REG - Velocity Composites - Final Results
24/01/2023 07:00
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RNS Number : 6298N Velocity Composites PLC 24 January 2023
24 January 2023
VELOCITY COMPOSITES PLC
("Velocity or the "Company")
FINAL RESULTS FOR YEAR ENDED 31 OCTOBER 2022
Velocity Composites plc (AIM: VEL), the leading supplier of composite material
kits to aerospace and other high-performance manufacturers, is pleased to
announce the Company's audited results for the twelve months to 31 October
2022.
Financial Highlights
· Revenue increased 22% to £12.0m (FY21: £9.8m) as the UK civil
aerospace market began to recover.
· Gross margin decreased from 26% to 23% due to significant
inflationary pressures. This should prove to be temporary as prices increase
and efficiencies catch up in the medium term.
· Full year adjusted EBITDA * loss of £0.5m (FY21: loss of £0.5m) as
anticipated, due to prioritising investment and carrying overheads to achieve
long term growth objectives.
· Net cash position of £0.2m as at 31 October 2022 (FY21: £0.9m)
reflecting investment in new US facility.
Operational Highlights:
· Development of the Velocity Resource Planning (VRP) system for better
controls, more efficient operational scenarios and full traceability from
long-term demand or order management to the delivery of composite kits to
customers.
· Developing the digitisation of the entire demand and forecasting
system, alongside the rollout of the digital cell from the development area
into the production area, proving invaluable in managing material supply chain
issues in the first half of the year.
· Implementation of a new business system for the non-VRP processes to
help with the scalability and standardisation needed as the Company expands
into the US.
· Continued to improve existing customer partnerships and targeted new
business development in key locations and markets (aerospace, high-end
automotive, lightweight transport).
Post-Period Highlights:
· Five-year Work Package Agreement ("WPA") signed in December 2022 with
GKN Aerospace in the United States worth in excess of US$100 million in
revenue over five years as part of US Expansion.
Outlook:
· As a result of the Company's investments, the business is expected to
grow very significantly in the next two years. Growth is largely expected to
come in the North American region.
· The Company has contracted UK and US business which, when in full
production (at current OEM run rates), will significantly increase revenue.
· Strong pipeline of new business which can also potentially increase
revenue even further over the next few years
· Composites will play an important role in reducing the use of fossil
fuels through greater fuel efficiency.
Andy Beaden, Chairman of Velocity, said: "As a result of our investments, we
expect the business to grow very significantly in the next two years. This
growth is largely expected to come in the North American region, and we have
designed our new facility in Alabama so it can expand to manage this expected
expansion.
"To deliver our ambitious targets, we also expect some growth to come from the
non-aerospace sector in industries such as high-performance automotive,
alternative fuel solutions, and large consumer products. Global defence
spending is expected to increase significantly in the next few years, and we
believe this will feed further growth and opportunities. With both demand for
and the costs of composite materials increasing, there will be greater
pressure on manufacturers to save on material wastage, which is at the core of
our VRP solution. The Board feel confident in Velocity's ability to achieve
strong growth opportunities over 2023."
Jon Bridges, CEO, Velocity added: "Our actions in FY22 have prepared the
business for a return to growth in FY23 in terms of cost management, targeted
investment, a forecasted increase in existing programme production rates and
significant new business opportunities in the UK and the US. Our scalable and
digital business model will open up opportunities in the global industry at a
scale much higher than historic programmes. Our business model is more
relevant now as customers look to prioritise their core business post
Covid-19, and the industry strives to meet its sustainability targets.
Composites will play an important role in reducing the use of fossil fuels
through greater fuel efficiency."
The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the UK version of the EU
Market Abuse Regulation (2014/596) which is part of UK law by virtue of the
European Union (Withdrawal) Act 2018, as amended and supplemented from time to
time. Upon the publication of this announcement, this inside information is
now considered to be in the public domain.
Enquiries:
Velocity Tel: +44 (0) 1282 577577
Andy Beaden, Chairman
Jon Bridges, Chief Executive Officer
Adam Holden, Group Finance Director
Cenkos (Nominated Adviser and Broker) Tel: +44 (0) 20 7397 8900
Katy Birkin
Ben Jeynes
George Lawson
SEC Newgate (Financial PR) Tel: +44 (0) 7540 106 366
Robin Tozer / George Esmond velocitycomposites@secnewgate.co.uk
(mailto:velocitycomposites@secnewgate.co.uk)
Harry Handyside
About Velocity Composites
Based in Burnley, UK, Velocity Composites is the leading supplier of
composite material kits to aerospace and other high-performance manufacturers,
that reduce costs and improve sustainability. Customers include Airbus,
Boeing, Safran and GKN.
By using Velocity's proprietary technology, manufacturers can also free up
internal resources to focus on their core business. Velocity has significant
potential for expansion, both in the UK and abroad, including into new market
areas, such as wind energy, urban air mobility and electric vehicles, where
the demand for composites is expected to grow.
Chairman's Report
Market Recovery
The global civil aerospace sector has started to recover and combined with a
robust defence industry and opportunities outside aerospace, we are selling
our services and technology into strong growing markets. Our investment in
innovation and extended supply chain services is paying off. As we enter 2023,
our contracted business, when fully onboarded, is close to three times the run
rate of most of FY22. This is mainly a result of our new US business, but also
more work flowing from existing UK contracts.
The Company's future is underpinned by these long-term contracts with leading
blue-chip industry customers and the accelerating need to meet sustainability
targets. Composite material technology has a key part to play in
light-weighting aircraft, along with enabling new fuel systems to be
introduced. Our offering provides customers and suppliers with the ability to
achieve far more ambitious sustainability goals.
FY22 Financial results
Revenue increased 22% to £12.0m as the UK civil aerospace market recovered to
an extent, although it remains significantly below pre-pandemic levels. It was
essential, therefore, that Velocity expanded internationally, particularly
into the US, which is the largest aerospace market in the world.
Over the past year, we have focused on developing our services and technology
to further support customers productivity and sustainability goals. The
Board decided to re-invest any margin growth and cost efficiencies back into
growth opportunities. The EBITDA result of a £0.5m loss, was therefore
expected, as we carried overheads to achieve our longer-term growth
objectives. These initial objectives are achievable with the current
contracted UK and US business for 2023 and 2024.
With inflation in all our major supply inputs, our gross margin came under
very significant pressure, decreasing slightly from 26% to 23%. However, this
should prove to be temporary as prices increase and efficiencies catch up in
the medium term.
Given the challenges, the Board is pleased to have achieved a positive
operating cash flow after tax as a result of effective working capital
management. We were also able to recover some of our FY22 innovation costs
through UK R&D tax credits.
The strategic progress and financial results are explained further in the
Financial Review below.
Board
There were a number of changes to the Board during the year as we looked to
strengthen and develop its composition.
Annette Rothwell joined the Board as a Non-executive Director in March 2022,
bringing with her experience as a senior executive in global procurement and
supply chain management across our core industry partners. Dr David Bailey,
CEO of Composites UK, was appointed as a Non-executive Director in June 2022.
He has had a long career in aerospace operational management, and has a deep
understanding of composite technology, as well as tackling sustainability
objectives, across aerospace and other industries. Both Annette and David are
highly respected in the industries we serve.
Robert Soen stepped down from the Board as a Non-executive Director at the end
of our financial year. He has moved to a more commercial part-time consultancy
role at Velocity, working with our CEO, Jonathan Bridges, across various
global supply chain projects. His contribution in the last three years has
been immense and I want to thank him personally for his support. Annette has
taken over as Chair of the Remuneration Committee and David has taken on a new
role as Chair of our Sustainability Committee.
On behalf of the Board, I would also like to thank Chris Williams, who stepped
down as Group Finance Director in December 2022 and we welcome Adam Holden, as
our new Group Finance Director and Company Secretary.
Employees
Our staff have worked under significant pressure in the last few years and we
are grateful for their efforts. Velocity's achievements in terms of
innovation, new systems, advance manufacturing, and new business, are a
lasting legacy to their hard work. We also welcome new employees that have
joined us in the USA. We expect the full commissioning of our facility in
Alabama in 2023, with progress well advanced in 2022 thanks to the UK team's
efforts around design and setup.
Velocity is committed to the development of a diverse and highly skilled
workforce as a key asset for delivering our future growth. Retention and
development of staff is therefore a critical objective for the business.
Sustainability
The environmental risks to our planet are the main driver for innovation in
our industry. At Velocity, we have built a business that supports the
efficient use of composite materials and delivers a significant reduction in
waste. Over time, we have invested in digital technologies on the
manufacturing shop floor and in our engineering services. This has resulted in
the development of the Group's advanced Velocity Resource Planning ("VRP")
technology and supply chain services, which we believe has a major
contribution to make in helping our customers and suppliers achieve their
targets. Helping to meet sustainability objectives is a key element of our
customer service offering.
Industries outside aerospace, such as specialist automotive and various forms
of electric powered transportation, are also looking to achieve similar
sustainability objectives. We are active in trials and proof of concept
projects in these other industrial sectors. We expect that over time these
will become meaningful growth areas and help rebalance our customer portfolio.
Our new Non-executive Director, David Bailey, is chairing a specialist
committee to oversee our business initiatives that drive forward
sustainability across Velocity and support our customers and suppliers in
their own objectives in this area. At Velocity we are proud to work across
the supply chain to support those companies and their employees to achieve
progressive improvements each year in sustainability objectives.
Outlook
As a result of our investments, we expect the business to grow significantly
in the next two years. This growth is largely expected to come in the North
American region, and we have designed our new facility in Alabama so it can be
expanded to manage this expected expansion.
We have contracted UK and US business which, when in full production (at
current OEM run rates), will significantly increase revenue, several times the
FY22 level. This is combined with a strong pipeline of new business which can
also potentially increase revenue even further over the next few years. To
deliver our ambitious targets, we expect some growth to come from
non-aerospace sectors, in industries such as high performance automotive,
alternative fuel solutions and large consumer products. Global defence
spending is also expected to increase significantly in the next few years, and
we believe this will generate further growth and opportunities. With both
demand for, and the costs of composite materials increasing, there will be
greater pressure on manufacturers to save on material wastage, which is at the
core of our VRP solution.
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
Ultimately, international sustainability targets will underpin the long-term
growth opportunities and continued demand for our products and services.
The Board, employees and external investors have all supported the Company's
growth aspirations and we expect a significant return on that investment.
Andrew Beaden
Chairman
23 January 2023
CEO Report
Overview
In FY22, business confidence started to improve in our existing and
prospective customer base. We focused our business development on key scale
opportunities, including outside the UK. In the last few years, our strategy
has switched to targeted investment to grow a smaller number of larger
customers, we believed could benefit from utilising our advanced technology to
support "total cost of ownership" ("TCO") business cases. TCO business cases
focus on increased productivity, reduced inventory and higher levels of
quality control.
Our new approach is to perform a detailed assessment of our customers' current
front production operations and then provide them with a clear commercial
business case, utilising the latest VRP solution. We have been able to do
this due to the investments we have made in our technology in recent years.
Being able to clearly detail all the benefits of our services to potential
customers has given Velocity a healthy pipeline of opportunities. It was this
approach that led to our largest contract agreement to date, announced post
year end in December 2022. We have signed a five-year Work Package Agreement
with GKN Aerospace in the United States expected to be worth in excess of
US$100 million in revenue over five years.
It is testament to the hard work of the Velocity team that we delivered this
agreement within our existing resources, under close cost control, with a
smaller number of key staff due to the pandemic.
Customers
While existing programme customer rates are still to recover to pre-pandemic
levels, our focus has been on the following pillars:
· Technology - to drive efficiencies and optimisation in existing
programmes and assist in winning new business.
· Data - use the TCO business case model to clearly identify customer
benefits to the point where the document created can be used as an internal
business case for the customer, speeding up the pipeline process.
· Customers - focus on enhancing value with existing customers and
targeted business development in key locations and markets (aerospace, high
end automotive, lightweight transport).
Our customers are advanced manufacturers and innovators in their specialist
technology field. We have tailored our services and new business approach to
support them in delivering their specific sustainability and efficiency
objectives.
The development of the TCO business case process has been instrumental in all
our business development activities as we streamline and speed up the
onboarding process. Working with global aerostructure manufacturers with
complex supply chains, it was time consuming to communicate all the benefits
of Velocity's offering through many layers of the organisation.
The TCO model has created a structured new business process. Working with
actual customer data, we can identify all the savings available and compare
this to the customer's current process in a detailed business case document.
We have successfully used this with existing and new customers. Furthermore,
by building relationships at the highest level within customer organisations
we can ensure that Velocity receives senior leader sponsorship.
Velocity has also progressed opportunities to balance the ratio of civil
aerospace and defence programmes in our customer portfolio to protect it from
any future disruptions in any one part of the composites industry. The results
of this can be seen in the mix of new contracts we have won and this will
continue as we increase our presence in the large US defence industry.
Operational and Technology Progress
Our VRP system has created better controls, more efficient operational
scenarios, and full traceability from long term demand or order management to
the delivery of composite kits into customers' manufacturing areas. This has
included the digitisation of the entire demand and forecasting system, plus
the roll out of the digital cell from the development area into the production
area. This proved invaluable in managing material supply chain issues in the
first half of FY22, and the implementation of larger, more complex nesting
scenarios for both existing customers and business development.
As the VRP system fully digitises, this will help Velocity as it expands into
new geographic locations and means we can implement the standardisation of our
processes and aid training of new staff; all with real time links back into
central management.
In addition, we have started the implementation of a new business system for
the non-VRP processes, which will help with the scalability and
standardisation needed as the business expands into the US.
US Expansion
In December 2022, Velocity signed an agreement with GKN Aerospace in the US
and has opened an Advanced Manufacturing Facility in Alabama to deliver the
project. The Group remains on track for site approvals and first article
testing by February 2023, in order for volume production to start in Q1 2023.
The processes, equipment and technology used in the US are identical to the UK
facilities which assisted the customer decision based on the proven service
model, reputation and confidence in our delivery.
The facility itself can be scaled to support multiple customers in the region
and work continues with other potential large-scale customers utilising the
TCO business case and senior level approach, and we are working towards
securing additional agreements in 2023.
Employees
As with previous years I am pleased to report that staff turnover has remained
low. The Company has continued to invest for growth and, as such, has retained
staff in critical areas. We have expanded teams in business development,
technology development and information systems to support business improvement
and bid activities. This has been delivered by external recruitment, internal
career development and external contractor support, and as new business moves
into full implementation there will be budgeted proportionate growth in direct
employees with targeted increases in indirect roles. We have welcomed Andy
Caunce as Head of Operations to help as we return to growth in multiple
locations.
Outlook
Looking ahead, our actions in FY22 have prepared the business for a return to
growth in FY23 in terms of cost management, targeted investment, a forecasted
increase in existing programme production rates and significant new business
opportunities in the UK and the US.
We believe our TCO business case model and senior level engagement approach to
key customers, coupled with an increase in existing production rates as
aircraft deliveries recover, will deliver the planned growth. Our scalable and
digital business model is expected to open up opportunities in the global
industry at a scale much higher than historic programmes.
Our business model is more relevant now as customers look to prioritise their
core business post Covid-19, and the industry strives to meet its
sustainability targets. Composites will play an important role in reducing the
use of fossil fuels through greater fuel efficiency.
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
2022, they acted in good faith and have upheld their 'duty to promote the
success of the Group' to the benefit of its stakeholder groups.
The Directors acknowledge the importance of forming and retaining a
constructive relationship with all stakeholder groups. Effective engagement
with stakeholders enables the Board to ensure stakeholder interests are
considered when making decisions which is crucial for achieving the long-term
success of the Group. The main mechanisms for wider stakeholder engagement and
feedback can be found on page 20 onwards in the Statement on Corporate
Governance of the 2022 Annual Report and Financial Statements.
Jonathan Bridges
Chief Executive Officer
23 January 2023
Financial Review
Statement of Comprehensive Income
Revenue for FY22 of £12.0m (FY21: £9.8m) represents an increase of 22%, as a
result of both recovery in civil aerospace production rates and smaller
contract wins in the UK. Though UK sales and production volumes remain
significantly below pre-pandemic levels, contracted long term business is now
above those levels, with production at the new US operating facility to
commence in 2023. When reviewing these historical results, it should be
noted that a large element of the overhead cost base has been focused on
services innovation and expansion of our business on a global basis.
The increased volume has generated a gross profit of £2.7m, £0.2m ahead of
the £2.5m achieved in FY21, resulting in a reported gross margin percentage
of 23.0% (FY21: 26.0%). This reduction is expected to be temporary, as it
results from a lag in some increased cost pressures, when compared to revising
contracted pricing with customers. All things being equal, this timing
difference, should correct itself through 2023.
Administrative expenses have increased £0.2m from £3.9m in FY21 to £4.1m in
FY22. This small increase is a major achievement, given the significant
investment, in and focus on, business development and innovation. Costs have
increased in many areas and there was a major effort required to counter these
pressures. Though we expect the cost base to increase with the US operations
opening in 2023, the central costs will be spread over two to three times the
activities, once the new contracted business is onboarded.
The increase in volume has therefore been offset by the investment in
overheads to support the future growth, resulting in an Adjusted EBITDA 2
(#_ftn2) loss of £0.5m (FY21: loss of £0.5m).
31 October 31 October
2022 2021
Reconciliation from operating loss £'000 £'000
Operating loss (1,317) (1,364)
Add back:
Share-based payments 170 90
Depreciation and amortisation 263 305
Depreciation on right of use assets under IFRS 16 432 421
Adjusted EBITDA (452) (548)
The investment in business development, technology and staff development
during FY22 means the Group is well placed for the now contracted volume
growth in the forthcoming year. US growth will be delivered through the Work
Package Agreement with GKN which will commence in early FY23 and is expected
to be at full rate production by August 2023. Growth in the UK will be through
an increase to existing contract volumes, with new opportunities to pursue in
both regions, as aircraft deliveries continue to recover following the
pandemic.
Therefore, Velocity is in an excellent position to deliver this growth,
without a linear increase to its overhead base and will also benefit in FY23
from the technological investments that have driven efficiencies in the
operational process.
Cashflow and Capital Investment
The decrease in the year end cash and cash equivalents position of £1.2m to
£2.3m (FY21: £3.5m) is a reflection of a combination of factors. Firstly,
the Adjusted EBITDA loss referred to above has been partially offset by a
positive movement in working capital of £0.3m (FY21: £0.9m), resulting in a
cash outflow from operations of only £0.2m (FY21: cash inflow from of
operations of £0.3m). After adjusting for tax receipts in respect of R&D
expenditure of £0.5m (FY21: £Nil), the overall result was a cash inflow from
operating activities of £0.3m (FY21: £0.3m).
The tight control on working capital, can be further analysed as follows: A
positive working capital movement through a £1.1m increase in trade and other
payables from suppliers (FY21: decrease of £0.4m). £0.5m of this funded an
increase in inventory (FY21: decrease of £1.0m), partly due to the increase
in volume, but also follows a strategic decision to minimise the risk of
supply chain disruption. Whilst there has also been an increase in trade and
other receivables of £0.4m due from customers (FY21: decrease of £0.3m),
this is a product of the increased volume, rather than an increase to terms as
the overall trade receivable days have reduced to 68 days, compared to 70 days
at the end of FY21.
A cash outflow from investment activities of £0.4m is reflective of the
increase in Non-Current Assets to support the development of the production
facility in the US. A further £1.1m has been used in financing activities,
driven by repayments of the CBILS loan, the capital element of the Group's
lease liabilities and associated financing costs.
Despite the loss in the year, the business remains in a net cash position at
the end of the year, with £0.2m net cash (FY21: £1.0m). This includes Cash
at Bank, offset by the outstanding CBIL balance and invoice discounting
facility.
31 October 31 October
2022 2021
£'000 £'000
Cash 2,344 3,476
CBIL loan (2,009) (2,516)
Invoice discounting facility (175) 2
Net cash 160 962
The Board consider this a significant achievement in cash management, given
the investment milestones achieved in the last year and transformation of
future business opportunities.
Adam Holden
Group Finance Director
23 January 2023
Consolidated Statement of Total Comprehensive Income
Year ended Year ended
31 October 31 October
2021 2021
Note £'000 £'000
Revenue 4 11,959 9,767
Cost of sales (9,213) (7,228)
Gross profit 2,746 2,539
Administrative expenses (4,063) (3,903)
Operating loss 5 (1,317) (1,364)
Operating loss analysed as:
Adjusted EBITDA 29 (452) (548)
Depreciation of property, plant and equipment (210) (229)
Amortisation (53) (76)
Depreciation of right-of-use assets under IFRS 16 (432) (421)
Share-based payments (170) (90)
Finance income and expense 8 (187) (182)
Loss before tax from continuing operations (1,504) (1,546)
Corporation tax recoverable 9 167 340
Loss for the year and total comprehensive loss (1,337) (1,206)
Loss per share - basic (£) from continuing operations
10 (£0.04) (£0.03)
Loss per share - diluted (£) from continuing operations
10 (£0.04) (£0.03)
There is no other comprehensive income in the current or prior year.
Consolidated and Company Statement of Financial Position
Group Group Company Company
31 October 31 October 31 October 31 October
2022 2021 2022 2021
Note £'000 £'000 £'000 £'000
Non-current assets
Intangible assets 11 173 91 173 91
Property, plant and equipment
12 1,099 1,051 1,099 1,051
Right-of-use assets 19 2,269 1,688 1,812 1,688
Total non-current assets 3,541 2,830 3,084 2,830
Current assets
Inventories 14 1,407 877 1,407 877
Trade and other receivables 15 2,521 2,162 2,569 2,195
Corporation tax - 341 - 341
Cash and cash equivalents 16 2,344 3,476 2,337 3,470
Total current assets 6,272 6,856 6,313 6,883
Total assets 9,813 9,686 9,397 9,713
Current liabilities
Loans 18 503 514 503 514
Trade and other payables 17 2,207 1,058 2,207 1,058
Obligations under lease liabilities
19 405 309 313 309
Total current liabilities 3,115 1,881 3,023 1,881
Non-current liabilities
Loans 18 1,506 1,998 1,506 1,998
Obligations under lease liabilities
19 1,792 1,240 1,442 1,240
Total non-current liabilities 3,298 3,238 2,948 3,238
Total liabilities 6,413 5,119 5,971 5,119
Net assets 3,400 4,567 3,426 4,594
Equity attributable to equity holders of the company
Share capital 22 91 91 91 91
Share premium account 9,727 9,727 9,727 9,727
Share-based payments reserve
684 539 684 539
Retained earnings (7,102) (5,790) (7,076) (5,763)
Total equity 3,400 4,567 3,426 4,594
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 £1,338,000. The
financial statements were approved and authorised for issue by the Board of
Directors on 23 January 2023 and were signed on its behalf by:
Adam Holden
Director
Co No: 06389233
Consolidated statement of changes in equity
Share capital Share premium account Retained earnings Share-based payments reserve Total 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 (note 23) - - - 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
Share Share Retained Share-Based payments Total
premium
capital account earnings reserve equity
£'000 £'000 £'000 £'000 £'000
As at 31 October 2021 91 9,727 (5,790) 539 4,567
Loss for the year - - (1,337) - (1,337)
91 9,727 (7,127) 539 3,230
Transactions with shareholders:
Share-based payments (note 23) - - - 170 170
Transfer of share option reserve on vesting of options and issue of equity - - 25 (25) -
As at 31 October 2022 91 9,727 (7,102) 684 3,400
Company statement of changes in equity
Share Share Retained Share- Total
premium Based payments
capital account earnings reserve equity
£'000 £'000 £'000 £'000 £'000
As at 31 October 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 (note 23) - - - 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
Share Share Retained Share- Total
premium Based payments
capital account earnings reserve equity
£'000 £'000 £'000 £'000 £'000
As at 31 October 2021 91 9,727 (5,763) 539 4,594
Loss for the year - - (1,338) - (1,338)
91 9,727 (7,101) 539 3,256
Transactions with shareholders:
Share-based payments (note 23) - - - 170 170
Transfer of share option reserve on vesting of options and issue of equity - - 25 (25) -
As at 31 October 2022 91 9,727 (7,076) 684 3,426
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
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Operating activities
Loss for the year (1,337) (1,206) (1,338) (1,206)
Taxation (167) (341) (167) (341)
Profit on sale of assets (38) (13) (38) (13)
Finance costs 187 182 187 181
Amortisation of intangible assets 53 76 53 76
Depreciation of property, plant and equipment 210 229 210 229
Depreciation of right-of-use assets 432 421 432 421
Share-based payments 170 90 170 90
Operating cash flows before movements in working capital (490) (562) (491) (563)
(Increase)/Decrease in trade and other receivables (359) 302 (374) 294
(Increase)/Decrease in inventories (530) 1,031 (530) 1,031
Increase/(Decrease) in trade and other payables 1,149 (446) 1,149 (440)
Cash (outflow)/inflow from operations (230) 325 (246) 322
Tax received 510 - 510 -
Net cash inflow from operating activities 280 325 264 322
Investing activities
Purchase of property, plant and equipment (262) (64) (262) (64)
Purchase of development expenditure (136) - (136) -
Proceeds from the sale of property, plant and equipment 42 13 42 13
Net cash used in investing activities (356) (51) (356) (51)
Financing activities
Loan received - 634 - 634
Finance costs paid (187) (181) (187) (181)
Loan repayment (503) (119) (503) (119)
Repayment of lease liabilities capital (366) (400) (351) (400)
Net cash used in financing activities (1,056) (66) (1,041) (66)
Net Increase/(Decrease) in cash and cash equivalents (1,132) 208 (1,133) 205
Cash and cash equivalents at 1 November 3,476 3,268 3,470 3,265
Cash and cash equivalents at 31 October 2,344 3,476 2,337 3,470
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 consolidated financial statements of Velocity Composites plc have been
prepared in accordance with UK-adopted international accounting standards and
International Financial Reporting Interpretations Committee (IFRIC).
These financial statements have been prepared on a going concern basis and
using the historical cost convention, as modified by the revaluation of
certain items, as stated in the accounting policies. These policies have been
consistently applied to all years presented, unless otherwise stated. The
financial statements are presented in sterling and have been rounded to the
nearest thousand (£'000). References to "FY22" refer to the year ended 31
October 2022, whilst references to "FY21" are in respect of the year ended 31
October 2021.
The Company has taken advantage of the exemption allowed under section 408 of
the Companies Act 2006 and not presented its own statement of profit and loss
in these financial statements.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and its subsidiary undertakings and are made up to 31 October
2022. Subsidiaries are consolidated from the date of acquisition, using the
purchase method.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those used
by the Group. The Group's subsidiaries have prepared their statutory financial
statements in accordance with IFRS standards.
Subsidiaries are entities controlled by the Group. The Group controls an
entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns
through its power over the entity. In assessing control, the Group takes into
consideration potential voting rights. The acquisition date is the date on
which control is transferred to the acquirer. The financial statements of
subsidiaries are included in the consolidated financial statements from the
date that control commences until the date that control ceases.
Intra-group balances and transactions, and any unrealised income and expenses
arising from intra-group transactions, are eliminated. Unrealised losses are
eliminated in the same way as unrealised gains, but only to the extent that
there is no evidence of impairment.
The accounting policies set out below have, unless otherwise stated, been
applied consistently to all years presented in the consolidated financial
statements.
There are no new accounting standards or interpretations that are not yet
fully effective that could be expected to have a material impact on the Group.
Going concern
Management continues to undertake a significant level of cash flow forecasting
and detailed financial projections for the following 24 month rolling period
to 31 October 2024 have been prepared. A number of sensitivities have been
performed to understand the cash flow impact of various scenarios and even in
the most severe down-side scenario modelled the business had sufficient
liquidity to continue trading as a going concern.
The aerospace sector lends itself to long-term planning due to the nature and
length of customer programmes, typically a minimum of three years, but often
five years or more. This has enabled the business to fully model the period to
31 October 2024 and undertake more strategic, longer-term planning for growth
and full recovery emerging from the pandemic.
The cash flow forecasts are, however, reviewed monthly through Management's
Integrated Business Planning (IBP) process and the assumptions updated for any
new knowledge to ensure there is no change in the Group's liquidity outlook.
This is linked in with Management's monthly risk review and should the outlook
change significantly with no mitigating actions the Group's liquidity risk
rating on the risk register will be adjusted to reflect this and subsequently
discussed at Board through the Audit Committee's quarterly risk register
review.
In preparing the latest two-year forecasts, Management has included revenue
projections based on current demand, the newly signed Work Package Agreement
with GKN in the US, plus a weighting of opportunities in the pipeline. The
cost base included in the projections is reflective of the significant cost
reductions that have already taken place in the Group, but also realistic
about the investment required to implement the growth.
It is the investment in growth and technological advancements throughout FY22,
and which is anticipated to continue in FY23, that has resulted in the
forecasts indicating that the Group's Invoice Discounting Facility, secured
against Trade Debtors, will be utilised during certain months within the going
concern period. Whilst this facility is designed to be short-term and can be
withdrawn with 3 months' notice, the latest discussions have reflected the
bank's support for Velocity's growth strategy and as such we expect this
facility will remain available for the foreseeable future. Utilisation of the
facility is forecast to be temporary as the benefits from the investment in
growth become tangible in the second half of FY23. However, should alternative
financing be required the Group would preserve cash by delaying certain
investment activities until longer-term funding could be implemented, such as
asset-based financing against new capital expenditure or equity funding.
Alongside the robust forecasting and governance process, the Group has
demonstrated strong cash flow management through the Covid-19 pandemic,
successfully reducing inventory levels and navigating through right-sizing
efforts to deliver significant reductions to administrative overheads.
Having due regard for these recent deliverables and latest projections, with
available cash at 31 October 2022 of £2.3m, an invoice discount facility
where the Group can borrow up to £3m dependent on debtor levels, access to an
invoice discounting facility with one of our major customers, and continued
support from our banks and shareholders, it is the opinion of the Board that
the Group has adequate resources to continue to trade as a going concern.
Revenue recognition
Revenue is recognised as performance obligations are satisfied as control of
the goods and services 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 generates revenue from the sale of structural and consumable
materials for use within the aerospace industry. This is the sole revenue
stream of the Group.
At contract inception (which is upon receipt of a purchase order from a
customer), an assessment is completed to identify the performance obligations
in each contract. Performance obligations in a contract are the goods that are
distinct.
At contract inception, the transaction price is determined, being the amount
that the Group expects to receive for transferring the promised goods - this
is a fixed price with no variable consideration. The transaction price is
allocated to the performance obligations in the contract based on their
relative standalone selling prices - this reflects the agreed price as per
purchase order for each product. The Group has determined that the
contractually stated price represents the standalone selling price for each
performance obligation.
Revenue from sale of goods is recognised when a performance obligation has
been satisfied by transferring the promised product to the customer at a point
in time, usually when legal title passes to the customer and the business has
the right to payment, for example, on delivery. Standard payment terms are in
place for each customer.
Inventory
Inventory is stated at the lower of costs incurred in bringing each product to
its present location and condition compared to net realisable value as
follows:
· Raw materials, consumables and goods for resale - purchase cost on a
first-in/first-out basis.
· Work in progress and finished goods - costs of direct materials and
labour plus attributable overheads based on a normal level of activity
Net realisable value is based on an estimated selling price less any further
costs expected to be incurred for completion and disposal.
Expenditure
Expenditure is recognised in respect of goods and services received when
supplied in accordance with contractual terms. Goods or services supplied in
a foreign currency are recognised at the exchange rate ruling at the time of
accounting for this expenditure.
Provisions
A provision is made when an obligation exists for a future liability relating
to a past event and where the amount of the obligation can be reliably
estimated.
Retirement benefits: defined contribution schemes
Contributions to defined contribution pension schemes are charged to the
statement of comprehensive income in the year to which they relate.
Short-term employee benefits
A liability is recognised for benefits accruing to employees in respect of
wages and salaries, annual leave and sick leave in the year the related
service is rendered at the undiscounted amount of the benefits expected to be
paid in exchange for that service.
Research and development expenditure
Research expenditure - expenditure on research activities is recognised as an
expense in the year in which it is incurred.
Development expenditure - An internally generated intangible asset arising
from the Group's own development activity is recognised only if all of the
following conditions are met:
· an asset is created that can be identified and is technically and
commercially feasible;
· it is probable that the asset created will generate future economic
benefits and the Group has available sufficient resources to complete the
development and to subsequently sell and/or use the asset created; and
· the development cost of the asset can be measured reliably.
The amount recognised for development expenditure is the sum of all incurred
expenditure from the date when the intangible asset first meets the
recognition criteria listed above. This occurs when future sales are expected
to flow from the work performed. Incurred expenditure largely relates to
internal staff costs incurred by the Group.
Subsequent to initial recognition, internally generated intangible assets are
reported at cost less accumulated amortisation and impairment.
Amortisation
Amortisation is calculated to write off the cost of intangible assets less
their estimated residual values using the straight-line method over their
estimated useful lives and is generally recognised in the statement of total
comprehensive income. The estimated useful lives are based on the average life
of a project as follows:
Development costs 5 years
Property, plant and equipment
Items of property, plant and equipment are initially recognised at cost. As
well as the purchase price, cost includes directly attributable costs.
Depreciation is provided on all items of property, plant and equipment so as
to write off their carrying value over the expected useful economic lives. It
is provided at the following methods and rates:
Land and buildings (right-of-use) Over the term of the lease
Plant and machinery 15% straight line
Motor vehicles 25% straight line
Fixtures and fittings 15% straight line
Leasehold improvements Over the term of the lease
Foreign currency translation
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ('its functional currency'). The consolidated financial
statements are presented in sterling, which is Velocity Composites plc's
functional and presentation currency.
Foreign currency transactions are translated into the functional currency
using the exchange rates at the dates the transactions occur. Foreign exchange
gains and losses resulting from the settlement of such transactions and from
the translation of monetary assets and liabilities denominated in foreign
currencies at year end exchange rates are recognised in the Consolidated
comprehensive statement of income.
The results and financial position of foreign operations that have a
functional currency different from the presentation currency are translated
into the presentation currency, on consolidation, as follows:
· assets and liabilities for each statement of financial position
presented are translated at the closing rate at the date of the statement of
financial position
· income and expenses for each statement of profit or loss and
statement of comprehensive income are translated at average exchange rates;
and
· all resulting exchange differences are recognised immediately in the
Consolidated comprehensive statement of income.
Impairment of non-financial assets
The carrying values of non-financial assets are reviewed for impairment when
there is an indication that assets might be impaired, and at the end of each
reporting year. When the carrying value of an asset exceeds its recoverable
amount, the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual
asset, the impairment test is carried out on the asset's cash generating unit
(i.e. the smallest grouping of assets in which the asset belongs for which
there are separately identifiable cash flows).
Impairment charges are included in the income statement, except to the extent
they reverse previous gains recognised in the statement of comprehensive
income.
Financial instruments
All funding requirements and financial risks are managed based on policies and
procedures adopted by the Board of Directors encapsulating the normal day to
day trading of the Group. The Group does not use derivative financial
instruments such as forward currency contracts, or similar instruments. The
Group does not issue or use financial instruments of a speculative nature.
Bank borrowings
Interest-bearing loans are recorded initially at their fair value, net of
direct transaction costs. Such instruments are subsequently carried at their
amortised cost and finance charges are recognised in the statement of
comprehensive income over the term of the instrument using an effective rate
of interest. Finance charges are accounted for on an accrual's basis to the
statement of comprehensive income.
The Group has current borrowings of CBIL loans and can utilise its invoice
discounting facility in support of its working capital requirements.
Financial assets
The Group classifies its financial assets into the categories discussed below
and based upon the purpose for which the asset was acquired. The Group has not
classified any of its financial assets as held to maturity.
Trade and other receivables
These assets are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They arise principally
through the provision of services to customers (e.g. trade receivables), but
also incorporate other types of contractual monetary asset. They are
initially recognised at fair value plus transactions costs that are directly
attributable to their acquisition or issue and are subsequently carried at
amortised cost using the effective interest method, less provision for
impairment.
The Group's loans and receivables comprise trade and other receivables
included within the statement of financial position.
Cash and cash equivalents
Cash and cash equivalents include cash held at bank, bank overdrafts and
marketable securities of very short-term maturity (typically three months or
less) which are not expected to deteriorate significantly in value until
maturity. Bank overdrafts are shown within loans and borrowings in current
liabilities in the statement of financial position.
Impairment of financial assets
Impairment provisions are recognised through the expected credit losses model
(ECL). IFRS 9's impairment requirements use forward-looking information to
recognise expected credit losses - the 'expected credit loss (ECL) model'.
The Group considers a broader range of information when assessing credit risk
and measuring expected credit losses, including past events, current
conditions, reasonable and supportable forecasts that affect the expected
collectability of the future cash flows of the instrument.
Trade and other payables
The Group classifies its financial liabilities as comprising trade payables
and other short-term monetary liabilities, which are initially recognised at
fair value and subsequently carried at amortised cost using the effective
interest method.
Share capital
Financial instruments issued by the Group are treated as equity only to the
extent that they do not meet the definition of a financial liability. The
Group's ordinary shares are classified as equity instruments.
Share premium
Share premium represents the excess of the issue price over the par value on
shares issued less costs relating to the capital transaction arising on the
issue.
Share-based payment
The Group operates an equity-settled share-based compensation plan in which
the Group receives services from Directors and certain employees as
consideration for share options. The fair value of the services is recognised
as an expense over the vesting period, determined by reference to the fair
value of the options granted.
Leased assets
Leases
The Group makes the use of leasing arrangements principally for the buildings
and motor vehicles. The rental contracts for offices are typically negotiated
for terms of 5 and 10 years and some of these have extension terms. The Group
does not enter into sale and leaseback arrangements. All the leases are
negotiated on an individual basis and contain a wide variety of different
terms and conditions.
The Group assesses whether a contract is or contains a lease at inception of
the contract. A lease conveys the right to direct the use and obtain
substantially all of the economic benefits of an identified asset for a period
of time in exchange for consideration.
Measurement and recognition
At lease commencement date, the Group recognises a right-of-use asset and a
lease liability in its consolidated statement of financial position. The
right-of-use asset is measured at cost, which is made up of the initial
measurement of the lease liability, any initial direct costs incurred by the
Group, and any lease payments made in advance of the lease commencement date.
The Group depreciates the right-of-use asset on a straight-line basis from the
lease commencement date to the earlier of the end of the useful life of the
right-of-use asset or the end of the lease term. The Group also assesses the
right-of-use asset for impairment when such indicators exist.
At the commencement date, the Group measures the lease liability at the
present value of the lease payments unpaid at that date, discounted using the
Group's incremental borrowing rate because as the lease contracts are
negotiated with third parties it is not possible to determine the interest
rate that is implicit in the lease.
The incremental borrowing rate is the estimated rate that the Group would have
to pay to borrow the same amount over a similar term, and with similar
security to obtain an asset of equivalent value. This rate is adjusted should
the lessee entity have a different risk profile to that of the Group.
Subsequent to initial measurement, the liability will be reduced by lease
payments that are allocated between repayments of principal and finance costs.
The finance cost is the amount that produces a constant periodic rate of
interest on the remaining balance of the lease liability.
The lease liability is reassessed when there is a change in the lease
payments. Changes in lease payments arising from a change in the lease term or
a change in the assessment of an option to purchase a leased asset. The
revised lease payments are discounted using the Group's incremental borrowing
rate at the date of reassessment when the rate implicit in the lease cannot be
readily determined. The amount of the remeasurement of the lease liability is
reflected as an adjustment to the carrying amount of the right-of-use asset.
The exception being when the carrying amount of the right-of-use asset has
been reduced to zero then any excess is recognised in profit or loss.
Payments under leases can also change when there is either a change in the
amounts expected to be paid under residual value guarantees or when future
payments change through an index or a rate used to determine those payments,
including changes in market rental rates following a market rent review. The
lease liability is remeasured only when the adjustment to lease payments takes
effect and the revised contractual payments for the remainder of the lease
term are discounted using an unchanged discount rate. Except for where the
change in lease payments results from a change in floating interest rates, in
which case the discount rate is amended to reflect the change in interest
rates.
The remeasurement of the lease liability is dealt with by a reduction in the
carrying amount of the right-of-use asset to reflect the full or partial
termination of the lease for lease modifications that reduce the scope of the
lease. Any gain or loss relating to the partial or full termination of the
lease is recognised in profit or loss. The right-of-use asset is adjusted for
all other lease modifications.
The Group has elected to account for short-term leases and leases of low-value
assets using the practical expedients. These leases relate to property
security. Instead of recognising a right-of-use asset and lease liability, the
payments in relation to these are recognised as an expense in profit or loss
on a straight-line basis over the lease term.
See the accounting policy on Property plant and equipment for the depreciation
methods and useful lives for assets held under lease.
Government grants
Grants from the government are recognised at their fair value where there is
reasonable assurance that the grant will be received, and the Group will
comply with all attached conditions. Government grants relating to cost are
deferred and recognised in the profit or loss by deducting from the related
expense over the period necessary to match them with the costs that they are
intended to compensate.
Current taxation
The tax currently payable is based on the taxable profit of the year. Taxable
profit differs from profit as reported in the Consolidated statement of
comprehensive income because it excludes items of income and expense that are
taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Group's liability for current tax is
calculated using rates that have been enacted or substantively enacted by the
statement of financial position date.
R&D tax credit
R&D tax credits are recognised at the point when claims have been
quantified relating to expenditure within current or previous years and
recovery of the asset is virtually certain, these tax credits relating to
R&D are recognised within the tax on profit line of the income statement.
Deferred taxation
Deferred tax assets and liabilities are recognised where the carrying amount
of an asset or liability in the statement of financial position differs from
its tax base, except for differences arising on:
· the initial recognition of goodwill;
Recognition of deferred tax assets is restricted to those instances where it
is probable that taxable profit will be available against which the difference
can be utilised. The amount of the asset or liability is determined using tax
rates that have been enacted or substantially enacted by the balance sheet
date and are expected to apply when the deferred tax liabilities or assets are
settled or recovered. Deferred tax balances are not discounted.
Deferred tax assets and liabilities are offset when the Group has a legally
enforceable right to offset current tax assets and liabilities and the
deferred tax assets and liabilities relate to taxes levied by the same tax
authority on either the same taxable Company; or different Company entities
which intend either to settle current tax assets and liabilities on a net
basis, or to realise the assets and settle the liabilities simultaneously, in
each future period in which significant amounts of deferred tax assets and
liabilities are expected to be settled or recovered.
Operating segments
Operating segments are reported in a manner consistent with the internal
reporting provided to the executive directors. The Chief Operating Decision
Makers have been identified as the Chief Executive Officer and the Chief
Financial Officer. The Group supplies a single type of product into a single
industry and so has a single operating segment. Additional information is
given regarding the revenue receivable based on geographical location of the
customer.
No differences exist between the basis of preparation of the performance
measures used by management and the figures in the Group financial
information.
Critical accounting estimates and judgements
The Group makes certain estimates and assumptions regarding the future.
Estimates and judgements are continually evaluated based on historical
experience and other factors, including the expectations of future events that
are believed to be reasonable under the circumstances. In the future, actual
experience may differ from these estimates and assumptions. The estimates and
assumptions that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year
are discussed below.
Provisions for inventory
Provisions are made for obsolete, out of life and slow-moving stock items. In
estimating the provisions, the group makes use of key management experience,
precedents and specific contract and customer issues to assess the likelihood
and quantity. Stock is accounted for on a first in, first out basis.
The provision percentage is applied to various aging categories dependent on
stock type, this is a key estimate made by management based on judgement and
if change is applied to the percentage for the aged stock, then the outcome of
the value of the provision would differ.
Sensitivity analysis
A 5% increase in the levels of the current stock provision would lead to and
finance impact of an increase in stock provision of £10k.
3. Financial instruments and risk
management
The Board has overall responsibility for the determination of the Group's risk
management objectives and policies. The overall objective of the Board is to
set policies that seek to reduce risk as far as possible without unduly
affecting the Group's competitiveness and flexibility. The Group reports in
Sterling. All funding requirements and financial risks are managed based on
policies and procedures adopted by the Board of Directors. The Group does not
use derivative financial instruments such as forward currency contracts, or
similar instruments. The Group does not currently issue or use financial
instruments of a speculative nature but as described in the strategic report,
management may consider the potential utilisation of such instruments in the
future. The Group utilises an invoice discounting facility with its bankers to
assist in its cash flow management. In accordance with the terms of the
current facility (which is available on demand) the risk and management of
trade debtors is retained by the Group.
Financial instruments
Group Group Company Company
31 October 31 October 31 October 31 October
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Current assets
Trade and other receivables 2,238 1,902 2,238 1,902
Trade and other receivables - prepayments 283 260 331 293
2,521 2,162 2,569 2,195
Cash and cash equivalents - loans and receivables 2,344 3,476 2,337 3,470
Total loans and receivables 4,865 5,638 4,906 5,665
Current liabilities
Trade and other payables 1,750 921 1,750 921
Trade and other payables - accruals 457 137 457 137
2,207 1,058 2,207 1,058
Loans 503 514 503 514
Obligations under lease liabilities 405 309 313 309
Total current liabilities 3,115 1,881 3,023 1,881
For non-current liabilities please see notes 17 and 18.
Risk management
The Group's activities expose it to a variety of financial risks: market risk
(primarily foreign exchange risk and interest rate risk), credit risk and
liquidity risk. The Group's overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise potential adverse
effects on the Group's financial performance. Risk management is carried out
by the Board and their policies are outlined below.
a) Market risk
Foreign exchange risk
The Group is exposed to transaction foreign exchange risk in its operations
both within the UK and overseas. Transactions are denominated in Sterling, US
Dollars and Euros. The Group has commercial agreements in place which allow it
to transact with its customers in the currency of the material purchase,
thereby allowing 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 or Euro against Sterling do
have an impact on both the result for the year and equity. The Group's assets
and liabilities that are held in US Dollar or Euros 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 2022
US Dollar Euro Total
£'000 £'000 £'000
Trade debtors 1,729 163 1,892
Cash and cash equivalents 1,352 249 1,601
Trade payables (750) (32) (782)
Balance sheet exposure 2,331 380 2,711
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
Sensitivity analysis
A 5% strengthening of the following currencies against the pound sterling at
the balance sheet date would have reduced the loss by the amounts shown below.
This calculation assumes that the change occurred at the balance sheet date
and had to be applied to risk exposures existing at that date.
31 October 31 October
2022 2021
£'000 £'000
US dollar 117 112
Euro 19 60
This analysis assumes that all other variables, in particular other exchange
rates and interest rates remain constant. A 5% weakening of the above
currencies against pound sterling in any year would have had the equal but
opposite effect to the amounts shown above.
Interest rate risk
The Group carries borrowings from leases and CBIL loans. Lease borrowings are
at a fixed rate of interest whilst the interest on the CBIL loans is a
combination of fixed rate and Bank of England base rate plus 3.96%. The
Directors do not consider there to be a significant interest rate risk on the
element of loans linked to movements in the Bank of England base rate. The
Group also has access to an invoicing discounting facility that carries a
fixed monthly charge plus interest at a fixed rate of 2.25%.
a) Credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Group. In order to
minimise this risk, the Group endeavours only to deal with companies which are
demonstrably creditworthy and this, together with the aggregate financial
exposure, is continuously monitored. The maximum exposure to credit risk is
the value of the outstanding amount.
Supply of products by the Group results in trade receivables which the
management consider to be of low risk, other receivables are likewise
considered to be low risk. However, four of the customers comprise in excess
of 10% of the revenue earned by the Group (see note 4). Credit risk on cash
and cash equivalents is considered to be small as the counterparties are all
substantial banks with high credit ratings. The maximum exposure is the amount
of the deposit.
b) Liquidity risk
The Group currently holds cash balances in Sterling, US Dollars and Euros to
provide funding for normal trading activity. Trade and other payables are
monitored as part of normal management routine. The Group also has access to
banking facilities including invoice finance which it utilises when needed in
order to manage its liquidity risk.
As at 31 October 2022
Within 1 year One to two years Two to five years Over five years
£'000 £'000 £'000 £'000
Loan 503 503 1,003 -
Obligations under lease liabilities 405 419 1,373 -
Trade payables 1,134 - - -
Accruals 457 - - -
Other payables 174 - - -
Invoice discounting facility 175 - - -
As at 31 October 2021
Within 1 year One to two years Two to five years Over five years
£'000 £'000 £'000 £'000
Loan 514 536 1,462 -
Obligations under lease liabilities 309 225 1,015 -
Trade payables 639 - - -
Accruals 137 - - -
Other payables 14 - - -
Invoice discounting facility - - - -
The lease liability is shown exclusive of interest payments (the comparative
information for FY21 has been updated to correctly exclude 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
2022 2021
£'000 £'000
Revenue
United Kingdom 11,906 9,702
Europe 10 26
Rest of the World 43 39
11,959 9,767
During the year four customers accounted for 92.7% (2021: 95.06%) of the
Group's total revenue for the year ended 31 October 2022. This was split as
follows; Customer A - 43.10% (2021: 44.7%), Customer B - 33.4% (2021: 28.5%),
Customer C - 11.44% (2021: 13.4%) and Customer D - 4.70% (2021: 8.51%).
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 2022 and year ended 31
October 2021 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. Operating loss
The operating loss is stated after charging / (crediting):
Year ended Year ended
31 October 31 October
2022 2021
£'000 £'000
Staff costs (see note 6) 3,090 2,854
Cost of inventories 8,079 6,335
Foreign exchange (gain)/loss (259) 156
Amortisation of development costs 53 76
Depreciation:
Owned assets 210 229
Property, plant and equipment under right-of-use assets 432 421
Profit on disposal of assets (38) (13)
Auditor's remuneration:
Audit of the accounts of the Group 59 62
Other audit related services (relating to interim review) 14 12
6. Staff costs
Year ended Year
ended
31 October 31 October
2022 2021
£'000 £'000
Wages, salaries and bonuses 2,575 2,435
Social security costs 261 240
Defined contribution pension costs 84 89
Share-based payments 170 90
3,090 2,854
During the previous year the company took advantage of the government furlough
scheme. In the year to 31 October 2021, £152k was claimed in relation to this
scheme and this benefit is not included in the above totals. Staff costs net
of furlough claims as at 31 October 2021 amounted to £2.7m during the
financial year. The government ended the furlough scheme ended in September
2021 therefore £nil has been claimed in this financial year.
The average monthly number of employees including directors, during the year
was as follows:
Year ended Year ended
31 October 31 October
2022 2021
Head count Head count
Manufacturing 40 45
Administration 39 30
79 75
7. Directors' costs
Year ended Year
ended
31 October 31 October
2022 2021
£'000 £'000
Directors' remuneration included in staff costs:
Wages, salaries and bonuses 344 333
Defined contribution pension costs 22 21
366 354
Remuneration of the highest paid director(s):
Wages, salaries and bonuses or fees 121 120
Defined contribution pension costs 12 11
133 131
8. Finance income and expenses
Year ended Year ended
31 October 31 October
2022 2021
£'000 £'000
Finance expense
Finance charge from lease liabilities 81 112
Other interest and invoice discounting charges 106 70
187 182
9. Income tax
Year ended Year ended
31 October 31 October
2022 2021
£'000 £'000
Current tax income
UK corporation tax on income for the year - -
UK corporation tax adjustment in respect of prior years - R&D (167) (340)
Total tax income (167) (340)
The reasons for the difference between the actual tax charge for the year and
the standard rate of corporation tax in the United Kingdom applied to the loss
for the year are as follows:
Tax rate 19.00% 19.00%
Loss for the year before tax (1,504) (1,546)
Expected tax credit based on corporation tax rate (286) (294)
Expenses not deductible for tax purposes 112 (12)
Adjustment in respect of prior year - R&D (167) (340)
Adjustment in respect of prior year - tax losses (51) -
Tax losses not recognised 225 306
Total tax income (167) (340)
On 3 March 2021, the Chancellor of the Exchequer announced that the
corporation tax rate would increase to a maximum of 25% from 1 April 2023. It
was substantively enacted on 24 May 2021. Deferred tax is calculated at the
tax rates that are expected to apply in the period when the liability is
settled, or the asset is realised, based on tax law and the corporation tax
rates that have been enacted, or substantively enacted, at the Statement of
Financial Position date. As such, the deferred tax rate applicable at 31
October 2022 is 25% and deferred tax had been re-measured at this date.
10. Loss per share
Year ended Year
ended
31 October 31 October
2022 2021
£ £
Loss for the year (1,337,000) (1,206,000)
Shares Shares
Weighted average number of shares in issue 36,371,065 36,270,917
Weighted average number of share options 2,110,897 1,856,366
Weighted average number of shares (diluted) 38,481,962 38,127,283
Loss per share (£) (basic) (£0.04) (£0.03)
Loss per share (£) (diluted) (£0.04) (£0.03)
Share options have not been included in the diluted calculation as they would
be anti-dilutive with a loss being recognised.
11. Intangible assets
Group and Company Development
costs Total
£'000 £'000
Cost
At 31 October 2020 and 31 October 2021 638 638
Additions 136 136
Disposal (199) (199)
At 31 October 2022 575 575
Amortisation
At 31 October 2020 472 472
Charge for the year 76 76
At 31 October 2021 548 548
Charge for the year 53 53
Disposal (199) (199)
At 31 October 2022 402 402
Net book value
At 31 October 2020 166 166
At 31 October 2021 90 90
At 31 October 2022 173 173
Impairment
The Group reviews the Development costs at each reporting year for indicators
of impairment. An indication of impairment can be generated from the loss of a
customer, or contracted sales. No impairment was judged to be required for
either year.
12. Property, plant and equipment
Group and Company Leasehold Plant & Motor Fixtures Total
improve-ments machinery vehicles & fittings
£'000 £'000 £'000 £'000 £'000
Cost
At 31 October 2020 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
Additions 137 87 - 38 262
Disposal - (123) - - (123)
At 31 October 2022 628 1,855 23 455 2,961
Depreciation
At 31 October 2020 49 1,249 71 221 1,590
Charge for the year 50 136 - 43 229
Disposal - - (48) - (48)
Balance at 31 October 2021 99 1,385 23 264 1,771
Charge for the year 50 116 - 44 210
Disposal - (119) - - (119)
At 31 October 2022 149 1,382 23 308 1,862
Net book value
At 31 October 2020 442 595 - 179 1,216
At 31 October 2021 392 506 - 153 1,051
At 31 October 2022 479 473 - 147 1,099
13. Investment in subsidiaries
Group Group Company Company
31 October 31 October 31 October 31 October
2022 2021 2022 2021
£'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 non
63000, Cyberjaya, Selangor trading
Velocity Composites Aerospace, Inc. Corporation Trust Center, 1209 N. Orange St, Wilmington, Delaware 19801 United States of America Ordinary 100% Manufacturer of composite material products for the aerospace sector
14. Inventories
Group Group Company Company
31 October 31 October 31 October 31 October
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Raw materials & consumables 1,114 541 1,114 541
Finished goods 293 336 293 336
1,407 877 1,407 877
Inventories totalling £1,407,000 (2021: £877,000) are valued at the lower of
cost and net realisable value. The Directors consider that this value
represents the best estimate of the fair value of those inventories net of
costs to sell. The release of inventories provision during the previous year
amounted to £593,000, in 2022 the release was £56,000.
The inventory at 31 October 2022 is after a stock provision of £208,000
(2021: £264,000). The provision reflects the aged stock profile consistent
with FY21, 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 2022
amounted to £8,079,000 (2021: £6,335,000), 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
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Trade receivables 2,227 1,883 2,227 1,883
Prepayments 283 260 281 259
Other receivables 11 19 11 19
Amounts due from subsidiary undertakings - - 50 34
2,521 2,162 2,569 2,195
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 68 days (2021: 76 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 (Group and Company) overdue by:
31 October 31 October
2022 2021
£'000 £'000
Not more than 3 months - 13
More than 3 months but not more than 6 months - -
More than 6 months but not more than 1 year - -
More than 1 year - -
- 13
The overall expected credit loss is trivial (2021: trivial). There is no
movement in allowance of impairment of trade receivables during each year.
Trade receivables (Group and Company) held in currencies other than sterling
are as follows:
31 October 31 October
2022 2021
£'000 £'000
Euro 165 194
US Dollar 1,742 1,651
1,907 1,845
16. Cash and cash equivalents
Group Group Company Company
31 October 31 October 31 October 31 October
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Cash at bank 2,344 3,476 2,337 3,470
2,344 3,476 2,337 3,470
17. Trade and other payables
Group Group Company Company
31 October 31 October 31 October 31 October
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Trade payables 1,134 639 1,134 639
Accruals and deferred income 457 137 457 137
Other taxes and social security 267 268 267 268
Other payables 174 14 174 14
Invoice discounting facility 175 - 175 -
2,207 1,058 2,207 1,058
Book values approximate to fair values.
18. Bank loans
Group Group Company Company
31 October 31 October 31 October 31 October
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Not later than one year 503 514 503 514
One to two years 503 536 503 536
Two to five years 1,003 1,462 1,003 1,462
2,009 2,512 2,009 2,512
In FY20 the Company took out a Coronavirus Business Interruption Loan for
£2.0m and on 19 January 2021 the term of this loan was extended to 6 years.
Repayment by instalment commenced in August 2021, with the final instalment
due in August 2026. The loan was interest free for the initial 12 months,
followed by an interest rate of 3.96% above the Bank of England base rate
which was 2.25% at 31 October 2022. This has since increased to 3.5% and
therefore the rate payable at 23 January 2023 is 7.46%.
During FY21, the Company took out a further Coronavirus Business Interruption
Loan for £0.45m secured against owned non-current assets. This is being
repaid over 5 years with the first payment made in July 2021 and the final
instalment due in June 2026. The loan was interest free for the initial 12
months, followed by an interest rate of 7.75% per annum.
19. Leases
Right-of-use-assets
Group Land & Plant & Motor Total
buildings machinery vehicles
£'000 £'000 £'000 £'000
Cost
Balance at 31 October 2020 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
Additions 1,013 - - 1,013
Disposal (221) - - (221)
Balance at 31 October 2022 2,433 561 110 3,104
Depreciation
Balance at 31 October 2020 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
Depreciation charge for the year 300 104 28 432
Disposal (221) - - (221)
Balance at 31 October 2022 478 294 63 835
NBV
At 31 October 2020 1,126 475 33 1,634
At 31 October 2021 1,242 371 75 1,688
At 31 October 2022 1,955 267 47 2,269
The associated right-of-use assets for property leases and other assets were
measured at the amount equal to the lease liability, adjusted by the amount of
any prepaid or accrued lease payments relating to that lease recognised in the
statement of financial position as at 31 October 2022.
Company Land & Plant & Motor Total
buildings machinery vehicles
£'000 £'000 £'000 £'000
Cost
Balance at 31 October 2020 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
Additions 556 - - 556
Disposal (221) - - (221)
Balance at 31 October 2022 1,976 561 110 2,647
Depreciation
Balance at 31 October 2020 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
Depreciation charge for the year 300 104 28 432
Disposal (221) - - (221)
Balance at 31 October 2022 478 294 63 835
NBV
At 31 October 2020 1,126 475 33 1,634
At 31 October 2021 1,242 371 75 1,688
At 31 October 2022 1,498 267 47 1,812
The associated right-of-use assets for property leases and other assets were
measured at the amount equal to the lease liability, adjusted by the amount of
any prepaid or accrued lease payments relating to that lease recognised in the
statement of financial position as at 31 October 2022.
Right-of-use lease liabilities
Group Company
£'000 £'000
At 30 October 2021 1,549 1,549
Repayment (457) (442)
Additions to right-of-use assets in exchange for increased lease liabilities 1,013 556
Other lease movements 92 92
At 31 October 2022 2,197 1,755
Analysis by length of liability
Group Land & Plant & Motor Total
buildings equipment vehicles
£'000 £,000 £'000 £'000
Current 353 42 10 405
Non-current 1,612 155 25 1,792
1,965 197 35 2,197
Number of right-to-use assets leased 6 5 2
Range of remaining term 1-10 years 1-10 years 1-4 years
Company Land & Plant & Motor Total
buildings equipment vehicles
£'000 £,000 £'000 £'000
Current 261 42 10 313
Non-current 1,262 155 25 1,442
1,523 197 35 1,755
Number of right-to-use assets leased 5 5 2
Range of remaining term 1-10 years 1-10 years 1-4 years
Reconciliation of minimum lease payments to present value
Group Minimum Interest Present
lease value
payments
£'000 £'000 £'000
31 October 2022
Not later than one year 505 100 405
Later than one year and not later than two years 505 86 419
Later than two years and not later than five years 1,545 172 1,373
2,555 358 2,197
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
Company Minimum Interest Present
lease value
payments
£'000 £'000 £'000
31 October 2022 400 87 313
Not later than one year 400 72 328
Later than one year and not later than two years 1,248 134 1,114
Later than two years and not later than five years
2,048 293 1,755
31 October 2021 378 69 309
Not later than one year 292 67 225
Later than one year and not later than two years 1,181 166 1,015
Later than two years and not later than five years
1,851 302 1,549
Low value leases
The Group leases comprise both office and assembly space, under low value
leases. The total value of the minimum lease payments due is payable as
follows:
Group and Company 31 October 31 October
2022 2021
£'000 £'000
Property, plant and equipment
Not later than one year - 4
Later than one year and not later than two years - -
Later than two years and not later than five years - -
Later than five years - -
- 4
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 year. The movement on the
deferred tax account is as shown below:
The movement on the deferred tax (asset)/liability is shown below:
Group and Company 31 October 31 October
2022 2021
£'000 £'000
Unrecognised deferred tax in respect of losses at 31 October 2021 (840) (534)
Corporation tax loss adjustments in respect of prior year (51) -
Corporation tax losses arising during the year (174) (306)
Adjustment for movement in corporation tax rate (336) -
Unrecognised deferred tax in respect of losses at 31 October 2022 (1,401) (840)
The Group has unused tax losses which were incurred by the holding company. A
deferred tax asset of £1,401,000 (2021: £840,000) is not recognised in these
accounts. Corporation tax losses can be carried forward indefinitely and can
be offset against future profits which are subject to UK corporation tax.
21. Reconciliation of liabilities arising
from financing activities
Group Lease Other Lease Other Total
liabilities < short-term liabilities > long-term
one year borrowings one year borrowings
£'000 £'000 £'000 £'000 £'000
At 31 October 2020 411 500 1,060 1,500 3,471
Cash flows
Repayment - - (400) (119) (519)
Proceeds - - - 634 634
Non-cash
Increase to lease liabilities - - 475 - 475
Transfer from long-term to short- term borrowings (102)
14 105 (17) -
At 31 October 2021 309 514 1,240 1,998 4,061
Cash flows
Repayment (457) (503) - - (960)
Proceeds - - - - -
Non-cash
Other differences - - 92 - 92
Increase to lease liabilities - - 1,013 - 1,013
Transfer from long-term to short-term borrowings 553 492 (492) -
(553)
As at 31 October 2022 405 503 1,792 1,506 4,206
Company Lease Other Lease Other Total
liabilities < short-term liabilities > long-term
one year borrowings one year borrowings
£'000 £'000 £'000 £'000 £'000
At 31 October 2020 411 500 1,060 1,500 3,471
Cash flows
Repayment - - (400) (119) (519)
Proceeds - - - 634 634
Non-cash
Lease liability proceeds - - 475 - 475
Transfer from long-term to short-term borrowings (102)
14 105 (17) -
At 31 October 2021 309 514 1,240 1,998 4,061
Cash flows
Repayment (442) (503) - - (945)
Proceeds - - - - -
Non-cash
Other differences - - 92 - 92
Lease liability proceeds - - 556 - 556
Transfer from long-term to short-term borrowings 446 492 (492) -
(446)
As at 31 October 2022 313 503 1,442 1,506 3,764
22. Share capital
31 October 31 October
2022 2021
£ £
Share capital issued and fully paid
36,458,997 (2021: 36,303,064) Ordinary shares of £0.0025 each 91,147 90,758
Ordinary shares have a par value of 0.25p. They entitle the holder to
participate in dividends, and to share in the proceeds of winding up the
Company in proportion to the number of and amounts paid on the shares held.
On a show of hands every holder of ordinary shares present at a meeting in
person or by proxy, is entitled to one vote, and upon a poll each share is
entitled to one vote. The Company does not have a limited amount of authorised
capital.
Movements in share capital Nominal Number of
value shares
£
Ordinary shares of £0.0025 each
At the beginning of the year 90,758 36,303,064
Exercising of share options 389 155,933
Closing share capital at 31 October 2022 91,147 36,458,997
On 29 March 2022, the Company issued 108,475 new ordinary shares of £0.0025
each to satisfy the exercise of options granted under the Group's 2020 Share
Option Scheme.
On 5 October 2022, the company issued a further 47,458 new ordinary shares of
£0.0025 each to satisfy the exercise of options granted under the Group's
2020 Share Option Scheme.
Options
Information relating to the Velocity Composites plc Employee Option Plan,
including details of options issued, exercised and lapsed during the financial
year and options outstanding at the end of the reporting year, is set out in
note 23.
23. Share-based payments
The Group's employees are granted option awards under the Velocity Composites
Limited Enterprise Management Incentive and Unapproved Scheme.
The share options dated 13 March & 17 October 2017 have no attached
performance conditions and have vested as a resulted of continued employment.
The options may be exercised at any point up to the tenth anniversary of the
grant date.
The 100,000 share options dated 29 October 2019 have no attached performance
conditions and vest subject only to continued employment. They vest after 3
years, or earlier if a vesting event occurs as defined in the rules of the
Scheme. They were awarded in relation to joining senior management, providing
an equity incentive around the performance of the business.
The 667,680 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 tenth anniversary grant date. There were
1,480,000 originally issued and as of the year ended 31 October 2022, 812,320
of these share options had lapsed due to people leaving the business.
The 459,132 shares options dated 30 October 2020 have no attached performance
conditions and have been issued in exchange for qualifying staff agreeing to
accept 20% of their basic salary in equity alternatives.
The 28,805 shares options dated 1 April 2021 have no attached performance
conditions and have been issued in exchange for qualifying staff agreeing to
accept 20% of their basic salary in equity alternatives.
The 250,000 shares options dated 1 April 2021 have no attached performance
conditions and vest subject only to continued employment. They vest after 3
years, or earlier if a vesting event occurs as defined in the rules of the
Scheme. They were awarded in relation to joining senior management, providing
an equity incentive around the performance of the business.
During the year ended 31 October 2022, further share options were granted as
follows:
479,999 shares options dated 26 January 2022. These options have no attached
performance conditions and have been issued in exchange for qualifying staff
agreeing to accept 20% of their basic salary in equity alternatives.
20,940 shares options dated 29 March 2022. These options have no attached
performance conditions and have been issued in exchange for qualifying staff
agreeing to accept 20% of their basic salary in equity alternatives.
Vesting events are defined within the rules of the Scheme as a reorganisation,
takeover, sale, listing (except on AIM), asset sale or death of the Option
holder.
There were no cancellations or modifications to the awards in the year.
The following options were outstanding as at 31 October 2022:
Scheme and grant date Exercise price (£) Vesting date Expiry date Vested Not vested Total
13 March 2017 0.0025 13 Mar 2019 13 Mar 2027 95,676 - 95,676
17 October 2017 0.6926 17 Oct 2019 17 Oct 2027 30,000 - 30,000
29 October 2019 0.2065 29 Oct 2022 29 Oct 2031 - 100,000 100,000
29 October 2019 0.2065 29 Oct 2021 29 Oct 2031 - 667,680 667,680
30 October 2020 0.2065 01 Nov 2021 01 Nov 2026 459,132 - 459,132
01 April 2021 0.0025 01 Apr 2021 01 Apr 2026 28,805 - 28,805
01 April 2021 0.1300 01 Apr 2021 01 Apr 2026 - 125,000 125,000
01 April 2021 0.1580 01 Apr 2021 01 Apr 2026 - 125,000 125,000
26 January 2022 0.0025 26 Jan 2023 01 Nov 2027 - 479,999 479,999
29 March 2022 0.0025 29 Mar 2023 01 Nov 2027 - 20,940 20,940
613,613 1,518,619 2,132,232
The Group recognised a cost of £170,000 (2021: £90,000) relating to
share-based payment transactions which are all equity settled, an equivalent
amount being transferred to share-based payment reserve. This reflects the
fair value of the options, which has been derived through use of the
Black-Scholes model.
The cost of share-based payments is included in "Administrative expenses"
within the Statement of total comprehensive income. The share-based payments
reserve is used to recognise the grant date fair value of options issued to
employees but not exercised. The table below sets out the movement to the
share-based payment reserves in the year.
Movement in share options
Scheme and grant date As at 1 Nov 2021 Issued Expired Exercised Vested As at 30 Oct 2022
£'000 £'000 £'000 £'000 £'000 £'000
1 January 2017 264 - - - - 264
13 March 2017 55 - - - - 55
17 October 2017 22 - - - - 22
29 October 2019 80 27 - - - 107
30 October 2020 97 - - - (25) 72
01 April 2021 7 - - - - 7
01 April 2021 7 7 - - - 14
01 April 2021 7 7 - - - 14
26 January 2022 - 94 - - - 94
26 January 2022 - 31 - - - 31
29 March 2022 - 4 - - - 4
539 170 - - (25) 684
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:
The Group has previously engaged IN4.0 Access Limited, which provides
consulting services. One of the directors of IN4.0 Talent Recruitment
Limited is a director of Velocity Composites plc. The Group paid £37,270
(2021: £Nil) to IN4.0 Access Limited during the year and had £Nil
outstanding at the year end (2021: £Nil).
During the year the Group engaged Northwest Aerospace Alliance, which provides
membership and subscription services for the Aerospace Industry. One of the
directors of Northwest Aerospace Alliance Limited is a director of Velocity
Composites plc. The Group paid £5,775 (2021: £Nil) to Northwest Aerospace
Alliance during the year and had £1,000 outstanding at the year end (2021:
£Nil).
The following balances existed at year end with related parties
(payable)/receivable:
31 October 31 October
2022 2021
£'000 £'000
Related parties (1) -
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 2022 the Group had £582,000 (2021: £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 £84,488 (2021: £89,337) were
charged to the Consolidated Income statement. Contributions outstanding at 31
October 2021 were £14,107 (2021: £13,557).
28. Contingent liabilities
At 31 October 2022 the Group had in place bank guarantees of £Nil (2021:
£Nil) in respect of supplier trade accounts.
As at 31 October 2022, the providers of the Invoice Discounting Facility hold
a debenture that provides a fixed and floating charge on the assets of the
Company.
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 and adjusted for share-based payments. Share-based payments are
added back to make the share-based payment charge clear to stakeholders.
Year ended Year ended
31 October 31 October
2022 2021
Reconciliation from operating loss £'000 £'000
Operating loss (1,317) (1,364)
Add back:
Share-based payments 170 90
Depreciation of property, plant and equipment 210 229
Amortisation 53 76
Depreciation of right-of-use assets under IFRS 16 432 421
Adjusted EBITDA (452) (548)
* * (( * )) Earnings before interest, tax, depreciation, amortisation and
adjusted for share-based payments. The business uses this Alternative
Performance Measure to appropriately measure the underlying business
performance, as such it excludes costs associated with non-core activity.
Share-based payments are added back to make the share-based payment charge
clear to stakeholders.
2 Earnings before interest, tax, depreciation, amortisation and adjusted for
share-based payments. The business uses this Alternative Performance Measure
to appropriately measure the underlying business performance, as such it
excludes costs associated with non-core activity. Share-based payments are
added back to make the share-based payment charge clear to stakeholders.
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