REG - Velocity Composites - Half Year Results
11/07/2023 07:00
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RNS Number : 5686F Velocity Composites PLC 11 July 2023
11 July 2023
VELOCITY COMPOSITES PLC
("Velocity", the "Company", the "Group")
Unaudited Half Year Results for the six months ended 30 April 2023
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 unaudited results for the six months to 30 April 2023.
Financial Highlights:
· Revenue increased 19% to £7.0m (2022: £5.9m) as aerospace sales
volumes continued to recover post Covid-19, with improved UK demand.
· Gross margin of 21.8% (2022: 23.5%), reduced slightly due to a
lag in the pass through of inflation to customers, with price increases now
agreed and due to provide a greater recovery of costs in the second half.
· EBITDA loss of £0.9m (2022: loss of £0.2m), including £0.5m of
upfront costs to setup the US site and new contract engineering costs.
· Loss before tax of £1.4m (2022: loss of £0.7m).
· Cash at bank as at 30 April 2023 of £1.2m (30 April 2022:
£2.0m).
Operating Highlights:
· In April 2023, the US facility manufactured the first production
kits to support the five-year Work Package Agreement announced in December
2022 with GKN Aerospace.
· The agreement with GKN Aerospace is expected to be worth in
excess of US$100 million in revenue over five years.
· UK production has scaled to meet increased customer demand.
· Strong pipeline of new business in both the US and Europe.
· Longer-term, carbon fibre composite material usage is expected to
grow significantly in civil aircraft and other transportation modes.
· Continued investment and development of the Company's technology.
· Remain on track to achieve profitability in FY 2024, as a result
of a ramp up of existing contracts.
Outlook:
· The commercial value of contracted business is currently
estimated to be worth between £30m to £36m per annum at OEM planned
production rates.
Andy Beaden, Chairman, Velocity, said: "Velocity is making excellent progress.
Aerospace volumes continue to recover, and our US facility has started to
manufacture production kits for GKN. While our initial investment in the
facility has led to an EBITDA loss in the first half of the year, once the new
business is at full production during 2024, we expect to move into EBITDA and
positive PBT.
"Since last year, the value of commercial business under contract has trebled.
Looking ahead, we anticipate significant revenue growth in the coming years,
particularly in North America, and also as more industries make greater use of
composite material technologies to meet environment targets. We are excited
about the Company's long-term prospects."
Enquiries:
Velocity
Andy Beaden,
Chairman
+44 (0) 1282 577577
Jon Bridges, Chief Executive Officer
Adam Holden, Chief Financial Officer
Cenkos (Nominated Adviser and Broker)
Katy Birkin
+44 (0)20 7397 8900
Ben Jeynes
George Lawson
SEC Newgate (Financial PR)
Robin Tozer
+44 (0)7540 106
366
George Esmond
velocity@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, and
GKN.
By using Velocity's proprietary technology, manufacturers can also free up
internal resources to focus on their core business. Velocity has significant
potential for expansion, both in the UK and abroad, including into new market
areas, such as wind energy, urban air mobility and electric vehicles, where
the demand for composites is expected to grow.
Chairman's Statement
Overview
Demand is starting to accelerate as the aerospace industry prepares for
significant expansion in the manufacture of new generations of aircraft and,
therefore, an expected increase in the use of composite materials to enable
the necessary lightweighting to meet environmental targets.
Revenue increased 19% as a result of improved UK demand and customer
production rates. At the same time, we have commissioned our new US facility
in Alabama, and started the First Article Inspection processes. This will
transfer approximately £16m of new business per annum from GKN's Tallassee,
Alabama operations. This process will continue through FY 2023, with the
objective of realising the full run-rate value of this five-year US$100
million contract in 2024.
The macroeconomic conditions are challenging. High inflation has impacted our
short-term gross margin through higher energy and staff costs. The Group
implemented price increases in the first half to help recover these costs in
the latter half of the full year. Furthermore, we invested heavily in upfront
costs in terms of delivering the necessary engineering and product/services
technologies required in the US. This investment was part of the onboarding of
the new business from GKN in Tallassee. These costs will recover over the
length of the contract. This initial US investment, led to an EBITDA loss in
the first half of the year. However, once the new business is at full
production during 2024, we expect to move into positive EBITDA and Profit
Before Tax.
There is also significant new business activity across our customer base. We
are quoting for additional work in the US and Europe, predominantly with
existing customers, but also new customers that have expressed an interest in
Velocity's US presence. This includes establishing working relationships with
aerospace distributors, as we seek to build out our US sales capabilities.
We continue to tightly control our working capital and cash flow and have also
benefitted from customer finance solutions to aid the trebling of the current
business, when compared to FY 2022.
Financial Performance
As noted, revenue in the period grew 19% to £7.0m (2022: £5.9m) as demand is
steadily returning to pre-pandemic levels. Building on the momentum reported
in recent results as the global aerospace industry recovers and OEM forecast
production rates grow. The UK sales growth was stronger than initially
expected, accelerating in the latter few months of the period. Price increases
have been successfully agreed with key customers and will provide a greater
benefit in the second half.
Gross margin has reduced slightly to 21.8% (2022: 23.5%) although has started
to move towards the longer-term target of 25% in the latter months of the
period.
Administrative expenses of £2.8m are higher than last year's costs of £2.0m,
with approximately £0.5m relating to the investment in the development of the
US facility. Increased utility costs and the movement in the GBP to USD
exchange rate are also impacting expenses.
As a result, reported EBITDA is a loss of £0.9m (2022: £0.2m loss), although
an improvement is anticipated in the second half of the year as the US
facility increases production towards contracted rates. Loss before tax from
continuing operations increased to £1.4m (2022: loss of £0.7m).
Cash as at 30 April 2023 was £1.2m and net debt was £1.8m. As production
moves towards contracted rates in the US, working capital will be supported by
supply chain finance lines provided by GKN, helping to provide a self-funding
mechanism until the profit from the contract can then fund the work under the
contract in the long-term. The Company continues to access its invoice
discounting facility in the UK and also holds debt relating to Coronavirus
Business Interruptions Loans which are being repaid by instalments with the
final amounts due in 2026.
Investment in Growth & Customer Proposition
Velocity continues to maintain the required investment to support its growth
and R&D activities. The Company has been able to self-fund this through
the pandemic, which suppressed short-term demand in the aerospace
manufacturing sector, with the UK civil aerospace sector particularly hard
hit.
In addition, work has been done to develop the Company's customer proposition
through investment in R&D. A new "Digital Manufacturing Cell" that enables
further standardisation and automation of production is expected to be
deployed in the second half of the year. It is likely to improve future gross
margin through material and labour efficiencies. The Digital Cell combines
with our composite tailored material planning technology, Velocity Resource
Planning, or VRP. These technology hardware and software systems enable the
efficiencies in our services to customers, in labour, materials and inventory
levels.
Outlook
The Company has contracted UK and US business which, when in full production
(at current OEM run rates), will significantly increase revenue from current
levels. The commercial value of contracted business is currently estimated to
be worth between £30m to £36m per annum at OEM planned production rates.
The current UK and US manufacturing facilities are being expanded to meet this
rapid increase in the order book. The new US facility can be doubled again in
capacity, to meet further new business and contracted volumed growth, of up to
£70m.
The Company has a healthy short-term pipeline of new business opportunities in
Europe and North America. Longer-term, carbon fibre composite material usage
is expected to grow significantly in civil aircraft and other transportation
modes. The benefits of its relative lightweight will play an important role in
reducing the use of fossil fuels through greater fuel efficiency in
conventional jet engine technology.
Andy Beaden
Non-Executive Chairman
11 July 2023
Condensed consolidated statement of total comprehensive income
for the 6 months ended 30 April 2023
6 months ended 6 months ended 12 months
30 April 30 April ended
2023 2022 31 October
(unaudited) (unaudited) 2022
(audited)
Note £'000 £'000 £'000
Revenue 3 6,980 5,864 11,959
Cost of sales (5,459) (4,487) (9,213)
Gross profit 1,521 1,377 2,746
Administrative expenses (2,806) (2,003) (4,063)
Operating loss (1,285) (626) (1,317)
Operating loss analysed as:
Adjusted EBITDA (858) (189) (452)
Depreciation of property, plant and equipment (116) (105) (210)
Amortisation (20) (32) (53)
Depreciation of right-of-use assets under IFRS 16 (206) (215) (432)
Share-based payments (85) (85) (170)
Finance income and expense (152) (84) (187)
Loss before tax (1,437) (710) (1,504)
Corporation tax recoverable - - 167
Loss for the period and total comprehensive loss (1,437) (710) (1,337)
Loss per share - Basic (pence per share) 4 (£0.04) (£0.02) (£0.04)
Loss per share - Diluted (pence per share) 4 (£0.04) (£0.02) (£0.04)
The notes below form part of this interim report.
Condensed consolidated statement of financial position at 30 April 2023
As at As at As at
30 April 30 April 31 October
2023 2022 2022
(unaudited) (unaudited) (audited)
Note £'000 £'000 £'000
Non-current assets
Intangible assets 499 59 173
Property, plant and equipment 1,739 957 1,099
Right-of-use assets 2,299 1,471 2,269
Total non-current assets 4,537 2,487 3,541
Current assets
Inventories 1,633 948 1,407
Trade and other receivables 2,976 3,361 2,521
Corporation tax - - -
Cash and cash equivalents 1,208 2,038 2,344
Total current assets 5,817 6,347 6,272
Total assets 10,354 8,834 9,813
Current liabilities
Loans 536 530 503
Trade and other payables 4,298 1,258 2,207
Obligations under lease liabilities 470 245 405
Total current liabilities 5,304 2,033 3,115
Non-current liabilities
Loans 1,222 1,730 1,506
Obligations under lease liabilities 1,779 1,129 1,792
Total non-current liabilities 3,001 2,859 3,298
Total liabilities 8,305 4,892 6,413
Net assets 2,049 3,942 3,400
Equity attributable to equity holders of the
company
Share capital 5 92 91 91
Share premium 9,727 9,727 9,727
Share-based payments reserve 769 624 684
Retained earnings (8,539) (6,500) (7,102)
Total equity 2,049 3,942 3,400
The notes below form part of this interim report.
The financial statements were approved and authorised for issue by the Board
of Directors on 10 July 2023 and were signed on its behalf by:
Adam Holden
Company Secretary Company Number: 06389233
Condensed consolidated statement of changes in equity for the 6 months ended
30 April 2023
Share Share Retained Share-based payments Total
capital premium earnings reserve equity
Note £'000 £'000 £'000 £'000 £'000
As at 31 October 2021 91 9,727 (5,790) 539 4,567
Loss for the period - - (710) - (710)
91 9,727 (6,500) 539 3,857
Transactions with shareholders:
Share-based payments - - - 85 85
As at 30 April 2022 91 9,727 (6,500) 624 3,942
Loss for the period - - (627) - (627)
91 9,727 (7,127) 624 3,315
Transactions with shareholders:
Share-based payments - - - 85 85
Vesting of share options - - 25 (25) -
As at 31 October 2022 91 9,727 (7,102) 684 3,400
Loss for the period - - (1,437) - (1,437)
91 9,727 (8,539) 684 1,963
Transactions with shareholders:
Share-based payments 1 - - 85 86
As at 30 April 2023 92 9,727 (8,539) 769 2,049
The notes below form part of this interim report.
Condensed consolidated statement of cash flows
for the 6 months ended 30 April 2023
6 months 12 months ended
ended 6 months 31 October
30 April 2023 ended 2022
(unaudited) 30 April 2022 (audited)
(unaudited)
£'000 £'000 £'000
Operating activities
Loss for the period (1,437) (710) (1,337)
Taxation - - (167)
Profit on sale of assets (4) - (38)
Finance costs 152 84 187
Amortisation of intangible assets 20 32 53
Depreciation of property, plant and equipment 116 105 210
Depreciation of right-to-use assets 206 215 432
Share-based payments 85 85 170
(862) (189) (490)
Operating cash flows before movements in working capital
(Increase) in trade and other receivables (455) (1,199) (359)
(Increase) in inventories (226) (71) (530)
Increase in trade and other payables 2,091 200 1,149
Cash from operations 548 (1,259) (230)
Income taxes received - 341 510
Net cash inflow from operating activities 548 (918) 280
Investing activities
Purchase of property, plant and equipment (756) (9) (262)
Purchase of development expenditure (346) - (136)
Proceeds from disposal of property, plant and equipment 4 - 42
Net cash used in investing activities (1,098) (9) (356)
Financing activities
Finance costs paid (151) (84) (187)
Loan repayment (251) (252) (503)
Repayment of lease liabilities capital (184) (175) (366)
Net cash used in financing activities (586) (511) (1,056)
Net Decrease in cash and cash equivalents (1,136) (1,438) (1,132)
Cash and cash equivalents at beginning of period/year 2,344 3,476 3,476
Cash and cash equivalents at end of period/year 1,208 2,038 2,344
The notes below form part of this interim report.
Notes to Interim Report
1. General information
Velocity Composites plc (the 'Company') is a public limited company
incorporated and domiciled in England and Wales. The registered office of the
company is AMS Technology Park, Billington Road, Burnley, Lancashire, BB11
5UB, United Kingdom. The registered company number is 06389233.
The Company holds shares in a wholly owned subsidiary company, Velocity
Composites Sendirian Berhad, which is domiciled in Malaysia. During this
financial period, the Company has provided engineering services to the Group.
The Company also wholly owns Velocity Composites Aerospace Inc. to prepare for
future expansion in the United States of America. These subsidiaries together
with Velocity Composites plc, now forms the Velocity Composites Group ('the
Group').
The Group's principal activity is that of the sale of kits of composite
material and related products to the aerospace industry.
The condensed consolidated interim financial statements are unaudited and do
not constitute statutory financial statements within the meaning of Section
435 of the Companies Act 2006. The review report on these interim financial
statements is set out below. The financial information for the year ended 31
October 2022 has been derived from the published statutory financial
statements for the Company. A copy of the full accounts for that period, on
which the auditor issued an unmodified report that did not contain statements
under Section 498(2) or 498(3) of the Companies Act 2006, has been delivered
to the Registrar of Companies.
These interim financial statements will be available from the Company's
website at www.velocity-composites.com.
2. Accounting policies
Basis of preparation
These condensed consolidated interim financial statements are for the six
months ended 30 April 2023. This interim financial report has been prepared in
accordance with International Accounting Standard 34, 'Interim Financial
Reporting', in accordance with UK-adopted international accounting standards,
and has been prepared using consistent accounting policies as applied in the
Company's full year accounts to 31 October 2022 and as expected to be applied
in the full year accounts to 31 October 2023. They have therefore been
prepared in compliance with the measurement and recognition criteria of
UK-adopted international accounting standards.
These financial statements have been prepared on a going concern basis and
using the historical cost convention, as stated in the accounting policies.
These policies have been consistently applied to all periods presented, unless
otherwise stated.
The financial statements are presented in sterling and have been rounded to
the nearest thousand (£'000) except where otherwise indicated.
No new standards have been adopted for the first time in the current financial
year.
Going concern
Management continues to undertake a significant level of cash flow forecasting
and detailed financial projections for the period to 31 October 2025 have been
prepared. A number of sensitivities have been performed to understand the cash
flow impact of various scenarios which continue to show that the business has
sufficient liquidity to continue trading as a going concern.
The aerospace sector lends itself to long-term planning due to the nature and
length of customer programmes, typically a minimum of three years, but often
five years or more. This has enabled the business to fully model the period to
31 October 2025 and incorporate more strategic, longer-term planning for
growth as the industry continues its recovery from the pandemic.
2. Accounting policies (continued)
Going concern (continued)
Cash flow forecasts are reviewed monthly through Management's Integrated
Business Planning (IBP) process and the assumptions updated for any new
knowledge to ensure there is no change in the Group's liquidity outlook. This
is linked in with Management's monthly risk review and should the outlook
change significantly with no mitigating actions, the Group's liquidity risk
rating on the risk register will be adjusted to reflect this and subsequently
discussed at Board level.
The latest financial projections incorporate revenue forecasts based on
current demand in both the UK and US, plus a weighting of opportunities in the
pipeline. It is important that the business continues to move towards full
rate production in the US in order to meet this customer demand, generating
revenue and cash in the process. The cost base included in the projections is
reflective of the significant cost reductions that have already taken place in
the Group, but also realistic about the investment required to continue to
implement growth.
It is this investment in growth and technological advancements that has
resulted in the forecasts indicating that the Group's Invoice Discounting
Facility, secured against Trade Debtors, will be utilised during the going
concern period. Whilst this facility is designed to be short-term and can be
withdrawn with 3 months' notice, the latest discussions have reflected the
bank's support for Velocity's growth strategy and as such we expect this
facility will remain available for the foreseeable future. The Group is also
reliant on the supply chain facilities and support offered by the current US
customer as it continues to develop the Tallassee site and move towards full
rate production and again, it is the expectation that this will remain in
place.
Should alternative financing be required, the Group would preserve cash by
delaying further investment activities until longer-term funding could be
implemented, such as asset-based financing against new capital expenditure or
equity funding.
Having due regard for the latest deliverables and latest projections, together
with the facilities available, it is the opinion of the Board that the Group
has adequate resources to continue to trade as a going concern.
3. Segmental analysis
The Group supplies a single range of kitted products into a single industry
and so has a single segment. Additional information is given below regarding
the revenue receivable based on geographical location of the customer.
12 months
6 months ended 6 months ended ended
30 April 2023 (unaudited) 30 April 2022 31 October
(unaudited) 2022
(audited)
£'000 £'000 £'000
Revenue
United Kingdom 6,844 5,813 11,906
Rest of Europe 6 20 10
Rest of World 130 31 43
6,980 5,864 11,959
Four customers of the Group are responsible for over 90% of the total revenue
in each of the periods presented. The majority of revenue arises from the sale
of goods. Where engineering services form a part of revenue it is only in
support of the development or sale of the goods.
4. Reconciliation of reported earnings per share
12 months ended
6 months ended 6 months ended 31 October
30 April 2023 (unaudited) 30 April 2022 (unaudited) 2022 (audited)
£'000 £'000 £'000
Loss for the period/year (1,436) (710) (1,337)
Weighted average number of shares Shares Shares Shares
Weighted average number of shares in issue 36,600,099 36,318,130 36,371,065
Weighted average number of share options 2,254,694 2,036,458 2,110,897
Weighted average number of shares (diluted) 38,854,793 38,354,588 38,481,962
Share options have not been included in the diluted loss per share calculation
as they would be anti-dilutive with a loss being recognised.
12 months ended
6 months ended 6 months ended 31 October
30 April 2023 (unaudited) 30 April 2022 (unaudited) 2022
(audited)
£ £ £
Loss per share
Basic & Diluted (£0.04) (£0.02) (£0.04)
5. Share capital of the Company
Number of shares Share capital Share premium
£ £
Share capital issued and fully paid
Ordinary shares of £0.0025 each as at 31 October 2021 36,303,064 90,758 9,727,158
Shares issued to satisfy exercise of share options on 5 April 2022 108,475 271 -
Ordinary shares of £0.0025 each as at 30 April 2022 36,411.539 91,029 9,727,158
Shares issued to satisfy exercise of share options on 28 May 2021 47,458 118 -
Ordinary shares of £0.0025 each as at 31 October 2022 36,458,997 91,147 9,727,158
Shares issued to satisfy exercise of share options on 6 March 2023 461,788 1,155 -
Ordinary shares of £0.0025 each as at 30 April 2023 36,920,785 92,302 9,727,158
Ordinary shares carry the right to one vote per share at general meetings of
the Company and the rights to share in any distribution of profits or returns
of capital and to share in any residual assets available for distribution in
the event of a winding up.
6. Capital commitments
At 30 April 2023 the Group had £Nil (2022: £Nil) of capital commitments
relating to the purchase of leasehold improvements, plant and machinery and
fixture and
fittings.
Independent Review Report to Velocity Composites plc
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
April 2023 which comprises the condensed Consolidated Statement of
Comprehensive income, the condensed Consolidated Statement of Financial
Position, the condensed Consolidated Statement of Changes in Equity, the
condensed Consolidated Statement of Cash Flows and the related notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 April 2023 is not prepared, in
all material respects, in accordance with UK adopted International Accounting
Standard 34.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, ''Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued for use in the United Kingdom. A
review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with International
Standards on Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with UK adopted IFRSs. The condensed set of financial
statements included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34, "Interim
Financial Reporting.
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of Directors
The directors are responsible for preparing the half-yearly financial report
in accordance with International Accounting Standard 34, 'Interim Financial
Reporting'.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statement in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Cooper Parry Group Limited
Statutory Auditor
Sky View
Argosy Road
East Midlands Airport
Castle Donington
Derby
DE74 2SA
Date
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