is expected to be
deployed in the second half of the year. It is likely to improve
future gross margin through material and labour efficiencies. The
Digital Cell combines with our composite tailored material planning
technology, Velocity Resource Planning, or VRP. These technology
hardware and software systems enable the efficiencies in our
services to existing customers, in labour, materials and inventory
levels, and feed back into future TCO business cases for new
customers.
Board Changes
On 3 June 2024, we were delighted to
welcome Robert (Rob) Smith to the Board as Group Chief Financial
Officer (CFO) and Company Secretary. Rob is a chartered
management accountant with significant experience in leadership
roles in a number of AIM quoted technology companies, where he has
been instrumental in leading growth strategies and improving
operational efficiencies.
Rob has a proven track record in
advanced manufacturing at both CFO and CEO level, including
manufacturing systems implementation and international commercial
leadership. Most recently Rob served as Group CFO at Biome
Technologies plc and prior to that, in the CFO and CEO roles at
Filtronic plc between 2014 and 2020, an electronics designer and
manufacturer of advanced filters, antennas and transceivers.
Rob was Finance Director of APC Technology Group, a specialist
distributor and manufacturer of electronic components and
semiconductor products with a focus on green technology industries
between 2010 and 2014.
The Board would like to thank Andrew
Hebb for his significant contribution as the Company's Interim
Chief Financial Officer since August 2023.
Outlook
Velocity is benefiting from the
long-term trend of increasing use of lightweight composite
materials within modern aircraft to meet environmental targets.
This trend is contributing to forecasts for the use of
lighter-weight aircraft to grow by ten times over the next two
decades. At the same time, OEMs are focusing on outsourcing to
reduce costs. Velocity has first mover advantage on its
turn-key package of services and is the only company to provide an
end-to-end solution for manufacturers, offering them significant
savings on material and time costs, as well as improving
sustainability.
The Company has a healthy short-term
pipeline of new business opportunities in Europe and North America.
The Company has contracted revenues for FY24 of £27m (FY23: £16.4m)
growing to £33m in FY25. The current UK and US manufacturing
facilities are being better utilised to meet this increase in the
order book. The new US facility could be doubled again in capacity,
to meet further new business and contracted volumed growth, and the
Company has the capacity to deliver up to circa £70m with only
minimal additional investment. We have a highly qualified pipeline
of new business of c.£200m. The Board have set a five-year target
of achieving a contracted revenue of £100m and 10% EBITDA
margin.
We are looking forward to the future
with confidence.
Andy Beaden
Non-Executive Chairman
9 July 2024
Notes to Interim
Report
1.
General information
Velocity Composites plc (the
'Company') is a public limited company incorporated and domiciled
in England and Wales. The registered office of the Company is AMS
Technology Park, Billington Road, Burnley, Lancashire, BB11 5UB,
United Kingdom. The registered company number is
06389233.
In order to prepare for future
expansion in the Asia region, the Company established a wholly
owned subsidiary company, Velocity Composites Sendirian Berhad,
which is domiciled in Malaysia. The subsidiary company commenced
trading on 18 April 2018. The Company also established a wholly
owned subsidiary company, Velocity Composites Aerospace Inc. to
prepare for future expansion in the United States of America. These
subsidiaries, together with Velocity Composites plc, now form the
Velocity Composites Group ('the Group').
The Group's principal activity is
that of the sale of kits of composite material and related products
to the aerospace industry.
The condensed consolidated interim
financial statements are unaudited and do not constitute statutory
financial statements within the meaning of Section 435 of the
Companies Act 2006. The review report on these interim financial
statements is set out below. The financial information for the year
ended 31 October 2023 has been derived from the published statutory
financial statements for the Company. A copy of the full
accounts for that period, on which the auditor issued an unmodified
report that did not contain statements under Section 498(2) or
498(3) of the Companies Act 2006, has been delivered to the
Registrar of Companies.
These interim financial statements
will be available from the Company's website at
www.velocity-composites.com.
2.
Accounting policies
Basis of
preparation
These condensed consolidated interim
financial statements are for the six months ended 30 April 2024.
This interim financial report has been prepared in accordance with
International Accounting Standard 34, in accordance with UK-adopted
international accounting standards, and has been prepared using
consistent accounting policies as applied in the Company's full
year accounts to 31 October 2023 and as expected to be applied in
the full year accounts to 31 October 2024. They have therefore been
prepared in compliance with the measurement and recognition
criteria of UK-adopted international accounting
standards.
These financial statements have been
prepared on a going concern basis and using the historical cost
convention, as stated in the accounting policies. These policies
have been consistently applied to all periods presented, unless
otherwise stated.
The financial statements are
presented in sterling and have been rounded to the nearest thousand
(£'000) except where otherwise indicated.
No new standards have been adopted
for the first time in the current financial year.
Going
concern
Management continues to undertake a
significant level of cash flow forecasting and detailed financial
projections for the period to 31 October 2025 have been prepared. A
number of sensitivities have been performed to understand the cash
flow impact of various scenarios which continue to show that the
business has sufficient liquidity to continue trading as a going
concern.
The aerospace sector lends itself to
long-term planning due to the nature and length of customer
programmes, typically a minimum of three years, but often five
years or more. This has enabled the business to fully model the
period to 31 October 2025 and incorporate more strategic,
longer-term planning for growth as the industry continues its
recovery from the pandemic.
2. Accounting
policies (continued)
Going concern
(continued)
Cash flow forecasts are reviewed
monthly through Management's Integrated Business Planning (IBP)
process and the assumptions updated for any new knowledge to ensure
there is no change in the Group's liquidity outlook. This is linked
in with Management's monthly risk review and should the outlook
change significantly with no mitigating actions, the Group's
liquidity risk rating on the risk register will be adjusted to
reflect this and subsequently discussed at Board level.
The latest financial projections
incorporate revenue forecasts based on current contracted demand in
both the UK and US. It is important that the business continues to
move towards full rate production in the US in order to meet this
customer demand, generating revenue and cash in the process. The
cost base included in the projections is reflective of the
significant cost reductions that have already taken place in the
Group, but also realistic about the investment required to continue
to implement growth.
It is this investment in growth and
technological advancements that has resulted in the forecasts
indicating that the Group's Invoice Discounting Facility, secured
against Trade Debtors, will not be utilised during the going
concern period. Whilst this facility is designed to be short-term
and can be withdrawn with 3 months' notice, the latest discussions
have reflected the bank's support for Velocity's growth strategy
and as such we expect this facility will remain available for the
foreseeable future. The Group is also reliant on the supply chain
facilities and support offered by the current US customer as it
continues to develop the Tallassee site and move towards full rate
production and again, it is the expectation that this will remain
in place.
Should alternative financing be
required, the Group would preserve cash by delaying further
investment activities until longer-term funding could be
implemented, such as asset-based financing against new capital
expenditure, new banking facilities or equity funding.
Having due regard for the latest
deliverables and latest projections, together with the facilities
available, it is the opinion of the Board that the Group has
adequate resources to continue to trade as a going
concern.
3.
Segmental
analysis
The Group supplies a single range of
kitted products into a single industry and so has a single segment.
Additional information is given below regarding the revenue
receivable based on geographical location of the
customer.
|
|
6 months
ended
30 April
2024 (unaudited)
|
6 months
ended
30 April
2023
(unaudited)
|
12 months
ended
31 October
2023
(audited)
|
|
|
£'000
|
£'000
|
£'000
|
|
Revenue
|
|
|
|
|
United Kingdom
|
7,143
|
6,844
|
14,350
|
|
Rest of Europe
|
6
|
6
|
41
|
|
US
|
3,588
|
-
|
1,967
|
|
Rest of World
|
8
|
130
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
10,745
|
6,980
|
16,411
|
Four customers of the Group are
responsible for over 90% of the total revenue in each of the
periods presented. The majority of revenue arises from the sale of
goods. Where engineering services form a part of revenue it is only
in support of the development or sale of the goods.
4.
Reconciliation of reported earnings per share
|
|
6 months
ended
30 April
2024 (unaudited)
|
6 months
ended
30 April
2023 (unaudited)
|
12 months
ended
31 October
2023
(audited)
|
|
|
£'000
|
£'000
|
£'000
|
|
|
|
|
|
|
Loss for the period/year
|
(680)
|
(1,437)
|
(3,143)
|
|
|
|
|
|
|
Weighted average number of shares
|
Shares
|
Shares
|
Shares
|
|
|
|
|
|
|
Weighted average number of shares in
issue
|
53,433,561
|
36,600,099
|
38,410,094
|
|
Weighted average number of share
options
|
1,648,430
|
2,254,694
|
1,348,066
|
|
Weighted average number of shares
(diluted)
|
55,081,991
|
38,854,793
|
39,758,160
|
Share options have not been included
in the diluted loss per share calculation as they would be
anti-dilutive with a loss being recognised.
|
|
6 months ended 30 April 2024
(unaudited)
|
6 months
ended 30
April 2023
(unaudited)
|
12 months ended 31 October
2022 (audited)
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
Basic & Diluted
|
(0.01p)
|
(0.04p)
|
(0.08p)
|
5.
Share capital of the
Company
|
|
Number of
shares
|
Share
capital
|
Share
premium
|
|
|
|
£
|
£
|
|
Share capital issued and fully paid
|
|
|
|
|
Ordinary shares of £0.0025 each as
at 31 October 2022
|
36,458,997
|
91,147
|
9,727,158
|
|
Shares issued to satisfy exercise of
share options on 6 March 2023
|
461,788
|
1,154
|
-
|
|
Ordinary shares of £0.0025 each as
at 30 April 2023
|
36,920,785
|
92,301
|
9,727,158
|
|
Ordinary shares issued 15 August
2023
|
3,972,583
|
9,932
|
1,579,102
|
|
Ordinary shares issued 6 October
2023
|
12,500,000
|
31,250
|
4,968,750
|
|
Transaction costs
|
-
|
-
|
(485,000)
|
|
Reduction of Share Premium
Account
|
-
|
-
|
(10,919,658)
|
|
Ordinary shares of £0.0025 each as
at 31 October 2023
|
53,393,368
|
133,483
|
4,870,352
|
|
Shares issued to satisfy exercise of
share options on 6 March 2023
|
75,000
|
188
|
-
|
|
Ordinary shares of £0.0025 each as
at 30 April 2024
|
53,468,368
|
133,671
|
4,870,352
|
|
|
|
|
|
Ordinary shares carry the right to
one vote per share at general meetings of the Company and the
rights to share in any distribution of profits or returns of
capital and to share in any residual assets available for distribution in the event of a winding
up.
6. Capital
commitments
At 30 April 2024 the Group had
£158,000 (2023: £Nil) of capital commitments relating to the
purchase of leasehold improvements, plant and machinery and fixture
and
fittings.
Independent Review Report to Velocity Composites
plc
Conclusion
We have been engaged by the Company
to review the condensed set of financial statements in the
half-yearly financial report for the six months ended 30 April 2024
which comprises the condensed Consolidated Statement of
Comprehensive income, the condensed Consolidated Statement of
Financial Position, the condensed Consolidated Statement of Changes
in Equity, the condensed Consolidated Statement of Cash Flows and
the related notes.
Based on our review, nothing has
come to our attention that causes us to believe that the condensed
set of financial statements in the half-yearly financial report for
the six months ended 30 April 2024 is not prepared, in all material
respects, in accordance with UK adopted International Accounting
Standard 34.
Basis for Conclusion
We conducted our review in
accordance with International Standard on Review Engagements (UK)
2410, ''Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued for use in the United
Kingdom. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 2, the annual
financial statements of the group are prepared in accordance with
UK adopted IFRSs. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34,
"Interim Financial Reporting.
Conclusions Relating to Going Concern
Based on our review procedures,
which are less extensive than those performed in an audit as
described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or
that management have identified material uncertainties relating to
going concern that are not appropriately disclosed.
This conclusion is based on the
review procedures performed in accordance with this ISRE, however
future events or conditions may cause the entity to cease to
continue as a going concern.
Responsibilities of Directors
The directors are responsible for
preparing the half-yearly financial report in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting'.
In preparing the half-yearly
financial report, the directors are responsible for assessing the
company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic
alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly report,
we are responsible for expressing to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for
Conclusion paragraph of this report.
Cooper Parry Group
Limited
Statutory Auditor
Sky View
Argosy Road
East Midlands Airport
Castle Donington
Derby
DE74 2SA
8 July 2024