REG - Velocity Composites - Final Results for the year ended 31 October 2023
23/01/2024 07:00
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RNS Number : 5227A Velocity Composites PLC 23 January 2024
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23 January 2024
VELOCITY COMPOSITES PLC
("Velocity or the "Company")
Final Results for the twelve months to 31 October 2023
Revenue increased 37% with operating profit expected in H2 FY24
Velocity Composites plc (AIM: VEL), the leading supplier of composite material
kits to aerospace and other high-performance manufacturers, is pleased to
announce the Company's audited results for the twelve months to 31 October
2023 ("FY23").
Financial Highlights:
· Total revenue increased 37% to £16.4m (FY22: £12.0m), in line with
market expectations.
· Maiden revenue of £2.0m during the period was derived from the
Company's new US facility built to support the five-year Work Package
Agreement ("the Agreement") announced in December 2022 with a global Tier 1
launch customer.
· Agreement term commenced on planned start date of 1 January 2024,
with the full-term revenue of US$100m remaining unchanged at the underlying
base of US$20m per annum based on current programme production rates.
· Gross margin decreased from 23.0% to 18.8% reflecting the significant
startup costs associated with the new US site.
· Full year adjusted EBITDA* loss of £1.6m (FY22: loss of £0.5m) due
primarily to lower margins and additional costs associated with onboarding key
roles to support the US operation.
· Net cash position (cash less debt) of £1.6m at 31 October 2023
(FY22: £0.2m). The net proceeds of £6.1m from the successful fundraise in
August 2023 have been used to fund the investment in the new US facility,
including plant and equipment, and for working capital support.
· The Group also repaid debt of £1.0m (FY22: £0.9m), being CBILs Loan
and lease liabilities.
Operational Highlights:
· Successful site opening and production ramp up in Alabama to serve
the Agreement.
· Agreement is expected to rollover to a much longer period, with the
opportunity to add more contracts from other US manufacturers - currently
there is one live bid with a large Tier 1 customer under a Memorandum of
Understanding, and a third business development plan with another large Tier 1
customer.
· UK production has scaled to meet increased customer demand.
· In July 2023, the Company appointed Kevin Hickey as Group Chief
Operating Officer. Kevin previously worked at Velocity between 2017 and 2020,
where he was responsible for the establishment, ramp up and management of the
Company's production facility in Fareham, UK.
Outlook
· Guidance given by the Company on 26 July 2023, stated that the Board
expected revenues for FY23 of between £15.0m and £17.0m and an EBITDA loss
of between £1.2m and £1.6m. The Company has today reported FY23 revenues
in line with that guidance at £16.4m with an EBITDA loss of £1.6m.
· At the same time the Company announced that revenues for FY24 were
expected to be between £30m and £36m, with an EBITDA profit of between
£1.7m to £2.5m. With a more detailed understanding of the progress of the
transfer of business in the US, the Board remains confident that, based solely
on the existing contracted revenues, FY24 EBITDA guidance remains in line with
previous guidance, with additional engineering income and lower costs
offsetting a revenue shift into FY25. .
· While existing contracts will show significant growth on FY23, the
Board now expects revenues for FY24 will be between £27m and £30m.
· This guidance assumes no revenue is recognised in FY24 from the current
pipeline of new business opportunities, with the main risk variances relating
to FX and OEM regulatory sign off on individual US programmes now being
onboarded
· Current contracted business, without any new customer wins, is
expected to double in size once all contracts reach full production to at
least £33m.
· Expected near-term growth supports the Board's objective of a 25% plus
gross margin, 10% EBITDA margin and a 25% return on capital.
Change of Nominated Adviser and Broker
Following the completion of the all share merger between Cavendish Securities
plc (previously named Cenkos Securities plc) and Cavendish Financial plc
(previously named finnCap Group plc), as a consequence of internal
reorganisation within the Cavendish Group, the Company has changed its
Nominated Adviser and Broker from Cavendish Securities plc to Cavendish
Capital Markets Limited.
Andy Beaden, Chairman, Velocity Composites, said: "There is now a clear drive
to deliver more sustainable air travel through the greater use of carbon fibre
in aerospace manufacture. This means that the global industry needs what we
do. Greater lightweighting of aircraft is required to achieve aerospace
industry sustainability targets. In FY23 we achieved 37% organic growth,
based solely on our current business, revenues are expected to increase
another 100%. This will propel us into a solid level of profitability, and
well positioned for significant future growth."
Jon Bridges, CEO. Velocity Composites added: "2023 was the year when customers
started to plan for aircraft production rate increases. Across the global
industry, aircraft order books are strengthening as air travel recovers from
lockdowns. For the first time, we are expecting simultaneous production rate
increases across most aircraft platforms over the next three years albeit from
the historically low numbers caused by the pandemic. Manufacturers are now
approaching us for our solutions, leading to a current transformational
pipeline of opportunities of £200m per annum.
"Looking forward into FY24, the business is fully committed and resourced to
deliver on its existing projects, both in Europe and the US, whilst developing
the next opportunities within a sustainable capital and profitability
structure for the benefit of all customers and stakeholders."
Enquiries:
Velocity Tel: +44 (0) 1282 577577
Andy Beaden, Chairman
Jon Bridges, Chief Executive Officer
Andrew Hebb, Interim Chief Financial Officer
Cavendish Capital Markets Limited Tel: +44 (0)20 7220 0500
(Nominated Adviser and Broker)
Katy Birkin
Ben Jeynes
George Lawson
SEC Newgate (Financial Communications) Tel: +44 (0)7540 106 366
Email: velocity@secnewgate.co.uk
Robin Tozer
George Esmond
Harry Handyside
About Velocity Composites
Based in Burnley, UK, Velocity Composites is the leading supplier of composite
material kits to aerospace and other high-performance manufacturers, 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 Report
Overview
In the financial year ended 31 October 2023, Velocity Composites has grown
significantly, with revenue up 37% to £16.4m (FY22: £12.0m) of which £2.0m
was derived from the Group's maiden revenues from the US (FY22: nil). We
provide critical carbon fibre kitting and supply chain management services to
large Tier One aerospace part manufacturers. Our technology, which has been
developed over many years, is proven to improve material efficiency and speed
up production times. This technology is in increasing demand as the aerospace
manufacturing sector recovers from the pandemic.
GKN Aerospace
At the start of the financial year, we were excited to announce our first
US-contract with GKN Aerospace. The US is the global centre for aircraft
manufacturing. To support the contract, which is worth $20m per annum in
revenue over at least the next five years starting from 1 January 2024, we
established a facility in Tallassee, Alabama.
Much of the management team's focus over the last year has been on
commissioning the new facility in the US and starting to on-board the new
business. As expected in the aerospace industry, this is a complex and
lengthy process, including a detailed qualification procedure known as First
Article Inspection ("FAI"). The new facility has been a significant
financial investment however it will provide solid long-term contracted
revenues for the Group. We expect the initial five-year GKN contract to
rollover to a much longer period, with the opportunity to add more contracts
from other US manufacturers. The costs associated with such an expansion are
the primary driver, the operating loss was £2.8m during the year as this
included the hiring and training of a completely new team in the US, as well
as the FAI work and the additional central resources required to support this
expansion in services. Once the US facility is fully operational, with the key
programmes transferred over from GKN, then it is expected to be profitable and
to have justified these upfront costs. In doing so it will provide a solid
return on investment even prior to securing additional contracts for which the
facility has capacity.
The complexity of the onboarding and qualification processes required provide
a high barrier to entry for any potential competitors, protecting our
long-term revenues. We have learnt a lot from the onboarding process, which
we will be able to utilise when we win future US business to drive greater
efficiencies and returns. The new team we have built and trained in the US
will be an important resource and revenue driver for the Group in the future.
Industry Developments
It is pleasing to report that the prior headwinds of Covid-19 have been
replaced with the structural tailwind of a drive to deliver more sustainable
air travel through the greater use of carbon fibre in aerospace manufacture.
This means that the global industry needs what we do. They can either try and
reinvent our solutions for themselves or simply utilise our Velocity Resource
Planning services, and we firmly believe that many will choose the latter.
Greater lightweighting of aircraft is required to achieve aerospace industry
sustainability targets and the need for improved fuel performance. This need
is driving the increased usage of high-end carbon fibre materials in critical
structural aircraft parts. Leading manufacturers like Boeing and Airbus are
planning for a huge upturn in composite rich aircraft production. They will
need to increase the capability of their supply chains to deliver this. This
means that our main contracts in the UK and USA should grow organically, and
any new business beyond this could have a significant financial upside.
Airbus and Boeing global market forecasts that there will be ten times as many
carbon fibre intensive new generation civil aircraft in service by the early
2040s.
Fundraising and Balance Sheet
Given the scale of the opportunities available to us, we sought new investment
from shareholders in August 2023, raising £6.1m net of costs. To effectively
grow the Company, and take on new contracts like GKN, requires upfront
investment in new people, engineering skills training, as well as advanced
technology and machinery. These funds will support our growth and have
strengthened our balance sheet. As at 31 October 2023, our Cash at Bank was
£3.2m, after paying down the Invoice Discounting Facility in the UK which is
still available to use.
As reported above, the investment needed to deliver the GKN contract means our
results show an operating loss of £2.8m. This year, however, we have
established significant commercial assets, through a new US site, with trained
staff, advanced the FAI processes, developed and rolled-out new digital
manufacturing technologies now being used to deliver the contract, and ensured
that we have the engineering resources that can support a much larger business
than we are currently. While we will continue to invest as needed, we have
enough contracted business that, at full production rates, will mean in 2024
we should move from operating losses to profitability. The Board expects that
the second half of FY24 will report an operating profit and is expected to
roll into a more significant full year profit in 2025. The Board and Executive
Management of Velocity Composites understand that only a profitable business
can grow and be successful in the long-term. Our expected near-term growth
supports the corporate objectives of a 25% plus gross margin, 10% EBITDA
margin and a 25% return on capital. It should be noted that FY23 gross margin
was heavily impacted by charges for staff and some materials in relation to
the US facility. Whilst it is not at an optimal level of production, along
with a lag in pass-through of non-material costs in the UK, we should start to
see these dynamics change in 2024, enabling a higher gross margin to be
achieved.
Management Changes
In preparation for this exciting future, we have ensured that the Board and
management team have the required aerospace and composite manufacturing
expertise to accommodate the planned growth in the US and the UK. In July
2023, we appointed Kevin Hickey as Group Chief Operating Officer (a non-Board
position). Kevin previously worked at Velocity between early 2017 and late
2020, where he was responsible for the establishment, ramp up and ongoing
management of the Company's production facility in Fareham, UK. Prior to this,
Kevin held a range of senior operational management roles both in the UK and
internationally at GE Aviation and brings a wealth of experience in the
industry and the Company's processes as Velocity's existing facilities grow,
and new facilities are established.
In August 2023, we also welcomed back Andrew Hebb as non-Board Interim Chief
Financial Officer and Company Secretary to replace Adam Holden while we
recruit a full time CFO. Andrew was Velocity's non-Board Interim Chief
Financial Officer and Company Secretary between November 2018, and August 2020
so has a detailed understanding of the business.
Outlook
Looking ahead, we have engaged key customers in the US and Europe that will
enable us to grow Velocity Composites into a very sizeable, profitable
business, from 2024. Our current contracted business is worth at least £30m
($36m - $43m) annually. Our existing facilities could support up to £70m
annually, with a current qualified pipeline of approximately £200m ($250m)
annually.
As the first movers in the industry, we are the only company proven to provide
a complete outsourced solution to composite aerostructure manufacturers,
meaning we are well placed for the future. We have a strong industry
reputation and all the global approvals to deliver the service which provide
strong barriers to entry for others.
I would like to thank colleagues for their continued dedication and customers,
suppliers and investors for their support. We look forward to a successful
2024.
Andrew Beaden
Chairman
22 January 2024
CEO Report
Overview
2023 was the year when our customers started to plan for aircraft production
rate increases. Across the global industry, aircraft order books are
strengthening as air travel recovers from lockdowns. For the first time, we
are expecting simultaneous production rate increases across most aircraft
platforms over the next three years albeit from the historically low numbers
caused by the pandemic.
This welcome increase in production is happening after customers have seen
their manufacturing base, internal know-how and capacity reduced since 2020
and creates challenges for which Velocity's services provide a proven
solution. Working with us allows them to focus their resources on
aerostructure part manufacture and expanding their internal operational
capacity. Velocity's customers need to do more-for-less to meet the
production rate increases of aircraft and outsourcing is easier when aircraft
production rates are increasing.
US expansion
In this financial year, a significant portion of our resources were focused on
the successful site opening and production ramp up in Alabama to serve our new
GKN contract. This included not only the local site team being recruited and
trained, but also support from the central UK teams, specifically New Business
Engineering, Operations, Supply Chain, Quality, Information Systems, Finance
and Human Resources. Everyone within the Company has had a part to play in the
critical expansion of the business and myself and the wider executive team are
immensely proud and grateful for their hard work. It is especially pleasing to
see a whole new team develop in Alabama and they have quickly grasped
Velocity's processes and values in order to support the GKN contract. We
operate in a highly regulated industry, and it was important that the new site
in Alabama mirrored the proven way of the working of the two UK sites. It has
been inspiring to see how the UK teams have trained their new colleagues, and
how the US team has adopted the Velocity culture.
As we have documented in our investor communications throughout the year, the
GKN contract award in December 2022 was the culmination of more than 12 months
of detailed business development, bid creation and contract negotiation with
the customer. This required not only a detailed understanding of the
customer's "current state", but also the onboarding into the Velocity system
of around 1,300 individual kits to allow for the detailed costing and creation
of the Velocity "future state" so we could complete the business case
submission. At the same time the team was also busy setting up the production
facility in Alabama under a separate Authority to Proceed agreement which
underwrote the costs and meant that that the transfer project could begin
immediately rather than having to wait until the full contract was signed.
After the contract award, our focus shifted to the project delivery stage,
particularly the detailed and highly regulated FAI process which is a key
enabler on the route to volume production and sales. The total project was
split into individual aircraft programme blocks and a 12-month plan agreed on
a sequential basis and involved close co-operation between us and GKN to
verify that the kit engineering data for each block had been transferred
accurately, and that the first kit produced by Velocity was identical to the
kits that had been produced by the customer. To verify this, Velocity produced
a detailed report per kit which was subject to a desktop verification,
followed by one of each kit which was manufactured and then assessed and used
by the customer against the current standard.
The scale, complexity and resource-intense nature of this process for both
parties means that the actual sequence and timing of each block can change
during the transfer, hence the trading update that was issued in July 2023.
Once transferred however, Velocity becomes the sole approved supplier of the
kits and an integral long-term partner to our customer, hence the extension of
the contract with the customer to ensure the initial term did not commence
until the FAI process was completed. Only once each block completes the FAI
process does Velocity then begin to ramp it up into volume production, which
in itself can take weeks or months depending on the size and number of kits in
the block.
As we worked through the total project with our first customer in Alabama, we
ended FY23 with the first two blocks fully completed and ramped up, which
accounts for over 50% of the total project, and the third block in FAI and the
fourth block ready to begin FAI. The period also saw the focus change from
site stand up to volume production.
Future Contracts
We have continued our business development activities in the US to utilise the
capacity in our new business engineering and operations created as the GKN
contract moves to sustained production. We have a live bid with a large Tier 1
customer under a Memorandum of Understanding, and a third business development
plan with another large tier one customer.
In Europe, our stated focus is around managing the rate increases with our
existing customers, along with targeted business development with existing
customers at other sites they have within mainland Europe. This is expected to
accelerate in FY24 as rate recovery drives make/buy decisions as customer
plants become more capacity constrained.
As our contractual agreements with customers are typically repeatedly extended
we will also refine the contract terms to account for material and labour cost
inflation, interest rates and energy inflation so as to protect both parties
from any global economic factors.
With the completion of the equity fundraise we were able to resource our plans
around people and technology to support the continued expansion of our
services at our three sites. We recognise that continued investment in our key
technology areas (real time digitisation of supply chain management, material
efficiency and operational performance) along with our new business
engineering teams gives us both a clear differentiator from our customers (who
are also our competitors when it comes to make/buy decisions) along with the
continued refinement of our bid development, business case creation and new
business implementation through FAI, to support and deliver the continued flow
of new business opportunity as our customers look to build back better.
This also further strengthens the barriers to entry for any competition as our
global approvals, industry reputation, digital toolbox, new business
engineering capacity, proven cost saving delivery and geographic footprint
allow us to create and deliver business cases which support both our own and
our customers growth plans. Our entry into the US market also presents an
opportunity for the business to further position our orderbook across both
civil aerospace and defence projects, both of which are equally applicable to
Velocity's services but have different global growth drivers for risk
mitigation.
Outlook
Velocity Composites has put into effect a clear strategy to capitalise on the
significant growth in the use of composites within aerospace. Manufacturers
need to outsource non-core processes and reduce costs to meet demand.
Manufacturers are now approaching us for our solutions, leading to a current
qualified pipeline of opportunities of £200m ($250m) annually.
Looking forward into FY24, the business is fully committed and resourced to
deliver on its existing projects, both in Europe and the US, whilst developing
the next opportunities within a sustainable capital and profitability
structure for the benefit of all customers and stakeholders.
Section 172 Statement
In accordance with section 172 of the Companies Act 2006, the Directors,
collectively and individually, confirm that during the year ended 31 October
2023, they acted in good faith and have upheld their 'duty to promote the
success of the Group' to the benefit of its stakeholder groups.
The Directors acknowledge the importance of forming and retaining a
constructive relationship with all stakeholder groups. Effective engagement
with stakeholders enables the Board to ensure stakeholder interests are
considered when making decisions which is crucial for achieving the long-term
success of the Group. The main mechanisms for wider stakeholder engagement and
feedback can be found on page 19 onwards in the Statement on Corporate
Governance.
Jonathan Bridges
Chief Executive Officer
22 January 2024
Financial Review
Statement of Comprehensive Income
Revenue for FY23 of £16.4m (FY22: £12.0m) represents an increase of 37% and
is driven by a combination of a 20% increase in UK sales as the market
continues to recover to pre-pandemic levels, and also first-year sales from
the new US site which contributed £2.0m.
The increased volume has generated a gross profit of £3.1m, £0.4m ahead of
FY22. There was a reduction in the reported gross margin percentage to 18.8%
(FY22: 23.0%), however this is expected to be temporary as the reduction
results from the start-up of the US site where volumes were lower than needed
to recover labour costs at normal margins and a lag in some increased cost
pressures, when compared to revising contracted pricing with customers.
Administrative expenses (excluding exceptional) have increased £1.7m from
£4.1m in FY22 to £5.8m in FY23.The US costs were £1.2m (FY22: £0.0m) with
the onboarding of key roles to directly support operations in the US. The
remaining support is directly provided by the UK. The increase in volume has
therefore been offset by the investment in overheads to support the future
growth, resulting in an adjusted EBITDA 1 (#_ftn1) loss of £1.6m (FY22: loss
of £0.5m).
( ) 31 October 31 October
2023 2022
Reconciliation from operating loss £'000 £'000
Operating loss (2,817) (1,317)
Add back:
Share-based payments 206 170
Depreciation and amortisation 413 263
Depreciation on right of use assets under IFRS 16 472 432
Exceptional administrative costs 120 -
Adjusted EBITDA (1,606) (452)
The continued investment in a new US facility, business development,
technology and staff during FY23 means the Group is well placed for contracted
volume growth in the forthcoming year. US growth will be delivered through the
Work Package Agreement with GKN with the remaining projects completing First
Article Inspection (FAI) during the first half of FY24 and full volumes being
achieved in the second half. In addition, we expect to start onboarding a
second customer once contracts are signed. Growth in the UK will be through a
small increase to existing contract volumes and also new opportunities with
existing customers.
Therefore, Velocity is in an excellent position to deliver this growth,
without a linear increase to its overhead base and will also benefit in FY24
from the technological investments that have driven efficiencies in the
operational process as volumes grow.
Fundraise and Capital Reduction
The Group completed a fundraise in October 2023 raising £6.1m net of
transaction costs. The funds are being used to support capital expenditure in
particular for the US facility, technology development, recruiting additional
personnel in the US, and working capital. In the short term we will reduce
usage of the UK Invoice Financing facility.
As part of the fundraise to enable participation of EIS/VCT funds, the Group
took the opportunity with Shareholder support and Court approval to undertake
a capital reduction, reducing the share premium by £10,920k and adjusting
retained earnings creating positive retained earnings which at the year-end
for the Group were £1,087k. This will help support the Group to pay dividends
at the appropriate time.
Cashflow and Capital Investment
The increase in the year-end cash and cash equivalents position of £0.9m to
£3.2m (FY22: £2.3m) reflects the Company receiving net proceeds of £6.1m
following completion of a fundraise by way of a firm placing, EIS/VCT placing
and retail offer. This has been partially offset by the investment from
Velocity Composites PLC to the US subsidiary of £3.1m to help finance US
operations in order to win and start fulfilling the contract won in the US.
Losses after tax for the year for the Group amounted to £3.1m (FY22: £1.3m).
Of these losses, £1.6m related to the US subsidiary.
There was an operating cash outflow before working capital movements of £1.7m
(FY22: £0.5m outflow), this being attributable to the US start-up costs. The
movements in working capital netted to a £0.1m outflow in FY23 (FY22: £0.3m
inflow), and after other adjustments for taxation, the final cash outflow from
operations was £1.8m (FY22: £0.3m inflow, including tax credits of £0.5m).
Working capital movements can be further analysed as follows: There was a
positive working capital movement through a £2.4m increase in trade and other
payables from suppliers (FY22: increase of £1.1m). However, this has been
offset by a £1.3m increase in inventory (FY22: increase of £0.5m), largely
due to the inventory required to meet demand in the US and a £1.1m increase
in trade and other receivables due from customers (FY22: increase of £0.4m),
£1m of the increase relates to the US outstanding trade debtors at the year
end. Overall trade receivable days were 71 days, compared to 68 days at the
end of FY22.
A cash outflow from investment activities of £2.1m is a combination of the
purchase of property, plant and equipment mainly in the US of £1.3m (FY22:
£0.3m) and an increase in intangible assets to support the development of the
production facility in the US of £0.8m (FY22: £0.1m).
In financing facilities £1.3m (2022: £1.1m) represents the repayment of the
CBILS loan, the capital element of the Group's lease liabilities and
associated financing costs. The remaining amount represents the fundraise net
of the transaction costs in issuing the ordinary shares.
The Company was in a Net Cash position at the end of the year, of £1.6m
(FY22: £0.2m). This includes Cash at Bank, offset by the outstanding CBILS
balance and invoice discounting facility.
( ) 31 October 31 October
2023 2022
£'000 £'000
Cash 3,178 2,344
CBILS loan (1,473) (2,009)
Invoice discounting facility (68) (175)
Net cash 1,637 160
Going Concern
Management continues to undertake a significant level of cash flow forecasting
and detailed financial projections for the following 24-month period to 31
October 2025 have been prepared. A number of sensitivities have been performed
to understand the cash flow impact of various scenarios and even in the most
severe down-side scenario modelled, the business had 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 undertake more strategic, longer-term planning for growth
and full recovery emerging from the pandemic.
The cash flow forecasts are, however, 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 through the Audit Committee's quarterly risk register
review.
In preparing the latest two-year forecasts, Management has included revenue
projections based on current contracted demand, the Work Package Agreement
with GKN in the US,. The cost base included in the projections is reflective
of the significant cost reductions that took place during Covid to right size
the Group, but also realistic about the investment required to implement the
growth.
It is the investment in growth and technological advancements throughout FY23,
which is anticipated to continue in FY24, that has resulted in the forecasts
indicating that the Group's Invoice Discounting Facility, secured against
Trade Debtors, will be utilised during certain months within 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. Utilisation of the facility
is forecast to be temporary as the benefits from the investment in growth
become tangible. However, should alternative financing be required, the Group
would preserve cash by delaying certain investment activities until
longer-term funding could be implemented, such as asset-based financing
against new capital expenditure or equity funding.
Having due regard for these recent deliverables and latest projections, with
available cash at 31 October 2023 of £3.2m, an invoice discount facility
where the Group can borrow up to £3m dependent on debtor levels, access to an
invoice discounting facility with one of our major customers, and continued
support from our banks and shareholders, it is the opinion of the Board that
the Group has adequate resources to continue to trade as a going concern.
Andrew Hebb
Interim Chief Financial Officer
22 January 2024
Consolidated Statement of Total Comprehensive Income Year ended Year ended
31 October 31 October
2023 2022
Note £'000 £'000
Revenue 4 16,411 11,959
Cost of sales (13,325) (9,213)
Gross profit 3,086 2,746
Administrative expenses (5,783) (4,063)
Exceptional administrative expenses 8 (120) -
Operating loss 5 (2,817) (1,317)
Operating loss analysed as:
Adjusted EBITDA loss 31 (1,606) (452)
Depreciation of property, plant and equipment (297) (210)
Amortisation (116) (53)
Depreciation of right-of-use assets under IFRS 16 (472) (432)
Share-based payments (206) (170)
Exceptional administrative expenses 8 (120) -
Finance income and expense 9 (326) (187)
Loss before tax from continuing operations (3,143) (1,504)
Corporation tax recoverable 10 - 167
Loss for the year and total comprehensive loss (3,143) (1,337)
Loss per share - basic (£) from continuing operations 11 (£0.08) (£0.04)
Loss per share - diluted (£) from continuing operations 11 (£0.08) (£0.04)
There is no other comprehensive income in the current or prior year.
Consolidated and Company Statement of Financial Position Group Group Company Company
31 October 31 October 31 October 31 October
2023 2022 2023 2022
Note £'000 £'000 £'000 £'000
Non-current assets
Intangible assets 12 890 173 232 173
Property, plant and equipment 13 2,095 1,099 734 1,099
Right-of-use assets 20 2,129 2,269 1,521 1,812
Total non-current assets 5,114 3,541 2,487 3,084
Current assets
Inventories 15 2,743 1,407 1,493 1,407
Trade and other receivables 16 3,667 2,521 5,913 2,569
Cash and cash equivalents 17 3,178 2,344 3,131 2,337
Total current assets 9,588 6,272 10,537 6,313
Total assets 14,702 9,813 13,024 9,397
Current liabilities
Loans 19 503 503 503 503
Trade and other payables 18 4,587 2,207 1,921 2,207
Obligations under lease liabilities 20 487 405 344 313
Total current liabilities 5,577 3,115 2,768 3,023
Non-current liabilities
Loans 19 970 1,506 970 1,506
Obligations under lease liabilities 20 1,587 1,792 1,196 1,442
Total non-current liabilities 2,557 3,298 2,166 2,948
Total liabilities 8,134 6,413 4,934 5,971
Net assets 6,568 3,400 8,090 3,426
Equity attributable to equity holders of the company
Share capital 23 133 91 133 91
Share premium account 24 4,870 9,727 4,870 9,727
Share-based payments reserve 25 478 684 478 684
Retained earnings 1,087 (7,102) 2,609 (7,076)
Total equity 6,568 3,400 8,090 3,426
The Company has taken advantage of the exemption allowed under section 408 of
the Companies Act 2006 and not presented its own statement of profit and loss
in these financial statements. The loss for the year was £1,647,000. The
financial statements were approved and authorised for issue by the Board of
Directors on 22 January 2024 and were signed on its behalf by:
Jonathan Bridges
Director
Co No: 06389233
Consolidated statement of changes in equity
Share Share Retained Share- Total
premium based payments
capital account earnings reserve equity
£'000 £'000 £'000 £'000 £'000
As at 31 October 2021 91 9,727 (5,790) 539 4,567
Loss for the year - - (1,337) - (1,337)
91 9,727 (7,127) 539 3,230
Transactions with shareholders:
Share-based payments (note 25) - - - 170 170
Transfer of share option reserve on vesting of options and issue of equity - - 25 (25) -
As at 31 October 2022 91 9,727 (7,102) 684 3,400
Share Share Retained Share- Total
premium based payments
capital account earnings reserve equity
£'000 £'000 £'000 £'000 £'000
As at 31 October 2022 91 9,727 (7,102) 684 3,400
Loss for the year - - (3,143) - (3,143)
91 9,727 (10,245) 684 257
Transactions with shareholders:
Share-based payments (note 25) - - - 206 206
Transfer of share option reserve on vesting of options and issue of equity - - 412 (412) -
Issue of new shares net of transaction costs 42 6,063 - - 6,105
Reduction of Share Premium Account (10,920) 10,920 -
As at 31 October 2023 133 4,870 1,087 478 6,568
Company statement of changes in equity
Share Share Retained Share- Total
premium based payments
capital account earnings reserve equity
£'000 £'000 £'000 £'000 £'000
As at 31 October 2021 91 9,727 (5,763) 539 4,594
Loss for the year - - (1,338) - (1,338)
91 9,727 (7,101) 539 3,256
Transactions with shareholders:
Share-based payments (note 25) - - - 170 170
Transfer of share option reserve on vesting of options and issue of equity - - 25 (25) -
As at 31 October 2022 91 9,727 (7,076) 684 3,426
Share Share Retained Share- Total
premium based payments
capital account earnings reserve equity
£'000 £'000 £'000 £'000 £'000
As at 31 October 2022 91 9,727 (7,076) 684 3,426
Loss for the year - - (1,647) - (1,647)
91 9,727 (8,723) 684 1,779
Transactions with shareholders:
Share-based payments (note 25) - - - 206 206
Transfer of share option reserve on vesting of options and issue of equity - - 412 (412) -
Issue of new shares net of transaction costs 42 6,063 - - 6,105
Reduction of Share Premium Account (10,920) 10,920 -
As at 31 October 2023 133 4,870 2,609 478 8,090
Consolidated and Company Statement of Cash Flows Group Group Company Company
Year Year Year Year
ended ended ended ended
31 October 31 October 31 October 31 October
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Operating activities
Loss for the year (3,143) (1,337) (1,647) (1,338)
Taxation - (167) - (167)
Profit on sale of assets (4) (38) (4) (38)
Finance costs 326 187 299 187
Amortisation of intangible assets 116 53 53 53
Depreciation of property, plant and equipment 297 210 210 210
Depreciation of right-of-use assets 472 432 391 432
Share-based payments 206 170 206 170
Operating cash flows before movements in working capital (1,730) (490) (492) (491)
Increase in trade and other receivables (1,146) (359) (3,344) (374)
Increase in inventories (1,336) (530) (86) (530)
Increase/(Decrease) in trade and other payables 2,380 1,149 (286) 1,149
Cash (outflow)/inflow from operations (1,832) (230) (4,208) (246)
Tax received - 510 - 510
Net cash (outflow)/inflow from operating activities (1,832) 280 (4,208) 264
Investing activities
Purchase of property, plant and equipment net of intercompany transfers (1,293) (262) 155 (262)
Purchase of development expenditure (833) (136) (112) (136)
Proceeds from the sale of property, plant and equipment 4 42 4 42
Net cash used in investing activities (2,122) (356) 47 (356)
Financing activities
Proceeds from issue of ordinary shares 6,590 - 6,590 -
Share issue transaction costs (485) - (485) -
Finance costs paid (326) (187) (294) (187)
Loan repayment (536) (503) (536) (503)
Repayment of lease liabilities capital (455) (366) (320) (351)
Net cash generate in financing activities 4,788 (1,056) 4,955 (1,041)
Net Increase/(Decrease) in cash and cash equivalents 834 (1,132) 794 (1,133)
Cash and cash equivalents at 01 November 2,344 3,476 2,337 3,470
Cash and cash equivalents at 31 October 3,178 2,344 3,131 2,337
Notes to Financial Statements
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.
2. Accounting policies
Basis of preparation
The consolidated financial statements of Velocity Composites plc have been
prepared in accordance with UK-adopted international accounting standards and
International Financial Reporting Interpretations Committee (IFRIC)
interpretations.
These financial statements have been prepared on a going concern basis and
using the historical cost convention, as modified by the revaluation of
certain items, as stated in the accounting policies. These policies have been
consistently applied to all years presented, unless otherwise stated. The
financial statements are presented in sterling and have been rounded to the
nearest thousand (£'000). References to "FY23" refer to the year ended 31
October 2023, whilst references to "FY22" are in respect of the year ended 31
October 2022.
The Company has taken advantage of the exemption allowed under section 408 of
the Companies Act 2006 and not presented its own statement of profit and loss
in these financial statements.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and its subsidiary undertakings and are made up to 31 October
2023. Subsidiaries are consolidated from the date of acquisition, using the
purchase method.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those used
by the Group. The Group's subsidiaries have prepared their statutory financial
statements in accordance with IFRS standards.
Subsidiaries are entities controlled by the Group. The Group controls an
entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns
through its power over the entity. In assessing control, the Group takes into
consideration potential voting rights. The acquisition date is the date on
which control is transferred to the acquirer. The financial statements of
subsidiaries are included in the consolidated financial statements from the
date that control commences until the date that control ceases.
Intra-group balances and transactions, and any unrealised income and expenses
arising from intra-group transactions, are eliminated. Unrealised losses are
eliminated in the same way as unrealised gains, but only to the extent that
there is no evidence of impairment.
The accounting policies set out below have, unless otherwise stated, been
applied consistently to all years presented in the consolidated financial
statements.
There are no new accounting standards or interpretations that are not yet
fully effective that could be expected to have a material impact on the Group.
Going concern
Management continues to undertake a significant level of cash flow forecasting
and detailed financial projections for the following 24 month rolling period
to 31 October 2025 have been prepared. A number of sensitivities have been
performed to understand the cash flow impact of various scenarios and even in
the most severe down-side scenario modelled, the business had 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 undertake more strategic, longer-term planning for growth
and full recovery emerging from the pandemic.
The cash flow forecasts are, however, 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 through the Audit Committee's quarterly risk register
review.
In preparing the latest two-year forecasts, Management has included revenue
projections based on current contracted demand, the newly signed Work Package
Agreement with GKN in the US. 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 implement the
growth.
It is the investment in growth and technological advancements throughout FY23,
and which is anticipated to continue in FY24, that has resulted in the
forecasts indicating that the Group's Invoice Discounting Facility, secured
against Trade Debtors, will be utilised during certain months within 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. Utilisation of the
facility is forecast to be temporary during periods of FY24.However, should
alternative financing be required, the Group would preserve cash by delaying
certain investment activities until longer-term funding could be implemented,
such as asset-based financing against new capital expenditure or equity
funding.
Alongside the robust forecasting and governance process, the Group has
demonstrated strong cash flow management through the Covid-19 pandemic,
successfully reducing inventory levels and navigating through right-sizing
efforts to deliver significant reductions to administrative overheads.
Having due regard for these recent deliverables and latest projections, with
available cash at 31 October 2023 of £3.2m, an invoice discount facility
where the Group can borrow up to £3m dependent on debtor levels, access to an
invoice discounting facility with one of our major customers, and continued
support from our banks and shareholders, it is the opinion of the Board that
the Group has adequate resources to continue to trade as a going concern.
Revenue recognition
Revenue is recognised as performance obligations are satisfied as control of
the goods and services are transferred to the customer. Contracts are
satisfied over a period of time, with the dispatch of goods at a point in
time. Revenue is therefore recognised when control is transferred to the
customer, which is usually when legal title passes to the customer and the
business has the right to payment, for example, on delivery.
The Group generates revenue from the sale of structural and consumable
materials for use within the aerospace industry. This is the sole revenue
stream of the Group.
At contract inception (which is upon receipt of a purchase order from a
customer), an assessment is completed to identify the performance obligations
in each contract. Performance obligations in a contract are the goods that are
distinct.
At contract inception, the transaction price is determined, being the amount
that the Group expects to receive for transferring the promised goods - this
is a fixed price with no variable consideration. The transaction price is
allocated to the performance obligations in the contract based on their
relative standalone selling prices - this reflects the agreed price as per
purchase order for each product. The Group has determined that the
contractually stated price represents the standalone selling price for each
performance obligation.
Revenue from sale of goods and services is recognised when a performance
obligation has been satisfied by transferring the promised product to the
customer at a point in time, usually when legal title passes to the customer
and the business has the right to payment, for example, on delivery. Standard
payment terms are in place for each customer.
Inventory
Inventory is stated at the lower of costs incurred in bringing each product to
its present location and condition compared to net realisable value as
follows:
· Raw materials, consumables and goods for resale - purchase cost on a
first-in/first-out basis.
· Work in progress and finished goods - costs of direct materials and
labour plus attributable overheads based on a normal level of activity.
Net realisable value is based on an estimated selling price less any further
costs expected to be incurred for completion and disposal.
Expenditure
Expenditure is recognised in respect of goods and services received when
supplied in accordance with contractual terms. Goods or services supplied in
a foreign currency are recognised at the exchange rate ruling at the time of
accounting for this expenditure.
Provisions
A provision is made when an obligation exists for a future liability relating
to a past event and where the amount of the obligation can be reliably
estimated.
Retirement benefits: defined contribution schemes
Contributions to defined contribution pension schemes are charged to the
statement of comprehensive income in the year to which they relate.
Short-term employee benefits
A liability is recognised for benefits accruing to employees in respect of
wages and salaries, annual leave and sick leave in the year the related
service is rendered at the undiscounted amount of the benefits expected to be
paid in exchange for that service.
Research and development expenditure
Research expenditure - expenditure on research activities is recognised as an
expense in the year in which it is incurred.
Development expenditure - An internally generated intangible asset arising
from the Group's own development activity is recognised only if all of the
following conditions are met:
· an asset is created that can be identified and is technically and
commercially feasible;
· it is probable that the asset created will generate future economic
benefits and the Group has available sufficient resources to complete the
development and to subsequently sell and/or use the asset created; and
· the development cost of the asset can be measured reliably.
The amount recognised for development expenditure is the sum of all incurred
expenditure from the date when the intangible asset first meets the
recognition criteria listed above. This occurs when future sales are expected
to flow from the work performed. Incurred expenditure largely relates to
internal staff costs incurred by the Group.
Subsequent to initial recognition, internally generated intangible assets are
reported at cost less accumulated amortisation and impairment.
Amortisation
Amortisation is calculated to write off the cost of intangible assets less
their estimated residual values using the straight-line method over their
estimated useful lives and is generally recognised in the statement of total
comprehensive income. The estimated useful lives are based on the average life
of a project as follows:
Development costs 5 years
Property, plant and equipment
Items of property, plant and equipment are initially recognised at cost. As
well as the purchase price, cost includes directly attributable costs.
Depreciation is provided on all items of property, plant and equipment so as
to write off their carrying value over the expected useful economic lives. It
is provided at the following methods and rates:
Land and buildings (right-of-use) Over the term of the lease
Plant and machinery 15% straight line
Motor vehicles 25% straight line
Fixtures and fittings 15% straight line
Leasehold improvements Over the term of the lease
Foreign currency translation
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ('its functional currency'). The consolidated financial
statements are presented in sterling, which is Velocity Composites plc's
functional and presentation currency.
Foreign currency translation (continued)
Foreign currency transactions are translated into the functional currency
using the exchange rates at the dates the transactions occur. Foreign exchange
gains and losses resulting from the settlement of such transactions and from
the translation of monetary assets and liabilities denominated in foreign
currencies at year end exchange rates are recognised in the consolidated
comprehensive statement of income.
The results and financial position of foreign operations that have a
functional currency different from the presentation currency are translated
into the presentation currency, on consolidation, as follows:
· assets and liabilities for each statement of financial position
presented are translated at the closing rate at the date of the statement of
financial position;
· income and expenses for each statement of profit or loss and statement of
comprehensive income are translated at average exchange rates; and
· all resulting exchange differences are recognised immediately in the
Consolidated comprehensive statement of income.
Impairment of non-financial assets
The carrying values of non-financial assets are reviewed for impairment when
there is an indication that assets might be impaired, and at the end of each
reporting year. When the carrying value of an asset exceeds its recoverable
amount, the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual
asset, the impairment test is carried out on the asset's cash generating unit
(i.e. the smallest grouping of assets in which the asset belongs for which
there are separately identifiable cash flows).
Impairment charges are included in the income statement, except to the extent
they reverse previous gains recognised in the statement of comprehensive
income.
Financial instruments
All funding requirements and financial risks are managed based on policies and
procedures adopted by the Board of Directors encapsulating the normal day to
day trading of the Group. The Group does not use derivative financial
instruments such as forward currency contracts, or similar instruments. The
Group does not issue or use financial instruments of a speculative nature.
Bank borrowings
Interest-bearing loans are recorded initially at their fair value, net of
direct transaction costs. Such instruments are subsequently carried at their
amortised cost and finance charges are recognised in the statement of
comprehensive income over the term of the instrument using an effective rate
of interest. Finance charges are accounted for on an accrual's basis to the
statement of comprehensive income.
The Group has current borrowings of CBIL loans and can utilise its invoice
discounting facility in support of its working capital requirements.
Financial assets
The Group classifies its financial assets into the categories discussed below
and based upon the purpose for which the asset was acquired. The Group has not
classified any of its financial assets as held to maturity.
Trade and other receivables
These assets are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They arise principally
through the provision of services to customers (e.g. trade receivables), but
also incorporate other types of contractual monetary asset. They are
initially recognised at fair value plus transactions costs that are directly
attributable to their acquisition or issue and are subsequently carried at
amortised cost using the effective interest method, less provision for
impairment.
The Group's loans and receivables comprise trade and other receivables
included within the statement of financial position.
Financial assets (continued)
Cash and cash equivalents
Cash and cash equivalents include cash held at bank, bank overdrafts and
marketable securities of very short-term maturity (typically three months or
less) which are not expected to deteriorate significantly in value until
maturity. Bank overdrafts are shown within loans and borrowings in current
liabilities in the statement of financial position.
Impairment of financial assets
Impairment provisions are recognised through the expected credit losses model
(ECL). IFRS 9's impairment requirements use forward-looking information to
recognise expected credit losses - the 'expected credit loss (ECL) model'.
The Group considers a broader range of information when assessing credit risk
and measuring expected credit losses, including past events, current
conditions, reasonable and supportable forecasts that affect the expected
collectability of the future cash flows of the instrument.
Trade and other payables
The Group classifies its financial liabilities as comprising trade payables
and other short-term monetary liabilities, which are initially recognised at
fair value and subsequently carried at amortised cost using the effective
interest method.
Share capital
Financial instruments issued by the Group are treated as equity only to the
extent that they do not meet the definition of a financial liability. The
Group's ordinary shares are classified as equity instruments.
Share premium
Share premium represents the excess of the issue price over the par value on
shares issued less costs relating to the capital transaction arising on the
issue.
Share-based payment
The Group operates an equity-settled share-based compensation plan in which
the Group receives services from Directors and certain employees as
consideration for share options. The fair value of the services is recognised
as an expense over the vesting period, determined by reference to the fair
value of the options granted.
Leased assets
Leases
The Group makes the use of leasing arrangements principally for the buildings
and motor vehicles. The rental contracts for offices are typically negotiated
for terms of 5 and 10 years and some of these have extension terms. The Group
does not enter into sale and leaseback arrangements. All the leases are
negotiated on an individual basis and contain a wide variety of different
terms and conditions.
The Group assesses whether a contract is or contains a lease at inception of
the contract. A lease conveys the right to direct the use and obtain
substantially all of the economic benefits of an identified asset for a period
of time in exchange for consideration.
Measurement and recognition
At lease commencement date, the Group recognises a right-of-use asset and a
lease liability in its consolidated statement of financial position. The
right-of-use asset is measured at cost, which is made up of the initial
measurement of the lease liability, any initial direct costs incurred by the
Group, and any lease payments made in advance of the lease commencement date.
The Group depreciates the right-of-use asset on a straight-line basis from the
lease commencement date to the earlier of the end of the useful life of the
right-of-use asset or the end of the lease term. The Group also assesses the
right-of-use asset for impairment when such indicators exist.
Leased assets (continued)
Measurement and recognition (continued)
At the commencement date, the Group measures the lease liability at the
present value of the lease payments unpaid at that date, discounted using the
Group's incremental borrowing rate because as the lease contracts are
negotiated with third parties it is not possible to determine the interest
rate that is implicit in the lease.
The incremental borrowing rate is the estimated rate that the Group would have
to pay to borrow the same amount over a similar term, and with similar
security to obtain an asset of equivalent value. This rate is adjusted should
the lessee entity have a different risk profile to that of the Group.
Subsequent to initial measurement, the liability will be reduced by lease
payments that are allocated between repayments of principal and finance costs.
The finance cost is the amount that produces a constant periodic rate of
interest on the remaining balance of the lease liability.
The lease liability is reassessed when there is a change in the lease
payments. Changes in lease payments arising from a change in the lease term or
a change in the assessment of an option to purchase a leased asset. The
revised lease payments are discounted using the Group's incremental borrowing
rate at the date of reassessment when the rate implicit in the lease cannot be
readily determined. The amount of the remeasurement of the lease liability is
reflected as an adjustment to the carrying amount of the right-of-use asset.
The exception being when the carrying amount of the right-of-use asset has
been reduced to zero then any excess is recognised in profit or loss.
Payments under leases can also change when there is either a change in the
amounts expected to be paid under residual value guarantees or when future
payments change through an index or a rate used to determine those payments,
including changes in market rental rates following a market rent review. The
lease liability is remeasured only when the adjustment to lease payments takes
effect and the revised contractual payments for the remainder of the lease
term are discounted using an unchanged discount rate. Except for where the
change in lease payments results from a change in floating interest rates, in
which case the discount rate is amended to reflect the change in interest
rates.
The remeasurement of the lease liability is dealt with by a reduction in the
carrying amount of the right-of-use asset to reflect the full or partial
termination of the lease for lease modifications that reduce the scope of the
lease. Any gain or loss relating to the partial or full termination of the
lease is recognised in profit or loss. The right-of-use asset is adjusted for
all other lease modifications.
The Group has elected to account for short-term leases and leases of low-value
assets using the practical expedients. These leases relate to property
security. Instead of recognising a right-of-use asset and lease liability, the
payments in relation to these are recognised as an expense in profit or loss
on a straight-line basis over the lease term.
See the accounting policy on Property plant and equipment for the depreciation
methods and useful lives for assets held under lease.
Government grants
Grants from the government are recognised at their fair value where there is
reasonable assurance that the grant will be received, and the Group will
comply with all attached conditions. Government grants relating to cost are
deferred and recognised in the profit or loss by deducting from the related
expense over the period necessary to match them with the costs that they are
intended to compensate.
Current taxation
The tax currently payable is based on the taxable profit of the year. Taxable
profit differs from profit as reported in the Consolidated statement of
comprehensive income because it excludes items of income and expense that are
taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Group's liability for current tax is
calculated using rates that have been enacted or substantively enacted by the
statement of financial position date.
R&D tax credit
R&D tax credits are recognised at the point when claims have been
quantified relating to expenditure within current or previous years and
recovery of the asset is virtually certain, these tax credits relating to
R&D are recognised within the tax on profit line of the income statement.
Deferred taxation
Deferred tax assets and liabilities are recognised where the carrying amount
of an asset or liability in the statement of financial position differs from
its tax base, except for differences arising on:
· the initial recognition of goodwill;
Recognition of deferred tax assets is restricted to those instances where it
is probable that taxable profit will be available against which the difference
can be utilised. The amount of the asset or liability is determined using tax
rates that have been enacted or substantially enacted by the balance sheet
date and are expected to apply when the deferred tax liabilities or assets are
settled or recovered. Deferred tax balances are not discounted.
Deferred tax assets and liabilities are offset when the Group has a legally
enforceable right to offset current tax assets and liabilities and the
deferred tax assets and liabilities relate to taxes levied by the same tax
authority on either the same taxable Company; or different Company entities
which intend either to settle current tax assets and liabilities on a net
basis, or to realise the assets and settle the liabilities simultaneously, in
each future period in which significant amounts of deferred tax assets and
liabilities are expected to be settled or recovered.
Operating segments
Operating segments are reported in a manner consistent with the internal
reporting provided to the executive directors. The Chief Operating Decision
Makers have been identified as the Chief Executive Officer and the Chief
Financial Officer. The Group supplies a single type of product into a single
industry and so has a single operating segment. Additional information is
given regarding the revenue receivable based on geographical location of the
customer.
No differences exist between the basis of preparation of the performance
measures used by management and the figures in the Group financial
information.
Critical accounting estimates and judgements
The Group makes certain estimates and assumptions regarding the future.
Estimates and judgements are continually evaluated based on historical
experience and other factors, including the expectations of future events that
are believed to be reasonable under the circumstances. In the future, actual
experience may differ from these estimates and assumptions. The estimates and
assumptions that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year
are discussed below.
Provisions for inventory
Provisions are made for obsolete, out of life and slow-moving stock items. In
estimating the provisions, the group makes use of key management experience,
precedents and specific contract and customer issues to assess the likelihood
and quantity. Stock is accounted for on a first in, first out basis.
The provision percentage is applied to various aging categories dependent on
stock type, this is a key estimate made by management based on judgement and
if change is applied to the percentage for the aged stock, then the outcome of
the value of the provision would differ.
Sensitivity analysis
A 5% increase in the levels of the current stock provision would lead to and
finance impact of an increase in stock provision of £10k.
3. Financial instruments and risk management
The Board has overall responsibility for the determination of the Group's risk
management objectives and policies. The overall objective of the Board is to
set policies that seek to reduce risk as far as possible without unduly
affecting the Group's competitiveness and flexibility. The Group reports in
Sterling. All funding requirements and financial risks are managed based on
policies and procedures adopted by the Board of Directors. The Group does not
use derivative financial instruments such as forward currency contracts, or
similar instruments. The Group does not currently issue or use financial
instruments of a speculative nature but as described in the strategic report,
management may consider the potential utilisation of such instruments in the
future. The Group utilises an invoice discounting facility with its bankers to
assist in its cash flow management. In accordance with the terms of the
current facility (which is available on demand) the risk and management of
trade debtors is retained by the Group.
Financial instruments Group Group Company Company
31 October 31 October 31 October 31 October
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Current assets
Trade and other receivables 3,282 2,238 2,532 2,238
Trade and other receivables - prepayments 385 283 291 281
Amounts due from subsidiary undertakings - - 3,090 50
3,667 2,521 5,913 2,569
Cash and cash equivalents - loans and receivables 3,178 2,344 3,131 2,337
Total loans and receivables 6,845 4,865 9,044 4,906
Current liabilities
Trade and other payables 4,053 1,750 1,587 1,750
Trade and other payables - accruals 534 457 334 457
4,587 2,207 1,921 2,207
Loans 503 503 503 503
Obligations under lease liabilities 487 405 344 313
Total current liabilities 5,577 3,115 2,768 3,023
For non-current liabilities please see notes 18 and 19.
Risk management
The Group's activities expose it to a variety of financial risks: market risk
(primarily foreign exchange risk and interest rate risk), credit risk and
liquidity risk. The Group's overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise potential adverse
effects on the Group's financial performance. Risk management is carried out
by the Board and their policies are outlined below.
a) Market risk
Foreign exchange risk
The Group is exposed to transaction foreign exchange risk in its operations
both within the UK and overseas. Transactions are denominated in Sterling, US
Dollars and Euros. The Group has commercial agreements in place which allow it
to transact with its customers in the currency of the material purchase,
thereby allowing a large element of the transactional currency risk to pass
through the Group.
The Group is also exposed to translation foreign exchange risk on
consolidation of US operations, which are translated into Sterling from US
dollars. This can impact the consolidated income statement and also create a
movement in reserves from movements in the US balance sheet items.
The carrying value of the Group's foreign currency denominated assets and
liabilities comprise the trade receivables in note 16, cash in note 17 and
trade payables in note 18.
Foreign exchange risk (continued)
The Group's financial assets are held in both Sterling and US dollars, the
assets are converted to the presentation currency Sterling assets held in US
dollars are in relation to the US subsidiary, movements in the exchange rate
of the US Dollar or Euro against Sterling do have an impact on both the result
for the year and equity. The Group's assets and liabilities that are held in
US Dollar or Euro are held in those currencies for normal trading activity in
order to recover funds from customers or to pay funds to suppliers.
The Group's exposure to foreign currency risk is as follows. This is based on
the carrying amount of monetary financial instruments.
As at 31 October 2023 US Dollar Euro Total
£'000 £'000 £'000
Trade debtors 2,685 75 2,760
Cash and cash equivalents 204 118 322
Trade payables (3,328) (31) (3,359)
Balance sheet exposure (439) 162 (277)
As at 31 October 2022
US Dollar Euro Total
£'000 £'000 £'000
Trade debtors 1,729 163 1,892
Cash and cash equivalents 1,352 249 1,601
Trade payables (750) (32) (782)
Balance sheet exposure 2,331 380 2,711
Sensitivity analysis
A 5% strengthening of the following currencies against the pound sterling at
the balance sheet date would have reduced the loss by the amounts shown below.
This calculation assumes that the change occurred at the balance sheet date
and had to be applied to risk exposures existing at that date.
31 October 31 October
2023 2022
£'000 £'000
US dollar 28 117
Euro (8) 19
This analysis assumes that all other variables, in particular other exchange
rates and interest rates remain constant. A 5% weakening of the above
currencies against pound sterling in any year would have had the equal but
opposite effect to the amounts shown above. Included in the US dollar value is
£78k relating to the US Subsidiary (2022: £Nil).
Interest rate risk
The Group carries borrowings from leases and CBILS loans. Lease borrowings are
at a fixed rate of interest whilst the interest on the CBILS loans is a
combination of fixed rate and Bank of England base rate plus 3.96%. The
Directors do not consider there to be a significant interest rate risk on the
element of loans linked to movements in the Bank of England base rate. The
Group also has access to an invoicing discounting facility that carries a
fixed monthly charge plus interest at a fixed rate of 5.25%.
a) Credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Group. In order to
minimise this risk, the Group endeavours only to deal with companies which are
demonstrably creditworthy and this, together with the aggregate financial
exposure, is continuously monitored. The maximum exposure to credit risk is
the value of the outstanding amount.
Supply of products by the Group results in trade receivables which the
management consider to be of low risk, other receivables are likewise
considered to be low risk. However, four of the customers comprise in excess
of 10% of the revenue earned by the Group (see note 4). Credit risk on cash
and cash equivalents is considered to be small as the counterparties are all
substantial banks with high credit ratings. The maximum exposure is the amount
of the deposit.
b) Liquidity risk
The Group currently holds cash balances in Sterling, US Dollars and Euros to
provide funding for normal trading activity. Trade and other payables are
monitored as part of normal management routine. The Group also has access to
banking facilities including invoice finance which it utilises when needed in
order to manage its liquidity risk.
As at 31 October 2023
Within 1 year One to two years Two to five years Over five years
£'000 £'000 £'000 £'000
Loan 503 503 467 -
Obligations under lease liabilities 487 508 1,079 -
Trade payables 3,786 - - -
Accruals 534 - - -
Other payables 15 - - -
Invoice discounting facility 68 - - -
As at 31 October 2022
Within 1 year One to two years Two to five years Over five years
£'000 £'000 £'000 £'000
Loan 503 503 1,003 -
Obligations under lease liabilities 405 419 1,373 -
Trade payables 1,134 - - -
Accruals 457 - - -
Other payables 174 - - -
Invoice discounting facility 175 - - -
c) Capital risk management
For the purpose of the Group's capital management, capital includes issued
capital, and all other equity reserves attributable to the equity holders of
the Group. The Group's objectives when managing capital are to safeguard the
Group's ability to continue as a going concern in order to provide returns for
shareholders and benefits for other members. The Group will also seek to
minimise the cost of capital and attempt to optimise the capital structure.
4. Segmental analysis
The Group supplies a single type of product into a single industry and so has
a single reportable segment. Additional information is given regarding the
revenue receivable based on geographical location of the customer. An
analysis of revenue by geographical market is given below:
Year ended Year ended
31 October 31 October
2023 2022
£'000 £'000
Revenue
United Kingdom 14,350 11,906
Europe 41 10
US 1,967 -
Rest of the World 53 43
16,411 11,959
During the year four customers accounted for 91.9% (2022: 92.7%) of the
Group's total revenue for the year ended 31 October 2023. This was split as
follows; Customer A - 34.5% (2022: 43.10%), Customer B - 34.9% (2022: 33.4%),
Customer C - 10.49% (2022: 11.44%) and the fourth customer a customer of
Velocity Composite Aerospace Inc 11.99%, previously Customer D - 3.58% (2022:
4.70%).
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.
During the current and previous year, the Group operated in Asia. No revenue
was generated in Asia during the year ended 31 October 2023 and year ended 31
October 2022 as the site operates as an Engineering Support Office for the
Group. The US subsidiary started to trade in April 2023, revenue of £1,967k
has been generated since the US subsidiary was incorporated.
5. Operating loss
The operating loss is stated after charging / (crediting):
Year ended Year ended
31 October 31 October
2023 2022
£'000 £'000
Staff costs (see note 6) 3,700 3,090
Cost of inventories 11,687 8,079
Foreign exchange (gain)/loss 57 (259)
Amortisation of development costs 116 53
Depreciation:
Owned assets 297 210
Property, plant and equipment under right-of-use assets 472 432
Profit on disposal of assets (5) (38)
Auditor's remuneration:
Audit of the accounts of the Group 75 59
Other audit related services (relating to interim review) 12 14
6. Staff costs
Year ended Year ended
31 October 31 October
2023 2022
£'000 £'000
Wages, salaries and bonuses 3,049 2,575
Social security costs 348 261
Defined contribution pension costs 97 84
Share-based payments 206 170
3,700 3,090
The average monthly number of employees including directors, during the year
was as follows:
Year ended Year ended
31 October 31 October
2023 2022
Head count Head count
Manufacturing 55 40
Administration 47 39
102 79
7. Directors' costs
Year ended Year ended
31 October 31 October
2023 2022
£'000 £'000
Directors' remuneration included in staff costs:
Wages, salaries and bonuses 505 343
Defined contribution pension costs 21 22
526 365
Remuneration of the highest paid director(s):
Wages, salaries and bonuses or fees 190 121
Defined contribution pension costs 12 12
202 133
8. Exceptional administrative expenses
Year ended Year ended
31 October 31 October
2023 2022
£'000 £'000
Fees associated with newly issued shares 120 -
120 -
Exceptional expenses incurred during the year are in relation to the costs
associated with the cash fundraise through the placing and subscription of the
New Ordinary Shares. Total costs incurred were £120,000 and £485,000 charged
to the share premium as being directly related to newly issued shares.
No exceptional costs were recognised in the previous year.
9. Finance income and expenses
Year ended Year ended
31 October 31 October
2023 2022
£'000 £'000
Finance expense
Finance charge from lease liabilities 120 81
Other interest and invoice discounting charges 206 106
326 187
10. Income tax
Company Year ended
Year ended
31 October 31 October
2023 2022
£'000 £'000
Current tax income
UK corporation tax on income for the year - -
UK corporation tax adjustment in respect of prior years - R&D - (167)
Total tax income - (167)
The reasons for the difference between the actual tax charge for the year and
the standard rate of corporation tax in the United Kingdom applied to the loss
for the year are as follows:
Tax rate 22.00% 19.00%
Loss for the year before tax (3,143) (1,504)
Expected tax credit based on corporation tax rate (691) (286)
Expenses not deductible for tax purposes (17) 112
Adjustment in respect of prior year - R&D - (167)
Different tax rates in other countries 232 -
Adjustment in respect of prior year - tax losses - (51)
Tax losses not recognised 476 225
Total tax income - (167)
On 3 March 2021, the Chancellor of the Exchequer announced that the
corporation tax rate would increase to 25% from 1 April 2023. It was
substantively enacted on 24 May 2021.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled, or the asset is realised, based on tax
law and the corporation tax rates that have been enacted, or substantively
enacted, at the Statement of Financial Position date. As such, the deferred
tax rate applicable at 31 October 2023 is 25% and deferred tax had been
re-measured at this date.
11. Loss per share
Year ended Year ended
31 October 31 October
2023 2022
£ £
Loss for the year (3,143,000) (1,337,000)
Shares Shares
Weighted average number of shares in issue 38,410,094 36,371,065
Weighted average number of share options 1,348,066 2,110,897
Weighted average number of shares (diluted) 39,758,160 38,481,962
Loss per share (£) (basic) (£0.08) (£0.04)
Loss per share (£) (diluted) (£0.08) (£0.04)
Share options have not been included in the diluted calculation as they would
be anti-dilutive with a loss being recognised.
12. Intangible assets
Group Development
costs Total
£'000 £'000
Cost
At 31 October 2021 638 638
Additions 136 136
Disposals (199) (199)
At 31 October 2022 575 575
Additions 833 833
At 31 October 2023 1,408 1,408
Amortisation
At 31 October 2021 548 548
Charge for the year 53 53
Disposals (199) (199)
At 31 October 2022 402 402
Charge for the year 116 116
At 31 October 2023 518 518
Net book value
At 31 October 2021 90 90
At 31 October 2022 173 173
At 31 October 2023 890 890
Company Development costs Total
£'000 £'000
Cost
At 31 October 2021 638 638
Additions 136 136
Disposals (199) (199)
At 31 October 2022 575 575
Additions 112 112
At 31 October 2023 687 687
Amortisation
At 31 October 2021 548 548
Charge for the year 53 53
Disposals (199) (199)
At 31 October 2022 402 402
Charge for the year 53 53
At 31 October 2023 455 455
Net book value
At 31 October 2021 90 90
At 31 October 2022 173 173
At 31 October 2023 232 232
Impairment
The Group reviews the Development costs at each reporting year for indicators
of impairment. An indication of impairment can be generated from the loss of a
customer, or contracted sales. No impairment was judged to be required for
either year.
13. Property, plant and equipment
Group Leasehold Plant & Motor Fixtures Total
improve-ments machinery vehicles & fittings
£'000 £'000 £'000 £'000 £'000
Cost
At 31 October 2021 491 1,891 23 417 2,822
Additions 137 87 - 38 262
Disposals - (123) - - (123)
At 31 October 2022 628 1,855 23 455 2,961
Additions 367 528 - 398 1,293
At 31 October 2023 995 2,383 23 853 4,254
Depreciation
At 31 October 2021 99 1,385 23 264 1,771
Charge for the year 50 116 - 44 210
Disposals - (119) - - (119)
At 31 October 2022 149 1,382 23 308 1,862
Charge for the year 73 150 - 74 297
At 31 October 2023 222 1,532 23 382 2,159
Net book value
At 31 October 2021 392 506 - 153 1,051
At 31 October 2022 479 473 - 147 1,099
At 31 October 2023 773 851 - 471 2,095
Company Leasehold Plant & Motor Fixtures Total
improve-ments machinery vehicles & fittings
£'000 £'000 £'000 £'000 £'000
Cost
At 31 October 2021 491 1,891 23 417 2,822
Additions 137 87 - 38 262
Disposals - (123) - - (123)
At 31 October 2022 628 1,855 23 455 2,961
Transferred to subsidiary (132) (57) - (37) (226)
Additions 14 57 - - 71
Disposals - - - - -
At 31 October 2023 510 1,855 23 418 2,806
Depreciation
At 31 October 2021 99 1,385 23 264 1,771
Charge for the year 50 116 - 44 210
Disposals - (119) - - (119)
At 31 October 2022 149 1,382 23 308 1,862
Charge for the year 50 118 - 42 210
Disposals - - - - -
At 31 October 2023 199 1,500 23 350 2,072
Net book value
At 31 October 2021 392 506 - 153 1,051
At 31 October 2022 479 473 - 147 1,099
At 31 October 2023 311 355 - 68 734
14. Investment in subsidiaries
Group Group Company Company
31 October 31 October 31 October 31 October
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Subsidiary undertakings - - - -
- - - -
A list of all the investment in subsidiaries is as follows:
Name of company Registered office Country of registration Type of shares Proportion of shareholding and voting rights held Nature of business
Directly owned
Velocity Composites SDN. BHD Pentagon Suite, ES-04, Level 3, Wisma Suria, Jalan Teknokrat 6, Cyber 5, Malaysia Ordinary 100% Provider of engineering composite services for the aerospace sector non
63000, Cyberjaya, Selangor trading
Velocity Composites Aerospace, Inc. Corporation Trust Center, 1209 N. Orange St, Wilmington, Delaware 19801 United States of America Ordinary 100% Manufacturer of composite material products for the aerospace sector
15. Inventories
Group Group Company Company
31 October 31 October 31 October 31 October
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Raw materials & consumables 1,830 1,114 1,023 1,114
Finished goods 913 293 470 293
2,743 1,407 1,493 1,407
Inventories totalling £2,743,000 (2022: £1,407,000) are valued at the lower
of cost and net realisable value. The Directors consider that this value
represents the best estimate of the fair value of those inventories net of
costs to sell. The increase of inventories provision during the previous year
amounted to £53,000 Velocity Composites PLC and £113,000 for Velocity
Composites Aerospace Inc, in 2022 the release was £56,000 for Velocity
Composites PLC.
The inventory at 31 October 2023 is after a stock provision of £374,000
(2022: £208,000). The provision reflects the aged stock profile consistent
with FY22, as well as specific provisions related to slow moving stock as a
result of reduced demand.
Inventories recognised as an expense during the year ended 31 October 2023
amounted to £11,687,000 (2022: £8,079,000), and these were included in cost
of sales.
16. Trade and other receivables
Group Group Company Company
31 October 31 October 31 October 31 October
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Trade receivables 3,187 2,227 2,489 2,227
Prepayments 385 283 291 281
Other receivables 95 11 43 11
Amounts due from subsidiary undertakings - - 3,090 50
3,667 2,521 5,913 2,569
Trade receivables are amounts due from customers for goods sold or services
performed in the ordinary course of business. They are generally due for
settlement within an average of 71 days (2022: 68 days) and therefore are all
classified as current. Trade receivables are recognised initially at the
amount of consideration that is unconditional unless they contain significant
financing components, when they are recognised at fair value. The Group holds
the trade receivables with the objective to collect the contractual cash flows
and therefore measures them subsequently at amortised cost. Details about the
Group's impairment policies and credit risk are provided in note 3. No Trade
receivables (Group and Company) were overdue over three months at the year end
(2022: £Nil).
The overall expected credit loss is trivial (2022: trivial). There is no
movement in allowance of impairment of trade receivables during each year.
Trade receivables (Group and Company) held in currencies other than sterling
are as follows:
31 October 31 October
2023 2022
£'000 £'000
Euro 75 165
US Dollar 2,685 1,742
2,760 1,907
17. Cash and cash equivalents
Group Group Company Company
31 October 31 October 31 October 31 October
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Cash at bank 3,178 2,344 3,131 2,337
3,178 2,344 3,131 2,337
18. Trade and other payables
Group Group Company Company
31 October 31 October 31 October 31 October
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Trade payables 3,786 1,134 1,322 1,134
Accruals and deferred income 534 457 334 457
Other taxes and social security 184 267 183 267
Other payables 15 174 14 174
Invoice discounting facility 68 175 68 175
4,587 2,207 1,921 2,207
Book values approximate to fair values.
19. Bank loans
Group Group Company Company
31 October 31 October 31 October 31 October
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Not later than one year 503 503 503 503
One to two years 503 503 503 503
Two to five years 467 1,003 467 1,003
1,473 2,009 1,473 2,009
In FY20 the Company took out a Coronavirus Business Interruption Loan for
£2.0m and on 19 January 2021 the term of this loan was extended to 6 years.
Repayment by instalment commenced in August 2021, with the final instalment
due in August 2026. The loan was interest free for the initial 12 months,
followed by an interest rate of 3.96% above the Bank of England base rate
which was 5.25% as at 31 October 2023. Therefore the rate payable at 22
January 2024 is 9.21%.
During FY21, the Company took out a further Coronavirus Business Interruption
Loan for £0.45m secured against owned non-current assets. This is being
repaid over 5 years with the first payment made in July 2021 and the final
instalment due in June 2026. The loan was interest free for the initial 12
months, followed by an interest rate of 7.75% per annum.
20. Leases
Right-of-use-assets
Group Land & Plant & Motor Total
buildings machinery vehicles
£'000 £'000 £'000 £'000
Cost
Balance at 31 October 2021 1,641 561 110 2,312
Additions 1,013 - - 1,013
Disposals (221) - - (221)
Balance at 31 October 2022 2,433 561 110 3,104
Additions 232 - 100 332
Disposals - - (5) (5)
Balance at 31 October 2023 2,665 561 205 3,431
Depreciation
Balance at 31 October 2021 399 190 35 624
Depreciation charge for the year 300 104 28 432
Disposals (221) - - (221)
Balance at 31 October 2022 478 294 63 835
Depreciation charge for the year 363 81 28 472
Disposals - - (5) (5)
Balance at 31 October 2023 841 375 86 1,302
NBV
At 31 October 2021 1,242 371 75 1,688
At 31 October 2022 1,955 267 47 2,269
At 31 October 2023 1,824 186 119 2,129
The associated right-of-use assets for property leases and other assets were
measured at the amount equal to the lease liability, adjusted by the amount of
any prepaid or accrued lease payments relating to that lease recognised in the
statement of financial position as at 31 October 2023.
Company Land & Plant & Motor Total
buildings machinery vehicles
£'000 £'000 £'000 £'000
Cost
Balance at 31 October 2021 1,641 561 110 2,312
Additions 556 - - 556
Disposals (221) - - (221)
Balance at 31 October 2022 1,976 561 110 2,647
Additions - - 100 100
Disposals - - (5) (5)
Balance at 31 October 2023 1,976 561 205 2,742
Depreciation
Balance at 31 October 2021 399 190 35 624
Depreciation charge for the year 300 104 28 432
Disposals (221) - - (221)
Balance at 31 October 2022 478 294 63 835
Depreciation charge for the year 282 81 28 391
Disposals - - (5) (5)
Balance at 31 October 2023 760 375 86 1,221
NBV
At 31 October 2021 1,242 371 75 1,688
At 31 October 2022 1,498 267 47 1,812
At 31 October 2023 1,216 186 119 1,521
The associated right-of-use assets for property leases and other assets were
measured at the amount equal to the lease liability, adjusted by the amount of
any prepaid or accrued lease payments relating to that lease recognised in the
statement of financial position as at 31 October 2023.
Right-of-use lease liabilities
Group Company
£'000 £'000
At 31 October 2022 2,197 1,755
Repayment (506) (372)
Additions to right-of-use assets in exchange for increased lease liabilities 332 105
Interest and other movements 51 52
At 31 October 2023 2,074 1,540
Analysis by length of liability
Group Land & Plant & Motor Total
buildings equipment vehicles
£'000 £,000 £'000 £'000
Current 420 42 25 487
Non-current 1,375 113 99 1,587
1,795 155 124 2,074
Number of right-to-use assets leased 6 5 2
Range of remaining term 1-10 years 1-10 years 1-4 years
Company Land & Plant & Motor Total
buildings equipment vehicles
£'000 £,000 £'000 £'000
Current 277 42 25 344
Non-current 984 113 99 1,196
1,261 155 124 1,540
Number of right-to-use assets leased 5 5 2
Range of remaining term 1-10 years 1-10 years 1-4 years
Reconciliation of minimum lease payments to present value
Group Minimum Interest Present
lease value
payments
£'000 £'000 £'000
31 October 2023
Not later than one year 585 98 487
Later than one year and not later than two years 589 81 508
Later than two years and not later than five years 1,209 130 1,079
2,383 309 2,074
31 October 2022
Not later than one year 505 100 405
Later than one year and not later than two years 505 86 419
Later than two years and not later than five years 1,545 172 1,373
2,555 358 2,197
Reconciliation of minimum lease payments to present value (continued)
Company Minimum Interest Present
lease value
payments
£'000 £'000 £'000
31 October 2023
Not later than one year 424 80 344
Later than one year and not later than two years 430 64 366
Later than two years and not later than five years 927 97 830
1,781 241 1,540
31 October 2022
Not later than one year 400 87 313
Later than one year and not later than two years 400 72 328
Later than two years and not later than five years 1,248 134 1,114
2,048 293 1,755
Low value leases
The Group leases comprise both office and assembly space, under low value
leases. The total value of the minimum lease payments due is payable is
£Nil (2022: £Nil).
Low value leases not classed as right-of-use assets due to the minimal value
of the lease, relate to a building security contract, all other prior year
operating leases have been classed as right-to-use asset on transition to IFRS
16. Payments made under such leases are expensed on a straight-line basis.
21. Deferred tax
Deferred tax is calculated in full on temporary differences under the
liability method using tax rates appropriate for the year. The movement on the
deferred tax account is as shown below:
The movement on the deferred tax (asset)/liability is shown below:
Company 31 October 31 October
2023 2022
£'000 £'000
Unrecognised deferred tax in respect of losses brought forward (1,401) (840)
Corporation tax loss adjustments in respect of prior year - (51)
Corporation tax losses arising during the year (229) (174)
Adjustment for movement in corporation tax rate - (336)
Unrecognised deferred tax in respect of losses carried forward (1,630) (1,401)
The Group has unused tax losses which were incurred by the holding company. A
deferred tax asset of £1,774,000 (2022: £1,401,000) is not recognised in
these accounts. Corporation tax losses can be carried forward indefinitely and
can be offset against future profits which are subject to UK corporation tax.
22. Reconciliation of liabilities arising from financing
activities
Group Lease Other Lease Other Total
liabilities < short-term liabilities > long-term
one year borrowings one year borrowings
£'000 £'000 £'000 £'000 £'000
At 31 October 2021 309 514 1,240 1,998 4,061
Cash flows
Repayment (457) (503) - - (960)
Non-cash
Other differences - - 92 - 92
Increase to lease liabilities - - 1,013 - 1,013
Transfer from long-term to short term borrowings 553 492 (492) -
(553)
At 31 October 2022 405 503 1,792 1,506 4,206
Cash flows
Repayment (506) (536) - - (1,042)
Non-cash
Other differences - - 332 - 332
Increase to lease liabilities - - 51 - 51
Transfer from long-term to short term borrowings 588 536 (536) -
(588)
As at 31 October 2023 487 503 1,587 970 3,547
22. Reconciliation of liabilities arising from financing
activities (continued)
Company Lease Other Lease Other Total
liabilities < short-term liabilities > long-term
one year borrowings one year borrowings
£'000 £'000 £'000 £'000 £'000
At 31 October 2021 309 514 1,240 1,998 4,061
Cash flows
Repayment (442) (503) - - (945)
Non-cash
Other differences - - 92 - 92
Increase to lease liabilities - - 556 - 556
Transfer from long-term to short term borrowings 446 492 (492) -
(446)
At 31 October 2022 313 503 1,442 1,506 3,764
Cash flows
Repayment (372) (536) - - (908)
Non-cash
Other differences - - 52 - 52
Increase to lease liabilities - - 105 - 105
Transfer from long-term to short term borrowings 403 536 (536) -
(403)
As at 31 October 2023 344 503 1,196 970 3,013
23. Share capital
31 October 31 October
2023 2022
£ £
Share capital issued and fully paid
53,393,368 (2022: 36,458,997) Ordinary shares of £0.0025 each 133,483 91,147
Ordinary shares have a par value of 0.25p. They entitle the holder to
participate in dividends, and to share in the proceeds of winding up the
Company in proportion to the number of and amounts paid on the shares held.
On a show of hands every holder of ordinary shares present at a meeting in
person or by proxy, is entitled to one vote, and upon a poll each share is
entitled to one vote. The Company does not have a limited amount of authorised
capital.
Movements in share capital Nominal Number of
value shares
£
Ordinary shares of £0.0025 each
At the beginning of the year 91,147 36,458,997
Exercising of share options 1,154 461,788
Allotted, issued and fully paid in the year 41,182 16,472,583
Closing share capital at 31 October 2023 133,483 53,393,368
On 17 March 2023, the Company issued 305,856 new ordinary shares of £0.0025
each to satisfy the exercise of options granted under the Group's 2022 Share
Option Scheme.
On 27 March 2023, the company issued a further 155,932 new ordinary shares of
£0.0025 each to satisfy the exercise of options granted under the Group's
2022 Share Option Scheme.
During the year ended 31 October 2023, 16,472,583 new ordinary shares were
issued. The shares issued had a nominal value of £0.0025 each and were issued
at £0.40 each.
Options
Information relating to the Velocity Composites plc Employee Option Plan,
including details of options issued, exercised and lapsed during the financial
year and options outstanding at the end of the reporting year, is set out in
note 25.
24. Share premium
31 October 31 October
2023 2022
£'000 £'000
At the beginning of the year 9,727 9,727
Shares issued net of transaction costs 6,063 -
Reduction of Share Premium Account (10,920) -
At the end of the year 4,870 9,727
25. Share-based payments
The Group's employees are granted option awards under the Velocity Composites
Limited Enterprise Management Incentive and Unapproved Scheme.
The share options dated 13 March & 17 October 2017 have no attached
performance conditions and have vested as a resulted of continued employment.
The options may be exercised at any point up to the tenth anniversary of the
grant date.
The 225,000 share options dated 29 October 2019 have no attached performance
conditions and vest subject only to continued employment. They vest after 3
years, or earlier if a vesting event occurs as defined in the rules of the
Scheme. They were awarded in relation to joining senior management, providing
an equity incentive around the performance of the business. 125,000 of these
share options had lapsed due to people leaving the business.
Share options dated 29 October 2019 in the year have lapsed, the options have
attached performance conditions linked to adjusted EBITDA. They vest after two
years, or earlier if a vesting event occurs in the rules of the Scheme. The
options may be exercised at any point up to the tenth anniversary grant date.
There were 1,480,000 originally issued and as of the year ended 31 October
2022, 1,480,000 of these share options had lapsed due to people leaving the
business.
The 155,932 remaining shares options dated 30 October 2020 have no attached
performance conditions and have been issued in exchange for qualifying staff
agreeing to accept 20% of their basic salary in equity alternatives.
The 28,805 shares options dated 1 April 2021 have no attached performance
conditions and have been issued in exchange for qualifying staff agreeing to
accept 20% of their basic salary in equity alternatives.
The 250,000 shares options dated 1 April 2021 have no attached performance
conditions and vest subject only to continued employment. They vest after 3
years, or earlier if a vesting event occurs as defined in the rules of the
Scheme. They were awarded in relation to joining senior management, providing
an equity incentive around the performance of the business.
The 479,999 shares options dated 26 January 2022 have no attached performance
conditions and have been issued in exchange for qualifying staff agreeing to
accept 20% of their basic salary in equity alternatives.
The 20,940 shares options dated 29 March 2022 have no attached performance
conditions and have been issued in exchange for qualifying staff agreeing to
accept 20% of their basic salary in equity alternatives.
During the year ended 31 October 2023, further share options were granted as
follows:
807,200 shares options dated 28 March 2023. These options have no attached
performance conditions and have been issued in exchange for qualifying staff
agreeing to accept 20% of their basic salary in equity alternatives.
Vesting events are defined within the rules of the Scheme as a reorganisation,
takeover, sale, listing (except on AIM), asset sale or death of the Option
holder.
There were no cancellations or modifications to the awards in the year.
The following options were outstanding as at 31 October 2023:
Scheme and grant date Exercise price (£) Vesting date Expiry date Vested Not vested Total
13 March 2017 0.0025 13 Mar 2019 13 Mar 2027 95,676 - 95,676
17 October 2017 0.6926 17 Oct 2019 17 Oct 2027 25,000 - 25,000
29 October 2019 0.2065 29 Oct 2022 29 Oct 2031 100,000 - 100,000
29 October 2019 0.2065 29 Oct 2021 29 Oct 2031 - -
30 October 2020 0.2065 01 Nov 2021 01 Nov 2026 155,932 - 155,932
01 April 2021 0.0025 01 Apr 2021 01 Apr 2026 28,805 - 28,805
01 April 2021 0.1300 01 Apr 2021 01 Apr 2026 - 125,000 125,000
01 April 2021 0.1580 01 Apr 2021 01 Apr 2026 - - -
26 January 2022 0.0025 26 Jan 2023 01 Nov 2027 321,411 - 321,411
29 March 2022 0.0025 29 Mar 2023 01 Nov 2027 20,940 - 20,940
28 March 2023 0.0025 28 Mar 2023 01 Nov 2023 75,000 549,467 624,467
822,764 674,467 1,497,231
The Group recognised a cost of £206,000 (2022: £170,000) relating to
share-based payment transactions which are all equity settled, an equivalent
amount being transferred to share-based payment reserve. This reflects the
fair value of the options, which has been derived through use of the
Black-Scholes model.
The cost of share-based payments is included in "Administrative expenses"
within the Statement of total comprehensive income. The share-based payments
reserve is used to recognise the grant date fair value of options issued to
employees but not exercised. The table below sets out the movement to the
share-based payment reserves in the year.
Movement in share options
Scheme and grant date As at 1 Nov 2022 Issued Expired Exercised Vested As at 31 Oct 2023
£'000 £'000 £'000 £'000 £'000 £'000
1 January 2017 264 - - - (264) -
13 March 2017 55 - - - - 55
17 October 2017 22 - (10) - (2) 10
29 October 2019 107 - (27) - (64) 16
30 October 2020 72 - - - (48) 24
01 April 2021 7 - (7) - - -
01 April 2021 14 - - - - 14
01 April 2021 14 - (6) - - 8
26 January 2022 94 - (14) - (33) 47
26 January 2022 31 - (7) - - 24
29 March 2022 4 - - - - 4
28 March 2023 - 276 - - - 276
684 276 (70) - (412) 478
26. Related party transactions
Balances and transactions between the Company and its subsidiary, which are
related parties, have been eliminated on consolidation. However, the key
transactions with the Company are disclosed as follows:
The Group has previously engaged IN4.0 Access Limited, which provides
consulting services. One of the directors of IN4.0 Talent Recruitment
Limited is a director of Velocity Composites plc. The Group paid £Nil (2022:
£37,270) to IN4.0 Talent Recruitment Limited during the year and had £Nil
outstanding at the year end (2022: £Nil). The services related to a
specialist software engineer and were at arm's length market rates for such
expertise, with the fees being passed directly on to the consultant, less an
administration fee.
During the year the Group engaged Northwest Aerospace Alliance, which provides
membership and subscription services for the Aerospace Industry. One of the
directors of Northwest Aerospace Alliance Limited is a director of Velocity
Composites plc. The Group paid £2,009 (2022: £5,775) to Northwest Aerospace
Alliance during the year and had £Nil outstanding at the year end (2022:
£1,000).
The following balances existed at year end with related parties
(payable)/receivable:
31 October 31 October
2023 2022
£'000 £'000
Related parties - (1)
27. Ultimate controlling party
The Directors do not consider there to be an ultimate controlling party due to
no individual party owning a majority share in the Group.
28. Capital commitments
At 31 October 2023 the Group had £Nil (2022: £582,000) of capital
commitments relating to the purchase of leasehold improvements, plant and
machinery and fixture and fittings.
29. Pension commitments
The Group makes contributions to defined contribution stakeholder pension
schemes. The contributions for the year of £97,191 (2022: £84,488) were
charged to the Consolidated Income statement. Contributions outstanding as at
31 October 2023 were £13,595 (2022: £14,107).
30. Contingent liabilities
As at 31 October 2023 the Group had in place bank guarantees of £Nil (2022:
£Nil) in respect of supplier trade accounts.
As at 31 October 2023, National Westminster Bank plc hold a debenture that
provides a fixed and floating charge on the assets of the Company.
31. Adjusted EBITDA
EBITDA is considered by the Board to be a useful alternative performance
measure reflecting the operational profitability of the business. Adjusted
EBITDA is defined as earnings before finance charges, taxation, depreciation,
amortisation and adjusted for share-based payments. Share-based payments are
added back to make the share-based payment charge clear to stakeholders.
Year ended Year ended
31 October 31 October
2023 2022
Reconciliation from operating loss £'000 £'000
Operating loss (2,817) (1,317)
Add back:
Share-based payments 206 170
Depreciation of property, plant and equipment 297 210
Amortisation 116 53
Depreciation of right-of-use assets under IFRS 16 472 432
Exceptional Administration expenses 120 -
Adjusted EBITDA (1,606) (452)
1 (#_ftnref1) Earnings before interest, tax, depreciation, amortisation,
exceptional and adjusted for share-based payments. The business uses this
Alternative Performance Measure to appropriately measure the underlying
business performance, as such it excludes costs associated with non-core
activity. Share-based payments are added back to make the share-based payment
charge clear to stakeholders.
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