REG - Velocity Composites - Final Results
24/01/2022 07:05
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RNS Number : 3034Z Velocity Composites PLC 24 January 2022
24 January 2022
VELOCITY COMPOSITES PLC
("Velocity or the "Company")
FINAL RESULTS FOR YEAR ENDED 31 OCTOBER 2021
"Foundations laid for recovery and future growth"
Velocity Composites plc (AIM: VEL), the leading supplier of composite material
kits to aerospace and other high-performance manufacturers, has today
announced the Company's audited results for the twelve months to 31 October
2021
Financial Highlights:
· Revenue of £9.8m (2020: £13.6m) reflecting suppressed civil
aircraft OEM volume productions because of Covid
· Gross margin improved 8.9% to 26.0% (2020: 17.1%) due to
proactive management of previously written down stock, and investment in
Velocity's nesting technology
· Operating loss reduced to £1.4m (2020: loss of £3.1m)
· Full-year adjusted(1) EBITDA loss reduced to £0.5m (2020: loss
of £1.9m) in-line with expectations. Difficult decision to reduce workforce
enabled break-even at an adjusted EBITDA level in H2 2021
· Gross cash balances of £3.5m and £0.7m of net cash as at 31
October 2021
(1) Earnings before Interest, Tax, Depreciation, Amortisation, Impairment,
adjusted for exceptional administrative costs and 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.
Operational Highlights:
· All major customers renewed and extended long-term contracts
· Focus on cost management and the integration of new proprietary
digital technology to aid the delivery of future growth
· Enhancement of nesting and traceability production system to
permit larger, multi raw material batch nests containing more kits to improve
material efficiency. This system provides benefits for existing business, and
future managed services
· Developed production into a "digital cell" based structure where
the entire kit manufacturing software and hardware is contained within
identical modules. These can be deployed internally at Velocity or remotely at
a customer site
Andy Beaden, Chairman of Velocity, said: "In the global storm of the pandemic,
our innovative technology and engineering skills have shone through. Over
the last twelve months, the team has worked tirelessly with all our major
customers to renew and extend our valuable long-term contracts, building
deeper technical relationships with new and existing clients. This has laid
the foundations for both our recovery and future growth.
"We believe it will take time for civil aircraft build rates to recover fully,
potentially three to four years before we return to, or exceed, the long-term
growth trends. However, new aircraft as they are built (including those
designed to be electrically powered) will be more composite intensive.
Velocity's growth will come from new business and the recovery in our current
contracted business volumes. That recovery will start in 2022 and we expect it
to accelerate into 2023.
"The shift to electric power means the need to make lighter vehicles and to
maximise range is expected to increase the demand for composites in other
sectors. We are already in discussions with a variety of new potential
customers outside of aerospace, creating long-term opportunities for the
Company.
"Having been able to maintain investment in the Company's technology and
engineering capabilities in the last year, the Board feel confident in
Velocity's ability to capture future growth opportunities, as we monitor the
implications of the pandemic."
Enquiries:
Velocity +44 (0) 1282 577577
Andy Beaden, Chairman
Jon Bridges, Chief Executive Officer
Chris Williams, Finance Director
Cenkos (Nominated Adviser and Broker) +44 (0)20 7397 8900
Ben Jeynes
Katy Birkin
SEC Newgate (Financial PR) +44 (0)7540 106 366
Robin Tozer / Richard Bicknell velocitycomposites@secnewgate.co.uk
Investor Presentation
Velocity will provide a live investor presentation for the Company's results
for the twelve months to 31 October 2021 via the Investor Meet Company (IMC)
platform today at 10.00am.
The online presentation is open to all existing and potential shareholders.
Investors can sign up to Investor Meet Company for free and add Velocity
Composites plc via
http://www.investormeetcompany.com/velocity-composites-plc/register-investor
(http://www.investormeetcompany.com/velocity-composites-plc/register-investor)
Chairman's Report
Overview
In the global storm of the pandemic, our innovative technology and engineering
skills have shone through and our competitive edge remains solid. As a
digitally enabled business, we have invested throughout this period to develop
what we believe are the most advanced integrated solutions for front end
composite material preparation for manufacturing in the world.
Over the last twelve months, the team has worked tirelessly with all our major
customers to renew and extend our valuable long-term contracts, building
deeper technical relationships with new and existing clients. This has laid
the foundations for both our recovery and future growth.
Financial Performance
While we have a positive view of the future because of the team's hard work
over the last twelve months, the challenging environment has meant tough
decisions had to be taken to protect the Company's financial position.
Revenue for the year was £9.8m (2020: £13.6m), reflecting the nadir of
suppressed civil aircraft OEM volume productions. Sadly, this meant we had
to take the difficult decision to reduce our workforce from approximately 122
to 75, enabling us to break-even at an adjusted EBITDA level from the second
half of FY21. As a result, the full year adjusted EBITDA is in-line with our
expectations announced at H1 FY21, at £0.5m loss. This represents an
operating loss of £1.4m reflecting the very difficult start to the year.
We have benefited from our supply chain management team's ability to reduce
our inventory levels, protecting our cash position and that of our
customers. This has not been easy given the limited life of most materials
we use due to expiration dates of the material. We are grateful to our
suppliers and customers for their collaboration. Inventory levels reduced by
£1.0m in the financial year. As at 31 October 2021, the Company had gross
cash balances of £3.5m and £1.0m of net cash.
Improved customer proposition
Although sales volumes were lower during the period, we have continued to
invest in and develop our customer proposition. The pandemic and the pressures
it has placed on the end industries the Company serves has reinforced the
ability of the Company to add value to our customers. Our technology and
services have served us well in navigating recent global supply chain issues.
They offer real benefits to our customers and their respective industries,
reducing material wastage to minimal levels, which reduces costs and makes
composite technology more commercially viable, as well as having a major
environmental benefit. Our systems reduce labour time and provide greater
efficiency and faster outputs, hence our name Velocity Composites.
Over the last twelve months, we have integrated our services into one key
package, called Velocity Resource Planning ("VRP"). VRP can be provided via a
traditional fully outsourced model of manufacturing kits for the customer,
onsite, or as a managed serviced model adopted by the customer. We can
tailor each solution to the customers manufacturing facility needs. Through
this innovation, Velocity is better positioned to expand into new markets and
territories and maximise the return on capital for both Velocity and the
customer.
By adopting VRP, customers and suppliers can quickly transform a relatively
inefficient element of the front-end material management process into a
digitally enhanced modern process. Smart technology reduces waste and provides
the right data to manage the supply chain effectively. This technology is
transferable into other sectors, especially as advanced material-based
industries, like automotive OEMs, are looking to find smarter ways to
manufacture, reduce waste, and digitise their production processes.
Market Recovery and Sustainability
As the effects of the pandemic have become clear, the core aerospace industry
has stabilised and pressures to retire older environmentally unfriendly
aircraft remain. The industry's recovery will be marked by the ever-increasing
use of lightweight carbon fibre materials. This trend means the
opportunities for Velocity Composites are better than ever.
We believe it will take time for civil aircraft build rates to recover fully,
potentially three to four years, before we return to, or exceed, the long-term
growth trends. However, new aircraft as they are built, (including those
designed to be electrically powered) will be more composite intensive.
Velocity's growth will come from new business and the recovery in our current
contracted business volumes. That recovery will start in 2022 and we expect it
to accelerate into 2023.
Furthermore, it is clear that governments and businesses worldwide are
becoming ever more focused on sustainability. The recent COP26 conference has
put in place different strategies and targets to help limit the impact of
climate change. The need to improve fuel efficiency is one aspect that opens
the door for even greater use of composites as manufacturers look to reduce
the weight of various machines. Also, the shift to electric power means the
need to make lighter vehicles and to maximise range, is expected to further
increase the demand for composites in other sectors. We are already in
discussions with a variety of new potential customers outside of aerospace,
creating long-term opportunities for the Company.
Board
On behalf of the Board, I would like to thank Dr Margaret Amos for being our
Audit Chair over the last twelve months and we wish her well in her new
endeavours. To replace Margaret in the coming year, we will be seeking a new
Non-Executive Director who has the financial and governance experience to
support the Company.
Outlook
We enter 2022 in positive spirits. Having been able to maintain investment
in the Company's technology and engineering capabilities in the last year, the
Board feel confident in Velocity's ability to capture future growth
opportunities, as we monitor the implications of the pandemic.
I would like to thank all our staff from the shop floor to board for their
tireless work in the last twelve months, along with our shareholders,
customers, and suppliers for their support. Everyone at Velocity Composites is
focused on the exciting opportunities ahead.
Andy Beaden
Chairman
23 January 2022
Outlook
Historically, the civil aerospace industry has been resilient to global shocks
and has seen the air travel market double every 10 years or so, with even the
previous largest shock (the travel reductions caused by the tragic events of
9/11) leading to a two year flattening of growth before the upwards curve
resumed.
With the impacts of COVID-19 however, the outcomes were more severe in that
air travel reduced by 90% almost overnight in early 2020 and only recovered to
some 50% of pre-pandemic levels by the end of 2021. With the high levels of
airline and industry uncertainty seen in early 2020, both Airbus and Boeing
took the action of reducing aircraft production levels to what, in effect are
the minimum levels to keep the complex and global supply chains sustained.
This in turn meant that the customers of Velocity had to restructure their
operations and staff levels and for Velocity, that demand for our products and
services reduced accordingly, by over 50%, through 2020 and 2021.
Looking ahead, the data shows how both Boeing and Airbus see the production
rate recovery corridor and also the longer-term demand for aircraft driven by
some key industry dynamics, mainly the push for the sustainability of airlines
who have retired their older aircraft and less efficient four engine fleet. As
the recovery takes hold, airlines will look to replace capacity with newer,
more efficient aircraft, each containing a high percentage of composites in
their structure than the previous generation to meet the global sustainability
agenda. As new technology looks to accelerate this, the uses of alternative
power sources (sustainable fuel, hydrogen and electrification) requires a high
performance, lightweight structure for which composites are a critical part.
As Velocity's customers also look to replace lost capacity in order to meet
the increasing production rates, we are confident that our technology-focused
approach to long term, sustainable composite raw material supply allows the
wider industry to build back better and be more efficient in delivering, both
a financial and environmental advantage to composites structures in transport.
Both Airbus and Boeing produce regular and detailed market forecast documents
which are available to download from their websites and key data is sourced
from;
www.boeing.com/commercial/market/commercial-market-outlook
and
www.airbus.com/en/products-services/commercial-aircraft/market/global-market-forecast
CEO Report
Overview
Looking back on another unprecedented year for our industry, it is in many
ways difficult to believe that in late 2021 and early 2022, we are still
dealing with impacts of the global pandemic, including travel restrictions and
reduced aircraft production rates. Thankfully, vaccines, new treatments and
testing have begun to show a way out of the situation.
However, despite civil aircraft production rates projected to increase
starting in 2022, market indications are that recovery to pre-pandemic levels
will take two to four years dependent on whether the platform is twin-aisle or
single-aisle. The pandemic has accelerated industry acknowledgement of the
utilisation of our existing technology to drive internal efficiency and cost
improvement and the need for further process and technology development to
prepare the business for recovery and beyond. As a result, we secured
multi-year contractual renewals with all our major customers and have a strong
platform for stable growth as recovery begins.
The impact of the pandemic is not just lower aircraft production rates but
also delays caused by customers reorganising staff and operations as they
adapt to lower volumes. While this might impede new business discussions with
aircraft manufacturers in the short term, we expect to see a positive approach
in the future as they adapt to the new environment.
The Recovery
For this reason, we expect our recovery to include growth from rising
production rates and new business opportunities. These opportunities will come
as customers use Velocity's services to restore capacity without growing their
fixed costs. This is particularly applicable around parts of their businesses
they no longer consider core, such as composite material management and
kitting.
Therefore, we have continued to invest in our digital technology and customer
service model as we improve the efficiency and detail of our customer
proposals. We now offer customers greater flexibility in terms of how our
services can be deployed to support their global manufacturing programmes.
This, combined with our retained presence in the UK, North America and Asia
throughout the pandemic, offers us the flexibility to offer two key customer
service models. First, full outsourcing of the process to a Velocity facility;
or second, a Velocity managed service with kit manufacture taking place on the
customer's site. Both models utilise our digital technology and hardware to
manage the end-to-end process, including demand management, raw material
procurement and management, material nesting, production planning, kit
manufacture, quality control and product traceability. We see no detriment to
the customer selecting either option. As we enter the recovery in FY22 we will
pilot the managed service model with existing customers where new projects
fall outside the area of an existing Velocity facility. We will provide an
update at the half-year.
Operational Progress
The financial year has been focused on cost management to support the adjusted
EBITDA breakeven position in H2 FY21 and the integration of new proprietary
digital technology to aid the delivery of future growth. Key highlights have
been the enhancements to our nesting and traceability production system to
permit larger, multi raw material batch nests containing more kits to improve
material efficiency. The system now incorporates an optical inspection system
to confirm individual piece level kit and material batch traceability. This
system provides benefits for existing business, and future managed services.
To deliver this we have developed our production into a "digital cell" based
structure where the entire kit manufacturing software and hardware is
contained within identical modules. These can be deployed internally at
Velocity, or remotely at a customer site. All this work has been developed at
our Advanced Technology Development Centre, at our site in Burnley, UK.
These digital manufacturing cells can be replicated in a standardised format
and brings a level of automation and central control that allows customer
employees to operate. The cells enable remote deployment as our services are
increasingly located further afield at customer sites. The hardware and
software are fully integrated with our VRP system allowing real-time process
management, part level efficiency and traceability and real-time analysis of
planned versus actual performance to deliver continuous improvement.
Employees
Despite the disruption and challenges faced by the team over the period, I am
pleased to report that staff turnover has remained low. After necessary
headcount reductions were made in response to the pandemic and the anticipated
ending of government support, our focus was on training and provide
developments to our core teams. This enables us to deliver our customers'
existing requirements, provide improvements to our cost targets and maintain
sufficient capability to prepare for future recovery and growth.
Part of this focus was our participation in the ADS SC21 Competitiveness and
Growth scheme. We utilised matched funding to deliver over 2400 hours of
external training focused on policy deployment, leadership development and
meeting a nationally recognised training standard. We are proud of developing
our internal talent, giving our staff more career development while
maintaining skills within the business.
Outlook
Looking ahead, I can see that the developments in our digital technology,
service model, staff training, coupled with detailed cost control and margin
improvement activities, have prepared the business well. Not only for the
production rate recovery but also the expected market opportunity as the wider
customer base recovers and returns to growth. As you can see from the 2021
market data from Airbus and Boeing, there are over 40,000 aircraft deliveries
are expected in the next 20 years while the industry adapts and develops to
meet net zero targets, such as in the IATA "waypoint 2050" sustainability
strategy.
Key to this is the adoption of new fuels, propulsion sources and aerodynamic
developments to allow aircraft to travel further and more efficient. The need
for stronger, lighter and more blended airframes utilising the advantages of
composite materials will be critical. I look forward to updating all
stakeholders on what we believe will be a transformational year for our
industry and Velocity Composites PLC.
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
2021, they acted in good faith and have upheld their 'duty to promote the
success of the Group' to the benefit of its Stakeholder Groups.
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 and is crucial for achieving the long-term success of
the Group. The main mechanisms for wider stakeholder engagement and feedback
can be found in the corporate governance section in the 2021 annual report.
Jonathan Bridges
Chief Executive Officer
23 January 2022
Financial Review
Statement of Comprehensive Income
Revenue for FY21 has seen the first full 12 months of COVID-19 impacted
demand. Although we have been operational throughout the period, with the
occasional customer shutdown and the latest demand from contracted programmes,
we finished the period with sales 28% lower year-on-year at £9.8m (FY20:
£13.6m).
Whilst H2 FY21 has shown a reassuring stabilisation of underlying sales, the
market outlook is one of static aircraft production rates until end FY22,
early FY23. In addition, the business continues to seek out new contracts to
deliver some of the identified pipeline opportunities and has seen increased
activity around these in recent months. The Company has made strong progress
in improving gross margin throughout the year, increasing by 8.9 ppts from
17.1% in FY20 to 26.0% in FY21. Although this was partly driven by benefits
related to proactive management of previously written down stock, focused
investment in Velocity's nesting technology has supported an underlying margin
improvement of 6.7 ppts to 23.8% in the period.
As reported last year, the full year effects of the Company's right-sizing
efforts have mostly been realised in FY21, with administrative expenses
including exceptional costs decreasing £1.6m from £5.5m to £3.9m. There
were no exceptional costs in FY21. The lower overhead base, combined with a
strong pipeline of potential sales and Velocity's maintained technology and
engineering capabilities, will enable Velocity to positively leverage its high
operational gearing as growth is expected to resume in FY22 and FY23.
The government continued to support the Company over the period with income
from furlough of £0.2m (FY20: £0.4m) and a non-repayable Coronavirus support
grant of £0.1m. Alongside the existing £2.0m Coronavirus Business
Interruption Loan ("CBIL"), an additional asset-backed loan and further CBIL
was obtained in June 2021 through Close Brothers totalling £0.9m.
The successful reduction in overheads combined with gross margin growth has
driven the delivery of the previously stated goal of achieving adjusted EBITDA
breakeven in H2 FY21 adjusted EBITDA (FY20: £(1.6)m), albeit supported by
one-off benefits related to COVID-19 support and utilisation of previously
written down inventory materials. On a consistent basis with last year,
adjusted EBITDA has improved year-on-year by £1.4m to a £(0.5)m adjusted
EBITDA loss for the year (FY20: £(1.9)m loss) excluding share-based payments
and exceptional administrative costs of £nil in FY21 (FY20: £0.3m). Over the
coming FY22 and FY23 periods, the Company will continue to carefully balance
cost reductions with investment for growth to enable a full recovery and a
sustainably profitable position.
The Company continues to benefit from being 70% naturally hedged from both US
Dollar and Euro foreign exchange movements, with both revenues and direct
material purchases being aligned contractually into the same currency where
applicable.
Adjusted EBITDA(1)
31 October 31 October
2021 2020
Reconciliation from Operating Loss £'000 £'000
Operating Loss (1,364) (3,149)
Add back:
Share-based payments 90 120
Depreciation & Amortisation* 305 341
Impairment of Intangible assets - 72
Depreciation on Right of Use assets under IFRS 16* 421 350
Exceptional Administrative costs - 341
Adjusted EBITDA(1) (548) (1,925)
Adjusted EBITDA(1) defined as earnings before finance charges, tax,
amortisation, depreciation, impairment, share based payments, exceptional
restructuring costs. Share-based payments are included highlight the movement
year on year. Share based payments are added back to make the share based
payment charge clear to stakeholders.
* a prior year adjustment has been made between property, plant and equipment
and right-of-use asset please see note 30 for details.
Cashflow and Capital Investment
The year end cash and cash equivalents increased by £0.2m to £3.5m (FY20:
£3.3m). Cash generated/(utilised) from operations of £0.3m (FY20: £(0.8)m)
in the year was driven by £0.9m cash generated from working capital
movements, as the business focused on inventory reduction throughout the
period, partly offset by the £(0.5)m adjusted EBITDA trading loss.
Cash used in Investing Activities of £(0.1)m (FY20: £(0.8)m) primarily
related to the Purchase of Non-current assets. Financing activities
generated £(0.1)m over the period (FY20: £1.5m) as the net proceeds of the
additional CBILS and asset finance facility with Close Brothers (£0.9m) was
offset by the first few repayments of the existing £2.0m, 5-year CBIL with
NatWest, starting July 2021. The Close Brothers borrowings of £0.9m is made
up of a £0.45m CBIL loan and a £0.45m loan to settle remaining lease
liabilities, of this £0.18m was received as cash once the finance liability
on the financed assets had been settled. The Invoice Discounting facility was
not being utilised at 31 October 2021.
The cash balance at 31 October 2021 of £3.5m includes £2.3m CBIL proceeds
and £0.7m of remaining EIS funds to be utilised in international growth and
establishing production facilities abroad.
Despite the loss in the year, the business remains in a net cash position at
year end, with £1.0m net cash (FY20: £1.3m). This includes Cash at bank, EIS
cash balances and CBIL proceeds offset by the outstanding CBIL balance and
hire purchase liabilities.
Year ended Year ended
31 October 31 October
2021 2020
£'000 £'000
Cash 3,476 3,268
Cash Loans (excluding right to use assets):
CBIL Loan (2,516) (2,000)
Invoice discounting facility 2 2
Net Cash/(Debt) (Note 1) 962 1,270
Note 1: The net cash/(debt) calculation is designed to explain the level of
financial debt, net of cash at bank.
Working capital
Ongoing Inventory management efforts successfully decreased Inventory to
£0.9m (FY20: £1.9m) at year end, generating £1.0m cash during the period
and bringing the Company's Inventory levels in-line with current levels of
demand.
Trade and other receivables decreased during the year by £0.3m to £2.2m as a
result of the increased credit terms and continuing robust controls around
debt collection. Receivable days have increased to 76 days (FY20: 44 days) due
to revised credit period terms with two major customers as part of renewal
negotiations in H1 FY21.
Trade and other payables also reduced during the year by £0.4m to £1.1m
(FY20: £1.5m) as utilisation of existing stock and reduction in demand drove
fewer material purchases.
Going concern
Management continues to undertake a significant level of cash flow
forecasting, in-line with prior year and best practice over the pandemic
period. This is now an ongoing process within the Company through Integrated
Business Planning (IBP) which regularly stress-tests the forecasting
assumptions against the continuously evolving circumstances, such as the
latest COVID variant or government outlook. It was this work that also
supported the application for additional CBILS support and its associated
asset-financing with Close Brothers. Detailed financial projections for the
following 24 month rolling period to 31 October 2023 were prepared and a
number of sensitivities were run to stress test the forecasts and understand
the cash flow impact of various scenarios. Even in the most severe down-side
scenario modelled the business had sufficient liquidity to continue trading as
a going concern
Our forecasts indicate 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, the latest annual review in December reflected the banks' support
for Velocity's growth strategy and extended the commitment of both parties to
a minimum 3 months' notice and as such we expect this facility will remain
available throughout the going concern period. Should alternative financing be
required the Group would preserve cash through slowing investment in growth
until longer-term funding could be implemented, such as asset-based financing
against new capex or equity funding.
The cash flow forecasts are reviewed monthly through Management's IBP process
and the forecasting assumptions are updated for any new knowledge to ensure
there is no change in the Company's liquidity outlook. This is linked in with
the Management's monthly risk review and should the outlook change
significantly with no mitigating actions the Company'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.
The aerospace sector lends itself to this kind of long-term planning due to
the nature and length of customer programmes, typically a minimum of 3 years,
but often 5 years or more. This has enabled the business to fully model the
period to 31 October 2023 and undertake more strategic, longer-term planning
for growth and full recovery emerging from the pandemic.
Although work is still needed to improve underlying performance, recent H2
FY21 results has shown that adjusted EBITDA breakeven is achievable for
Velocity. Future recovery will be made possible through a combination of
existing contracts recovering to pre-COVID-19 run rates over the 3-to-5-year
period, as well as new contracts being won from the significant pipeline of
opportunities and targeted investment being made to support this. Cost
improvement programmes and efficiency drives also continue on an ongoing basis
through the Budgeting process. Should the current strategy prove ineffective
or insufficient to recover the performance of the business, Management have
contingency plans ready to implement should this become clear.
Alongside the forecasting and governance process, the Company has demonstrated
robust cash flow management over the FY21 period through successfully reducing
Inventory levels by £1m and navigating through right-sizing efforts to
deliver a £1.6m reduction in administrative overheads.
Having due regard for these recent deliverables and latest projections, with
available cash at 31 October 2021 of £3.5m, an undrawn invoice discount
facility where we can borrow up to £3m dependent on debtor levels, access to
an invoice discounting facility with one of our major customers, and continued
confidence from our banks and shareholders in our strategy, it is the opinion
of the Board that the Group has adequate resources to continue to trade as a
going concern.
Chris Williams
Chief Financial Officer
23 January 2022
Consolidated statement of total comprehensive income
Year ended Year ended
31 October 31 October
2021 2020
Note £'000 £'000
Revenue 4 9,767 13,561
Cost of sales (7,228) (11,237)
Gross profit 2,539 2,324
Administrative expenses excluding exceptional costs (3,903) (5,132)
Exceptional administrative expenses 7 - (341)
Operating loss 5 (1,364) (3,149)
Operating loss analysed as:
Adjusted EBITDA 29 (548) (1,925)
Depreciation of Property, plant and equipment* (229) (224)
Amortisation (76) (117)
Impairment of Intangible assets - (72)
Depreciation of Right to Use assets under IFRS 16 (421) (350)
Share based payments (90) (120)
Exceptional administrative expenses - (341)
Finance income and expense 8 (182) (98)
Loss before tax from continuing operations (1,546) (3,247)
Income tax income 9 340 117
Loss for the period and total comprehensive loss (1,206) (3,130)
Loss per share - Basic (£) from continuing operations 10 (£0.03) (£0.08)
Loss per share - Diluted (£) from continuing operations 10 (£0.03) (£0.08)
The notes below form part of these financial statements.
There were no discontinued operations in the current or prior period.
There is no other comprehensive income.
* a prior year adjustment has been made between property, plant and equipment
and right-of-use asset please see note 30 for details.
Consolidated and Company statement of financial position
Group Group Company Company
31 October 31 October 31 October 31 October
2021 2020 2021 2020
Note £'000 £'000 £'000 £'000
Non-current assets
Intangible assets 11 91 167 91 167
Property, plant and equipment* 12 1,051 1,216 1,051 1,216
Right-of-use assets* 19 1,688 1,634 1,688 1,634
Total non-current assets 2,830 3,017 2,830 3,017
Current assets
Inventories 14 877 1,908 877 1,908
Trade and other receivables 15 2,162 2,464 2,195 2,490
Corporation tax 341 - 341 -
Cash and cash equivalents 16 3,476 3,268 3,470 3,265
Total current assets 6,856 7,640 6,883 7,663
Total assets 9,686 10,657 9,713 10,680
Current liabilities
Loans 17 514 500 514 500
Trade and other payables 17 1,058 1,504 1,058 1,499
Obligations under lease liabilities 19 309 411 309 411
Total current liabilities 1,881 2,415 1,881 2,410
Non-current liabilities
Loans 17 1,998 1,500 1,998 1,500
Obligations under lease liabilities 19 1,240 1,060 1,240 1,060
Total non-current liabilities 3,238 2,560 3,238 2,560
Total liabilities 5,119 4,975 5,119 4,970
Net assets 4,567 5,682 4,594 5,710
Equity attributable to equity holders of the company
Share capital 22 91 91 91 91
Share premium account 22 9,727 9,727 9,727 9,727
Share-based payments reserve 539 490 539 490
Retained earnings (5,790) (4,626) (5,763) (4,598)
Total equity 4,567 5,682 4,564 5,710
* a prior year adjustment has been made between property, plant and equipment
and right-of-use asset please see note 30 for details.
The notes below form part of these financial statements.
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 (£1,206,000). The
financial statements were approved and authorised for issue by the Board of
Directors on 23 January 2022 and were signed on its behalf by;
Chris Williams
Director
Co No: 06389233
Consolidated statement of changes in equity
Share Share premium Retained Share-based payments Total
capital account earnings reserve equity
£'000 £'000 £'000 £'000 £'000
As at 31 October 2019 90 9,727 (1,663) 537 8,691
Loss for the year - - (3,130) - (3,130)
90 9,727 (4,793) 537 5,561
Transactions with shareholders:
Share-based payments - - - 120 120
Transfer of share option reserve on vesting of options and issue of equity 1 - 167 (167) 1
As at 31 October 2020 91 9,727 (4,626) 490 5,682
Share Share premium Retained Share-based payments Total
capital account earnings reserve equity
£'000 £'000 £'000 £'000 £'000
As at 31 October 2020 91 9,727 (4,626) 490 5,682
Loss for the year - - (1,205) - (1,205)
91 9,727 (5,831) 490 4,477
Transactions with shareholders:
Share-based payments - - - 90 90
Transfer of share option reserve on vesting of options and issue of equity - - 41 (41) -
As at 31 October 2021 91 9,727 (5,790) 539 4,567
The notes below form part of these financial statements.
Consolidated and Company statement of changes in equity
Company statement of changes in equity
Share Share premium Retained Share-based payments Total
capital account earnings reserve equity
£'000 £'000 £'000 £'000 £'000
As at 31 October 2019 90 9,727 (1,642) 537 8,691
Loss for the year - - (3,123) - (3,123)
90 9,727 (4,765) 537 5,589
Transactions with shareholders:
Share-based payments - - - 120 120
Transfer of share option reserve on vesting of options and issue of equity 1 - 167 (167) 1
As at 31 October 2020 91 9,727 (4,598) 490 5,710
Share Share premium Retained Share-based payments Total
capital account earnings reserve equity
£'000 £'000 £'000 £'000 £'000
As at 31 October 2020 91 9,727 (4,598) 490 5,710
Loss for the year - - (1,206) - (1,206)
91 9,727 (5,804) 490 4,504
Transactions with shareholders:
Share-based payments - - - 90 90
Transfer of share option reserve on vesting of options and issue of equity - - 41 (41) -
As at 31 October 2021 91 9,727 (5,763) 539 4,594
The notes below form part of these financial statements.
Consolidated and Company Statement of cash flows
Group Group Company Company
Year ended Year ended Year ended Year ended
31 October 31 October 31 October 31 October
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Operating activities
Loss for the year (1,206) (3,130) (1,206) (3,123)
Taxation (341) (117) (341) (117)
Profit on sale of assets (13) - (13) -
Finance costs 182 98 181 98
Amortisation of intangible assets 76 118 76 118
Impairment of Intangible assets - 72 - 72
Depreciation of property, plant and equipment* 229 223 229 223
Depreciation of right to use assets* 421 350 421 350
Share-based payments 90 120 90 120
Operating cash flows before movements in working capital (562) (2,266) (562) (2,259)
Decrease in trade and other receivables 302 1,685 294 1,688
Decrease in inventories 1,031 1,269 1,031 1,269
Decrease in trade and other payables (446) (1,526) (441) (1,531)
Cash generated from operations 325 (838) 322 (833)
Net cash Inflow/(Outflow) from operating activities 325 (838) 322 (833)
Investing activities
Purchase of property, plant and equipment* (64) (782) (64) (782)
Development expenditure capitalised - (39) - (39)
Proceeds from the sale of property, plant and equipment 13 3 13 3
Net cash used in investing activities (51) (818) (51) (818)
Financing activities
Loan received 634 2,000 634 2,000
Finance costs paid (181) (98) (181) (98)
Loan repayment (119) - (119) -
Repayment of lease liabilities capital (400) (402) (400) (404)
Net cash generated from financing activities (66) 1,500 (66) 1,500
Net Increase/(Decrease) in cash and cash equivalents 208 (156) 205 (151)
Cash and cash equivalents at 01 November 3,268 3,424 3,265 3,416
Cash and cash equivalents at 31 October 3,476 3,268 3,470 3,265
* a prior year adjustment has been made between property, plant and equipment
and right-of-use asset please see note 30 for details.
Notes to the 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 figures shown for the year ended 31 October 2021 are based on the Group's
statutory accounts for that period and do not constitute the Group's statutory
accounts for that period as defined in section 434 of the Companies Act 2006.
The statutory accounts were prepared under International Financial Reporting
Standards in conformity with the Companies Act 2006 the accounting policies
have been applied as described in the Annual Report. The audit report on the
accounts for the year ended 31 October 2021 was not qualified, did not include
a reference to any matters to which the Auditor drew attention by way of
emphasis without qualifying the report, and did not contain statements under
section 498 (2) or (3) of the Companies Act 2006.
The financial statements have been prepared in compliance with the measurement
and recognition criteria of International Accounting Standards in conformity
with the requirements of the Companies Act 2006.
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 periods presented, unless otherwise stated. The
financial statements are presented in sterling and have been rounded to the
nearest thousand (£'000).
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 made up to 31 October 2021.
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 International Accounting 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 periods presented in the consolidated financial
statements.
Going concern
Management continues to undertake a significant level of cash flow
forecasting, in-line with prior year and best practice over the pandemic
period. This is now an ongoing process within the Company through Integrated
Business Planning (IBP) which regularly stress-tests the forecasting
assumptions against the continuously evolving circumstances, such as the
latest COVID variant or government outlook. It was this work that also
supported the application for additional CBILS support and its associated
asset-financing with Close Brothers. Detailed financial projections for the
following 24 month rolling period to 31 October 2023 were prepared and a
number of sensitivities were run to stress test the forecasts and understand
the cash flow impact of various scenarios. Even in the most severe down-side
scenario modelled the business had sufficient liquidity to continue trading as
a going concern
Our forecasts indicate 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, the latest annual review in December reflected the banks' support
for Velocity's growth strategy and extended the commitment of both parties to
a minimum 3 months' notice and as such we expect this facility will remain
available throughout the going concern period. Should alternative financing be
required the Group would preserve cash through slowing investment in growth
until longer-term funding could be implemented, such as asset-based financing
against new capex or equity funding.
The cash flow forecasts are reviewed monthly through Management's IBP process
and the forecasting assumptions are updated for any new knowledge to ensure
there is no change in the Company's liquidity outlook. This is linked in with
the Management's monthly risk review and should the outlook change
significantly with no mitigating actions the Company'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.
The aerospace sector lends itself to this kind of long-term planning due to
the nature and length of customer programmes, typically a minimum of 3 years,
but often 5 years or more. This has enabled the business to fully model the
period to 31 October 2023 and undertake more strategic, longer-term planning
for growth and full recovery emerging from the pandemic.
Although work is still needed to improve underlying performance, recent H2
FY21 results has shown that adjusted EBITDA breakeven is achievable for
Velocity. Future recovery will be made possible through a combination of
existing contracts recovering to pre-COVID-19 run rates over the 3-to-5-year
period, as well as new contracts being won from the significant pipeline of
opportunities and targeted investment being made to support this. Cost
improvement programmes and efficiency drives also continue on an ongoing basis
through the Budgeting process. Should the current strategy prove ineffective
or insufficient to recover the performance of the business, Management have
contingency plans ready to implement should this become clear.
Alongside the forecasting and governance process, the Company has demonstrated
robust cash flow management over the FY21 period through successfully reducing
Inventory levels by £1m and navigating through right-sizing efforts to
deliver a £1.6m reduction in administrative overheads.
Having due regard for these recent deliverables and latest projections, with
available cash at 31 October 2021 of £3.5m, an undrawn invoice discount
facility where we can borrow up to £3m dependent on debtor levels, access to
an invoice discounting facility with one of our major customers, and continued
confidence from our banks and shareholders in our strategy, it is the opinion
of the Board that the Group has adequate resources to continue to trade as a
going concern.
There are no other IFRSs or IFRIC interpretations that are not yet fully
effective that could be expected to have a material impact on the Group.
Revenue Recognition
Revenue is recognised as performance obligations are satisfied as control of
the goods and services is 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 generate 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 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. 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. Goods or services
supplied in a foreign currency are recognised at the exchange rate ruling at
the time of accounting for this expenditure.
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.
Research and development expenditure
Research expenditure - Expenditure on research activities is recognised as an
expense in the period 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
Exceptional items
Items which are both material and non-recurring are presented as exceptional
items within the relevant income statement category. The separate reporting of
exceptional items helps provide a better indication of the Group's underlying
business performance.
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 Velocity Composites plc's
functional and presentation currency.
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 balance sheet presented are
translated at the closing rate at the date of that balance sheet
· 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 period. 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, however
it was not utilised in the year.
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.
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 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 remove the asset at the end of the lease, 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.
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 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. Note, a government grant exists on the group's CBIL
loans given they may be below a market interest rate - the impact of this has
not been quantified on the grounds of materiality as there would be an equal
and opposite finance charge, both recognised within the same financial
statement line item.
Current taxation
The tax currently payable is based on the taxable profit of the period.
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 periods 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 periods 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.
- the initial recognition of an asset or liability in a transaction which is
not a business combination and at the time of the transaction affects neither
accounting nor taxable profit.
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.
Critical accounting estimates
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 buckets 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 an
finance impact of an increase in stock provision of £17k.
3. Financial instruments & 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
Financial instruments by category Group Company Group Company
Year ended Year ended Year ended Year ended
31 October 31 October 31 October 31 October
2021 2021 2020 2020
£'000 £'000 £'000 £'000
Current assets
Trade and other receivables 1,902 1,902 2,205 2,205
Trade and other receivables - prepayments 260 293 259 285
2,162 2,195 2,464 2,490
Cash and cash equivalents - loans and receivables 3,476 3,470 3,268 3,265
Total loans and receivables 5,638 5,665 5,732 5,755
Current liabilities
Trade and other payables 921 921 919 919
Trade and other payables - accruals 137 137 585 580
1,058 1,058 1,504 1,499
Loans 514 514 919 919
Obligations under lease liabilities 309 309 585 585
Total Current liabilities 1,881 1,881 3,008 3,003
For non-current liabilities please see note 17.
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, Euros and Ringgits. The Group has commercial agreements in place
which allow it to transact with its customers in the currency of the material
purchase, thereby allowing currency risk to pass through the Group.
The carrying value of the Group's foreign currency denominated assets and
liabilities comprise the trade receivables in Note 15, cash in Note 16 and
trade payables in Note 17.
Whilst the majority of the Group's financial assets are held in Sterling,
movements in the exchange rate of the US Dollar, Euro or Ringgit against
Sterling do have an impact on both the result for the year and equity. he
Group's assets and liabilities that are held in US Dollar, Euro or Ringgits
are held in those currencies for normal trading activity in order to recover
funds from customers or to pay funds to suppliers.
The Groups exposure to foreign currency risk is as follows. This is based on
the carrying amount of monetary financial instruments.
As at 31 October 2021
US Dollar Euro Total
£'000 £'000 £'000
Trade debtors 1,651 194 1,845
Cash and cash equivalents 993 1,035 2,028
Trade payables (408) (35) (443)
Balance sheet exposure 2,236 1,194 3,430
As at 31 October 2020
US Dollar Euro Total
£'000 £'000 £'000
Trade debtors 1,484 244 1,728
Cash and cash equivalents 483 159 641
Trade payables (253) 14 (239)
Balance sheet exposure 1,714 417 2,130
Sensitivity analysis
A 5% strengthening of the following currencies against the pound sterling at
the balance sheet date would have decreased profit of 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 2021 31 October 2020
£'000 £'000
US dollar (112) (86)
Euro (60) (21)
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 period
would have had the equal but opposite effect to the amounts shown above, on
the basis that all other variables remain constant.
Interest rate risk
The Group carries borrowings from leases and CBIL loans. Therefore, with the
exception of the invoice discounting facility which attracts an interest rate
of 2.25%, the Directors consider that there is no significant interest rate
risk.
b) 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.
c) Liquidity risk
The Group currently holds cash balances in Sterling, US Dollars, Euros and
Ringgits 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.
2020 Within 1 year One to two years Two to five years Over five years
£'000 £'000 £'000 £'000
Loan 500 1,500 - -
Lease liability for right of use assets 480 317 899 -
Trade payables 487 - - -
Accruals 585 - - -
Other payables 15 - - -
Invoice discounting facility - - - -
2021 Within 1 year One to two years Two to five years Over five years
£'000 £'000 £'000 £'000
Loan 541 536 1,462 -
Lease liability for right of use assets 378 292 1,181 -
Trade payables 639 - - -
Accruals 137 - - -
Other payables 14 - - -
Invoice discounting facility - - - -
The lease liability is shown exclusive of interest payments.
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
2021 2020
£'000 £'000
Revenue
United Kingdom 9,702 12,337
Europe 26 1,224
Rest of the World 39 -
9,767 13,561
During the year four customers accounted for 95.0% of the Group's total
revenue for the year ended 31 October 2021. This was split as follows;
Customer A - 44.7% (2020: 43.6%), Customer B - 28.5% (2020:
27.2%), Customer C - 13.4% (2020: 12.9%) and Customer D - 8.51% (2020: 10.3%),
please note customer D differs from the previous year customer D.
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 2021 and year ended 31
October 2020 as the site operates as an Engineering Support Office for the
Group. The US subsidiary is currently dormant, and no revenue has been
generated since the US subsidiary was incorporated.
5. Loss from operations
The operating loss is stated after charging / (crediting):
Year ended Year ended
31 October 31 October
2021 2020
£'000 £'000
Staff costs (see Note 6) 2,854 4,336
Cost of inventories 6,335 9,745
Foreign exchange loss/(gain) 156 (39)
Amortisation of development costs 76 118
Impairment of development costs - 72
Depreciation:
Property, plant and equipment* 229 223
Right-of-use assets* 421 349
(Profit) on disposal of assets (13) -
Auditor's remuneration:
Audit of the accounts of the Group 62 60
Other audit related services (relating to interim review) 12 19
Taxation compliance services 8 5
Other taxation advisory services 13 11
* a prior year adjustment has been made between property, plant and equipment
and right-of-use asset please see note 30 for details.
6. Group and Company Staff costs
Year ended Year ended
31 October 31 October
2021 2020
£'000 £'000
Wages, salaries and bonuses 2,435 3,747
Social security costs 240 346
Pension costs 89 123
Share-based payments 90 120
2,854 4,336
During the year the company took advantage of the government furlough scheme,
in the year to 31 October 2021 £152k (2020: £445k) was claimed in relation
to this scheme, this benefit is not included in the above totals.
Staff costs net of furlough claims amounted to £2.7m during the financial
year.
The average monthly number of employees during the period was as follows:
Year ended Year ended
31 October 31 October
2021 2020
Head count Head count
Manufacturing 45 76
Administration 30 46
75 122
Directors' costs
Year ended Year ended
31 October 31 October
2021 2020
£'000 £'000
Directors' remuneration included in staff costs:
Wages, salaries and bonuses 333 297
Compensation for retirement from office - -
Pension costs 21 18
354 315
Remuneration of the highest paid director(s):
Wages, salaries and bonuses or fees 120 142
Pension 11 15
131 157
None of the share options exercised in the year related to directors.
7. Exceptional administrative expenses
Year ended Year ended
31 October 31 October
2021 2020
£'000 £'000
Restructuring costs - 341
- 341
The exceptional items reported in 2020 £0.3m consist of cost of restructuring
and redundancy costs in the year due to COVID-19.
8. Finance income and expenses
Year ended Year ended
31 October 31 October
2021 2020
£'000 £'000
Finance expense
Finance charge from lease liabilities 112 63
Other interest & invoice discounting charges 70 42
Finance Income - (7)
182 98
9. Income tax
Year ended Year ended
31 October 31 October
2021 2020
£'000 £'000
Current tax (income)/expense
UK corporation tax: in respect of prior years (340) (117)
(340) (117)
Total tax (income)/expense (340) (117)
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 profit
for the year as follows:
Tax rate 19.00% 19.00%
(Loss) for the year before tax (1,546) (3,131)
Expected tax credit based on corporation tax rate (294) (595)
Expenses not deductible for tax purposes (12) 595
Adjustment in respect of prior years - R&D credits (340) (51)
Tax losses not recognised 306 -
Total tax (income)/expense (340) (117)
In the Spring Budget 2021, the Government announced that from 1 April 2023 the
corporation tax rate will
increase to 25%. This rate was substantively enacted as at the 31 October 2021
Balance Sheet date. This has had no material impact on the financial
statements. The UK corporation tax rate for the year ended 31 October 2021 is
calculated at 19% (2020: 19%).
10. Loss per share
Year ended Year ended
31 October 31 October
2021 2020
£ £
Loss for the year (1,206,000) (3,130,000)
Shares Shares
Weighted average number of shares in issue 36,270,917 35,995,289
Weighted average number of share options 1,856,366 2,143,440
Weighted average number of shares (diluted) 38,127,283 38,138,729
Loss per share (£) (basic) (£0.03) (£0.08)
Loss per share (£) (diluted) (£0.03) (£0.08)
Share options have not been included in the diluted calculation as they would
be anti-dilutive with a loss being recognised.
11. Intangible assets
Development
Group and Company Group
Costs Total
£'000 £'000
Cost
At 31 October 2019 599 599
Additions 39 39
Disposal - -
At 31 October 2020 638 638
Additions - -
Disposal - -
At 31 October 2021 638 638
Amortisation
At 31 October 2019 282 282
Charge for the year 118 118
Impairment 72 72
Disposal - -
At 31 October 2020 472 472
Charge for the year 76 76
At 31 October 2021 548 548
Net book value
At 31 October 2019 317 317
At 31 October 2020 167 167
At 31 October 2021 90 90
Impairment
The Group reviews the Development costs at each reporting period for
indicators of impairment. An indication of impairment can be generated from
the loss of a customer, or contracted sales. The Board have provided an
impairment of £Nil (2020 - £72,000) relating to development costs
capitalised but where no future economic benefits are currently expected to be
generated for the Group.
12. Property, plant and equipment
Group and Company Leasehold Plant & Motor Fixtures Group
Improvements machinery vehicles & Fittings Total
£'000 £'000 £'000 £'000 £'000
Cost
At 31 October 2019 198 1,920 141 349 2,608
Additions 372 569 - 51 992
Disposal (3) - - - (3)
At 31 October 2020 567 2,489 141 400 3,597
Prior period adjustment (76) (645) (70) - (791)
Balance at 31 October 2020 (revised) 491 1,844 71 400 2,806
Additions - 47 - 17 64
Disposal - - (48) - (48)
At 31 October 2021 491 1,891 23 417 2,822
Depreciation
At 31 October 2019 46 1,233 92 176 1,547
Charge for the year 33 233 17 45 328
Disposal - - - - -
At 31 October 2020 79 1,466 109 221 1,875
Prior period adjustment (30) (217) (38) - (285)
Balance at 31 October 2020 (revised) 49 1,249 71 221 1,590
Charge for the year 50 136 - 43 229
Disposal - - (48) - (48)
At 31 October 2021 99 1,385 23 264 1,771
Net book value
At 31 October 2019 97 390 - 173 660
At 31 October 2020 488 1,023 32 179 1,722
Prior period adjustment (46) (428) (32) - (506)
At 31 October 2020 (revised) 442 595 - 179 1,216
At 31 October 2021 392 506 - 153 1,051
* a prior year adjustment has been made between property, plant and equipment
and right-of-use asset please see note 30 for details.
13. Investment in subsidiaries
Group Group Company Company
31 October 31 October 31 October 31 October
2021 2020 2021 2020
£'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% Manufacturer of composite material products for the aerospace sector
63000, Cyberjaya, Selangor
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
14. Inventories
Group Group Company Company
31 October 31 October 31 October 31 October
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Raw materials & consumables 541 1,558 541 1,558
Finished goods 336 350 336 350
877 1,908 877 1,908
Inventories totalling £877k (2020: £1,908k) 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 release of inventories provision during the year amounted to £593k, in
2020 the release was not material.
The inventory at 31 October 2021 is after a stock provision of £264k (2020:
£857k). The provision reflects the aged stock profile consistent with FY20,
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 2021
amounted to £6,335k (2020: £9,745k), and these were included in cost of
sales.
15. Trade and other receivables
Group Group Company Company
31 October 31 October 31 October 31 October
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Trade receivables 1,883 1,954 1,883 1,954
Prepayments 260 259 259 257
Other receivables 19 251 19 250
Amounts due from subsidiary undertakings - - 34 29
2,162 2,464 2,195 2,490
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 76 days (2020: 45 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.
Trade receivables overdue by:
31 October 31 October
2021 2020
£'000 £'000
Not more than 3 months 13 249
More than 3 months but not more than 6 months - 7
More than 6 months but not more than 1 year - 5
More than 1 year - -
13 261
The overall expected credit loss is trivial, (2020: trivial). There is no
movement in allowance of impairment of trade receivables during each year.
Trade receivables held in currencies other than sterling are as follows:
31 October 31 October
2021 2020
£'000 £'000
Euro 194 226
US Dollar 1,651 1395
1,845 1,621
16. Cash and cash equivalents
Group Group Company Company
31 October 31 October 31 October 31 October
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Cash at bank 3,476 3,268 3,470 3,265
3,476 3,268 3,470 3,265
17. Trade and other payables
Group Group Company Company
31 October 31 October 31 October 31 October
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Current
Trade payables 639 487 639 486
Accruals 137 585 137 583
Other tax and social security 268 417 268 417
Other payables 14 15 14 13
1,058 1,504 1,058 1,499
Book values approximate to fair values.
Bank Loan in the period
Group Group Company Company
31 October 31 October 31 October 31 October
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Not later than one year 514 500 514 500
One to two years 536 1,500 536 1,500
Two to five years 1,462 - 1,462 -
2,512 2,000 2,512 2,000
During the year the company took out a further Coronavirus Business
Interruption Loan for £0.45m secured against owned non-current assets. This
is to be paid over 5 years with the first payments due July 2021, the last
payment date is June 2026. The loan is at interest free for the initial 12
months, followed by an interest rate of 11.1% per annum.
Another £0.45m loan was took out to settle remaining lease liabilities, of
this £0.18m was received as cash once the finance liability on the financed
assets had been settled this cash has been classified as a loan. This is to be
paid over 5 years with the first payments due July 2021, the last payment date
is June 2026. The loan is at interest free for the initial 12 months, followed
by an interest rate of 11.1% per annum
During the previous year the company took out a Coronavirus Business
Interruption Loan for £2.0m. On the 19 January 2021 the term of this loan was
extended to 6 years, the first payments due August 2021, the last payment date
is August 2026. The loan is at interest free for the initial 12 months,
followed by an interest rate of 3.96%.
18. Grant income deferred
Group Group Company Company
31 October 31 October 31 October 31 October
2021 2020 2021 2020
£'000 £'000 £'000 £'000
Opening balance - - - -
Grant income amortisation - - - -
Closing balance - - - -
19. Leases
In the previous year, the Company adopted IFRS 16 and applied the modified
retrospective approach. The reclassifications and the adjustments arising from
the new leasing rules are therefore recognised in the opening balance sheet on
1 November 2019.
Right-of-use-assets
Group and Company
Land and buildings Plant and machinery Motor Vehicles Total
£'000 £'000 £'000 £'000
Cost
Balance as at 1 November 2019 - - - -
Adjustment on transition to IFRS 16 on 1 November 2019 479 - 9 488
Additions 885 - - 885
Balance at 31 October 2020 1,364 - 9 1,373
Prior period adjustment - 561 49 610
Balance at 31 October 2020 (revised) 1,364 561 58 1,983
Additions 414 - 61 475
Disposal (137) - (9) (146)
Balance at 31 October 2021 1,641 561 110 2,312
Depreciation and amortisation
Balance as at 1 November 2019 - - - -
Depreciation charge for the year 238 - 8 246
Balance at 31 October 2020 238 - 8 246
Prior period adjustment - 86 17 103
Balance at 31 October 2020 (revised) 238 86 25 349
Depreciation charge for the year 298 104 19 421
Disposal (137) - (9) (146)
Balance at 31 October 2021 399 190 35 624
At 31 October 2020 1,126 475 33 1,634
At 31 October 2021 1,242 371 75 1,688
* a prior year adjustment has been made between property, plant and equipment
and right-of-use asset please see note 30 for details.
Upon initial measurement 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 balance sheet.
Right-of-use lease liabilities
£'000
At 1 November 2020 1,471
Repayment (401)
Additions to right-of-use assets in exchange for increased lease liabilities 475
Other lease movements 4
At 31 October 2021 1,549
Analysis by length of liability Land and buildings Plant and equipment Motor Vehicles Total
£'000 £,000 £'000 £'000
Current 243 50 16 309
Non-current 1,000 206 34 1,240
Total 1,243 256 50 1,549
Number of right-to-use assets
leased
5
5 2
Range of remaining term
1-10yrs
1-10 yrs 1-4
yrs
Lease Liabilities
Lease liabilities are presented in the consolidated statement of financial
position as follows:
Minimum lease payments Interest Present value
31 October 2020
Not later than one year 480 69 411
Later than one year and not later than two years 317 51 266
Later than two years and not later than five years 899 105 794
1,696 225 1,471
31 October 2021
Not later than one year 378 69 309
Later than one year and not later than two years 292 67 225
Later than two years and not later than five years 1,181 166 1,015
1,851 302 1,549
Low value leases
The Group leases motor vehicles and property, comprising both offices and
assembly space, under low value leases. The total value of minimum lease
payments due is payable as follows:
Group 31 October 31 October
2021 2020
£'000 £'000
Motor vehicles
Not later than one year - -
Later than one year and not later than two years - -
- -
Property, plant and equipment
Not later than one year 4 23
Later than one year and not later than two years - 4
Later than two years and not later than five years - -
Later than five years - -
4 27
Company 31 October 2021 31 October 2020
£'000 £'000
Motor vehicles
Not later than one year - -
Later than one year and not later than two years - -
- -
Property, plant and equipment
Not later than one year 4 23
Later than one year and not later than two years - 4
Later than two years and not later than five years - -
Later than five years - -
4 27
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.
20. Deferred Tax
Deferred tax is calculated in full on temporary differences under the
liability method using tax rates appropriate for the period. The movement on
the deferred tax account is as shown below:
The movement on the unrecognised deferred tax (asset)/liability is shown
below:
Group and Company 31 October 31 October
2021 2020
£'000 £'000
Corporation tax losses brought forward (534) (534)
Corporation tax losses not recognised in the year (306) -
Closing tax not recognised (asset) (840) (534)
The Group has unused tax losses which were incurred by the holding company. A
deferred tax asset of £840,000 (2020: £534,000 - this figure has been
updated following the finalisation of the FY20 corporation tax computations)
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.
21. Reconciliation of liabilities arising from financing
activities
Group and Company Long-term borrowings Short-term borrowings Long term lease Liabilities Total
£'000 £'000 £'000 £'000
At 31 October 2019 - 4 290 294
Cash flows
Repayment - - (402) (402)
Proceeds 2,000 - - 2,000
Non-cash
Foreign exchange differences - (4) - (4)
Reclassification Right of Use - - 1,583 1,583
Transfer from Long-term to short term borrowings
(500) 911 (411) -
At 31 October 2020 1,500 911 1,060 3,471
Cash flows
Repayment (119) - (400) (519)
Proceeds 634 - - 634
Non-cash - - -
Foreign exchange differences -
Additional lease Liabilities 475 475
Transfer from Long-term to short term borrowings (17) (88) -
105
As 31 October 2021 1,998 823 1,240 4,061
We have amended prior year presentation to provide more detailed information.
Lease liabilities have been split from long and short-term borrowings; the
overall closing balances have not changed.
22. Share capital
31 October 31 October
2021 2020
£ £
Share capital issued and fully paid
36,303,064 Ordinary shares of £0.0025 each 90,758 90,569
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.
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 period, is set out in
note 23.
Movements in share capital Nominal value Number of shares
£
Ordinary shares of £0.0025 each
At the beginning of the year 90,569 36,227,459
Exercising of share options 189 75,605
Closing share capital at 31 October 2021 90,758 36,303,064
On 12/02/2021, the Company issued 38,605 new ordinary shares of £0.0025 each
to satisfy the exercise of options granted under the Group's 2017 Share Option
Scheme.
On the 28/05/2021, the company issued a further 37,000 new ordinary shares of
£0.0025 each to satisfy the exercise of options granted under the Group's
2017 Share Option Scheme.
23. Share-based payment
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 vest subject only to continued employment. All
options under these arrangements were vested during the financial year. The
options may be exercised at any point up to the 10th 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.
The 1,480,000 share options dated 29 October 2019 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 10th Anniversary grant date. During the year
765,000 of these share options lapsed due to people leaving the businesses and
the performance criteria not being met.
The 615,065 shares options dated 30 October 2020 have no attached performance
conditions and vest subject only to continued employment. They vest after 5
years, or earlier if a vesting event occurs as defined in the rules of the
Scheme.
During the year ended 31 October 2021, share options were granted as follows:
278,805 shares options dated 01/04/2021 have no attached performance
conditions and vest subject only to continued employment. They vest after 5
years, or earlier if a vesting event occurs as defined in the rules of the
Scheme.
Vesting events are defined within the rules of the Scheme as a reorganisation,
takeover, sale, listing (except on AIM), asset sales or death of the Option
holder.
The Group recognised a cost of £90,000 (2020 - £120,000) 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.
There were no cancellations or modifications to the awards in the period.
The following options were outstanding as at 31 October 2021:
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 507,525 171,281 603,201
17 October 2017 0.6926 17 Oct 2019 17 Oct 2027 - 35,000 35,000
29 October 2019 0.2065 29 Oct 2022 29 Oct 2031 - 225,000 225,000
29 October 2019 0.2065 29 Oct 2021 29 Oct 2031 - 1,480,000 1,480,000
30 October 2020 0.2065 01 Nov 2021 1 Nov 2026 - 615,065 615,065
01 April 2021 0.025 01 Apr 2021 01 Apr 2026 - 28,805 28,805
01 April 2021 0.13 01 Apr 2021 01 Apr 2026 - 125,000 125,000
01 April 2021 0.158 01 Apr 2021 01 Apr 2026 - 125,000 125,000
507,525 2,729,546 3,237,071
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.
Movement in share options
Scheme and grant date As at 30 Nov 2020 Issued Expired Exercised Vested As at 31 Oct 2021
1 January 2017 264,178 - - - - 264,178
13 March 2017 95,889 - - - (40,638) 55,251
17 October 2017 21,804 - - - - 21,804
29 October 2019 108,000 2,826 (30,667) - - 80,159
30 October 2020 - 96,651 - - - 96,651
01 April 2021 - 7,370 - - - 7,370
01 April 2021 - 6,910 - - - 6,910
01 April 2021 - 6,910 - - - 6,910
489,871 120,667 (30,667) - (40,638) 539,233
24. 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:
Compensation of senior management personnel outside of Director's emoluments
paid:
31 October 31 October
2021 2020
£'000 £'000
Short term employment benefits -
92
- 92
No transactions took place with related parties (purchases or dividends)/sales
in the current or prior year.
The Group has previously engaged IN4.0 Access Limited, which provides
consulting services. One of the directors of IN4.0 Access Limited is a
director of Velocity Composites Plc. The Group paid £nil (£nil - 2020) to
IN4.0 Access Limited during the year and had £nil outstanding at the year
end.
The following balances existed at periods end with related parties
(payable)/receivable:
31 October 31 October
2021 2020
£'000 £'000
Related parties - -
25. 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.
26. Capital commitments
At 31 October 2021 the Group had £nil (2020: £nil) of capital commitments
relating to the purchase of leasehold improvements, plant and machinery and
fixture and fittings.
27. Pension commitments
The Group makes contributions to defined contribution stakeholder pension
schemes. The contributions for the year of £89,337 (2020: £131,761) were
charged to the Consolidated Income statement. Contributions outstanding at 31
October 2021 were £13,557 (2020: £22,142).
28. Contingent liabilities
At 31 October 2021 the Group had in place bank guarantees of £nil (2020:
£nil) in respect of supplier trade accounts.
29. 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, impairment, share-based payments and exceptional restructuring
costs. Share based payments are added back to make the share based payment
charge clear to stakeholders.
Adjusted EBITDA
31 October 31 October
2021 2020
Reconciliation from Operating Profit £'000 £'000
Operating Loss (1,364) (3,149)
Add back:
Share-based payments 90 120
Depreciation of Property, plant and equipment* 229 224
Amortisation 76 117
Impairment of Intangible assets - 72
Depreciation of Right of Use assets under IFRS 16* 421 350
Exceptional Administrative costs - 341
(548) (1,925)
* a prior year adjustment has been made between property, plant and equipment
and right-of-use asset please see note 30 for details.
30. Prior year adjustment
During the period the group and company reclassified balances relating to
leased assets that were incorrectly presented within property, plant and
equipment rather than right of use assets. This arose due to an oversight and
finance leases were omitted when adopting IFRS 16. The adjustment had no
impact on opening retaining earnings. Details of the adjustment can be found
below.
Group and company statement of financial position Original presented Revised presented
Adjustment
£'000 £'000 £'000
Property plant and equipment 2,806 (791)
3,597
Depreciation of Property, plant and equipment (1,875) (1,590) 285
Right of use assets 1,373 1,983 610
Depreciation Right of use assets (246) (350) (104)
2,849 2,849 -
Group and company income statement Original presented Revised presented Adjustment
£'000 £'000 £'000
223 (104)
Depreciation 327
Depreciation of Right to Use assets under IFRS 16 246 350 104
573 573 -
Group and company statement of cashflows Original presented Revised presented Adjustment
£'000 £'000 £'000
223 (104)
Depreciation 327
Depreciation of Right to Use assets under IFRS 16 246 350 104
Purchase of plant and equipment from investing activities (991) (782) 209
Lease liabilities proceeds from financing activities 209 - (209)
(209) (209) -
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