REG - Velocity Composites - Proposed Placing and Subscription
09/08/2023 07:00
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RNS Number : 7242I Velocity Composites PLC 09 August 2023
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CONTAIN ANY INVITATION, SOLICITATION, RECOMMENDATION, OFFER OR ADVICE TO ANY
PERSON TO SUBSCRIBE FOR, OTHERWISE ACQUIRE OR DISPOSE OF ANY SECURITIES IN
VELOCITY COMPOSITES PLC OR ANY OTHER ENTITY IN ANY JURISDICTION WHERE TO DO SO
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CONNECTION WITH, ANY INVESTMENT DECISION IN RESPECT OF VELOCITY COMPOSITES
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READ AND UNDERSTAND THE INFORMATION PROVIDED IN THE APPENDIX WHICH CONTAINS
THE TERMS AND CONDITIONS OF THE PLACING.
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9 August 2023
VELOCITY COMPOSITES PLC
("Velocity or the "Company")
Proposed Placing of and Subscription for 15,500,000 New Ordinary Shares to
raise £6.2 million
Proposed REX Retail Offer to raise up to £0.5 million
and
Recommended proposal for the cancellation of the Share Premium Account
Velocity Composites plc (AIM: VEL), the leading supplier of composite material
kits to aerospace and other high-performance manufacturers, is pleased to
announce that it has conditionally raised £1.2 million (before expenses)
through the issue of 1,900,000 Firm Placing Shares and 1,100,000 Subscription
Shares at the Issue Price of 40 pence per New Ordinary Share, and has also
conditionally raised £5 million (before expenses) through the issue of
12,500,000 EIS/VCT Placing Shares at the Issue Price.
Furthermore, the Company announces a retail offer to raise up to £0.5 million
(before expenses) through the issue of 1,250,000 new Ordinary Shares (the
"Retail Offer Shares") at the Issue Price (the Firm Placing, the Subscription,
the Retail Offer and the EIS/VCT Placing together defined as the
"Fundraising"). A separate announcement will be made shortly by the Company
regarding the Retail Offer and its terms. Those investors who subscribe for
Retail Offer Shares will do so pursuant to the terms and conditions of the
Retail Offer contained in that announcement.
Key features of the Fundraising
· Conditional Firm Placing of 1,900,000 new Ordinary Shares and
Subscription for 1,100,000 new Ordinary Shares to raise £1.2 million (before
expenses) at the Issue Price with new and existing investors;
· Conditional EIS/VCT Placing of 12,500,000 new Ordinary Shares at
the Issue Price with new and existing investors to raise £5 million (before
expenses). The EIS/VCT Placing is conditional, inter alia, on the cancellation
of the Share Premium Account and Shareholder approval;
· Retail Offer to raise up to an additional £0.5 million is being
made through the REX Retail Offer at the Issue Price to existing shareholders
of the Company through certain intermediaries. A separate announcement will be
made shortly regarding the REX Retail Offer and its terms;
· The Issue Price of 40 pence per New Ordinary Share represents a
13.0 per cent. discount to the closing middle market price of 46.0 pence per
Ordinary Share on 8 August 2023, the last business day prior to the
announcement of the Fundraising;
· The Company has the authority to issue and allot the Firm Placing
Shares, the Subscription Shares and the Retail Offer Shares pursuant to
certain existing shareholder authorities granting such powers to the Directors
at the Company's Annual General Meeting held on 28 February 2023.
· First Admission of the Firm Placing Shares, the Subscription
Shares and the Retail Offer Shares to trading on AIM is expected to occur no
later than at 8.00 a.m. on 15 August 2023.
Use of proceeds
The net proceeds of the Fundraising will be used for:
· Capital expenditure;
· People (engineering, software and business development); and
· Working capital for expansion
General meeting
The EIS/VCT Placing is conditional, inter alia, upon Shareholder approval at
the General Meeting, which will be held at 11.00 a.m. on 29 August 2023 at the
offices of the Company at AMS Technology Park, Billington Road, Burnley,
Lancashire, BB11 5UB.
The Company will shortly be posting a Notice of General Meeting and an
accompanying circular (the "Circular") to existing Shareholders following this
announcement. All relevant documents will also be available to download from
the Company's website at https://www.velocity-composites.com/investors
(https://www.velocity-composites.com/investors/admission-documents/) .
Subject to, inter alia, the passing of Resolutions 1, 2 and 6 at the General
Meeting, Second Admission of the EIS/VCT Placing Shares to trading on AIM is
expected to occur no later than 8.00 a.m. on 6 October 2023.
Andy Beaden, Chairman, Velocity, said
"This well subscribed fundraise is a key step forward in the development of
Velocity into a substantial business. The funds enable us to grow faster and
add additional skilled staff in the aerospace composites market. The Board is
delighted at the positive response received from investors and their backing
of our growth plans at this exciting time."
Enquiries:
Velocity +44 (0) 1282 577577
Andy Beaden, Chairman
Jon Bridges, Chief Executive Officer
Adam Holden, Chief Financial Officer
Cenkos (Nominated Adviser and Broker) +44 (0)20 7397 8900
Katy Birkin
Ben Jeynes
George Lawson
SEC Newgate (Financial PR) +44 (0)7540 106 366
Robin Tozer velocitycomposites@secnewgate.co.uk
George Esmond
Harry Handyside
BACKGROUND TO, AND REASONS FOR, THE FUNDRAISING
Velocity business overview
Velocity manufactures advanced carbon fibre and ancillary raw material kits
for use in the production of aircraft (civil and defence). The Company
operates from a purpose built facility in Burnley, Lancashire and adapted new
build facilities in Fareham, Hampshire as well as the Company's recently
purposely refurbished facility in Tallassee, Alabama in the United States
("Alabama Advanced Manufacturing Facility"). The Company uses its process
knowledge, business processes and proprietary software (which it markets as
Velocity Resource Planning ("VRP") and includes a digital manufacturing cell)
to reduce the amount of material required by its customers and to also reduce
the associated material waste when making aircraft parts. In turn, this
reduces the aircraft manufacturer's costs, with the raw material kits
delivered on time and in the required form to allow Velocity's customers to
more readily meet significant increases in aircraft build rates as forecasted
by Airbus and Boeing.
The challenges for composite part manufacturers when they perform the kitting
process in-house are:
· materials are expensive and on long, fixed lead times
(2 - 6 months) from single source approved suppliers. Any demand changes
during lead times needs to be managed to prevent stock outs or
overstocking/life expiry risk;
· raw material contains uncured resin which has a shelf
life and so required to be kept frozen at -18°C until needed to make shelf
life usable;
· a kit contains multiple materials and so any supply
impact on one material will affect the consumption of the other materials, and
the overall kit availability;
· highly regulated process with global approvals and
batch/life traceability requirements from material receipt to kit delivery;
· material order book needs to match kit demand, with
life and batch traceability needing to be maintained; and
· not considered core business by Velocity's customers
with low appetite for investment.
Velocity offers a more efficient, outsourcing option by:
· investing in advanced, real-time proprietary technology
and digital processes to deliver kits of all raw materials with a focus on
traceability and material efficiency;
· holding all approvals needed from Airbus, Boeing and
the National Aerospace and Defense Contractors ("NADCAP");
· enabling customers to outsource all relevant processes
to Velocity who can deliver one kit, with one batch number with everything
needed to build the part, just in time;
· detailing all cost savings in a 'Total Cost of
Ownership' business case for customers to explain all cost savings compared to
an in-house service;
· allowing customers to focus on their core business of
aerostructure part manufacturing;
· driving customer savings through efficiency and growth
and sales for Velocity; and
· once transitioned, customers face investment, time and
cost to repatriate.
Velocity's technology drives efficient management and use of raw materials,
aimed at providing at least 10% material cost saving and 20% time cost saving
to customers.
The Company's customers include GKN Aerospace, Safran, BAE Systems, Spirit and
Aernnova. In the highly regulated global aerospace industry, the Directors
believe that the provision of its services has barriers to entry including the
Company's global approval with Airbus, Boeing NADCAP. Velocity's main
competitors are customers performing similar services to Velocity, in-house.
By using Velocity's proprietary services and technology, manufacturers reduce
costs and free up resource to focus on their core business.
Composites and Market Drivers
Composite materials comprise of a matrix (thermosetting resin) and a
reinforcement (fibres) which, when combined, produce properties which are
superior to the properties of the individual components. Composites are
lighter, stronger, more corrosion resistant and more fatigue resistant when
compared with metals. In the aerospace sector, this results in an increased
flight range and reduced flying costs. To manufacture parts from composites,
the raw material is produced on rolls of fibres/fabric pre-impregnated with
uncured resin. Complex shapes are cut from the rolls that are defined at the
part design stage and applied to a tool in many layers in order to create a
laminate of uncured, multilayer material. When complete, this is cured under
vacuum to produce a fixed structure in a one-shot process i.e. once cured, the
structure cannot be reworked. Given the uncured nature of the raw material it
has to be batch controlled and stored at -18°C in airtight packaging before
being fully thawed just prior to kit cutting. The materials are specified and
manufactured to order from a single source with lead times of between 4 and 26
weeks meaning the supply chain needs to be managed effectively, and controlled
so that material is available for kit production when needed by the part
manufacturers.
Composites play an important role in light weighting all new aircraft
platforms in both civil and defence. The aerospace sector has a clear strategy
to achieve net zero by 2050 and demand for composites is expected to grow as
older aircraft are retired for a new generation of aircraft including the
A220, A320neo, A330neo, A350 and A380 manufactured by Airbus and the 737max,
777x and 787 aircraft manufactured by Boeing. Currently, only 20% of the
20,000 passenger aircraft in service are regarded as 'new generation' and by
2041, this 'new generation' of passenger aircraft are expected to represent at
least 95% of an expected fleet of 45,000 aircraft.
The Company has a contracted order book for FY24 of new and existing business
in Europe and North America which is expected to be between 2.5 and 3 times
larger than FY22 revenues. Longer-term, carbon fibre composite material usage
is generally expected to grow significantly in civil aircraft and other
transportation modes. The benefits of its relative light weight will play an
important role in reducing the use of fossil fuels through greater fuel
efficiency in conventional jet engine technology. Wider adoption of composite
material technologies will also continue, with light weighting and composite
strength being critical to all electrification, hydrogen fuel developments and
urban vertical mobility transportation. Velocity's strategy is to be a key
advanced manufacturing solutions provider to these important growth markets
and it already has some business in the development stages of these new
initiatives.
As a result, and further to the Company's announcement on 20 December 2022 of
the establishment of the Alabama Advanced Manufacturing Facility, there are
increased levels of international interest in Velocity's services and VRP
digital supply chain system, which form an important part of the Company's
intellectual property. Velocity's engineering staff, along with the
Company's VRP solution, help to eliminate material production wastage, speed
up customer production cycles and increase inventory turns, to enable better
production planning and ordering of expensive materials, which have long lead
times from material manufacturers.
Velocity - recent progress and opportunity
Demand is steadily returning to pre-pandemic levels, building on the momentum
reported in the Company's recent results as the global aerospace industry
recovers and original equipment manufacturer ("OEM") forecast production rates
grow. The Company's UK sales growth was stronger than initially expected,
accelerating in the latter few months of the period ended 30 April 2023 ("H1
FY23").
Contracted business growth will come from the Alabama Advanced Manufacturing
Facility, which is now complete with AS9100 quality approvals granted in
November 2022. In April 2023, the Alabama Advanced Manufacturing Facility
manufactured the first production kits at the site to support the five-year
work package agreement announced in December 2022 with GKN Aerospace ("GKN")
(the "GKN Agreement"). The GKN Agreement is expected to be worth in excess of
US$100 million in revenue over five years, with GKN confirming strong end-user
demand for its parts into 2024.
Significant operational progress has been made at the Alabama Advanced
Manufacturing Facility to qualify it for the new programmes being onboarded
for the GKN Agreement, although sales only started at the end of H1 FY23 with
£0.1m of revenue recognised in the period, due to the rigorous nature of the
First Article Inspection ("FAI") process. The FAI process provided
verification by GKN that the site infrastructure, capability, trained
processes, quality and transfer plans presented by Velocity exceeded the
required standard. The ramp-up of sales to GKN remains on track to achieve
market expectations for FY24, with all the new programmes targeted to be at
the contracted production levels by the start of FY24.
The challenging macroeconomic conditions in H1 FY23 put pressure on margins.
However, by the latter part of H1 FY23, price increases had been successfully
agreed with key customers, and this will provide a larger benefit for H2 FY23.
With much of the Company's revenue secured through pass-through mechanisms on
any raw material price increases, inflation risk impacts added value areas
only, hence the need for the additional price increases. Furthermore,
Velocity's new digital manufacturing cell increased automation and helped
secure the Company's longer-term global margin objectives.
The working capital required to support the GKN Agreement is provided by
supply chain finance lines mandated by GKN, helping to provide a self-funding
mechanism until the profit from the GKN Agreement can then fund the work under
it in the longer-term.
As well as delivering the GKN Agreement, there has been a focus on using the
Alabama Advanced Manufacturing Facility to target the wider US composite
materials market, which is significantly larger than the European market. The
Alabama Advanced Manufacturing Facility has been constructed so that it can
double again in capacity.
Outside the US, there also remain significant opportunities for growth through
international sites of current UK customers and increased usage of the
Company's established European manufacturing capability.
The Company has already contracted UK and US business which, when in full
production (at current OEM run rates), will significantly increase revenue
from current levels. The value of contracted business is currently estimated
to be worth between £30 million to £36 million per annum at OEM planned
production rates. On some programmes, these rates are still below pre-pandemic
production levels and include a growing amount from military programmes, with
additional growth forecasted as NATO countries increase investment in their
defence capabilities. The manufacturing capacity of the current UK and US
manufacturing facilities is being expanded to meet this significant increase
in order book and with the Alabama Advanced Manufacturing Facility setup,
could be doubled again in manufacturing capacity, to meet further new business
and contracted volume growth, of up to £70 million. The establishment of the
Alabama Advanced Manufacturing Facility also demonstrates the Company's proven
ability to add further facilities in other locations, if or when required in
the future. Independent market analysis shows the potential size for
Velocity's services in Europe and the US is significantly larger than current
contracted business and facility capacities.
BACKGROUND TO, AND REASONS FOR, THE CANCELLATION
The Company had accumulated losses of £7,102,000 shown by its audited
accounts for the period to 31 October 2022. The Company's interim accounts for
the six months ended 30 April 2023 show accumulated losses at that date as
£1,539,000 and £9,727,158 standing to the credit of its Share Premium
Account.
The Company's Share Premium Account will be increased on the issue of the Firm
Placing Shares. The exact amount of the Share Premium Account following the
issue of the Firm Placing Shares is expected to be approximately £10,919,658.
It is proposed to cancel the Company's Share Premium Account. This will not
only eliminate the Company's accumulated losses but also create positive
distributable reserves equal to the amount by which the Share Premium Account
cancelled exceeds the accumulated deficit.
Whilst the Board and management remain focussed on the continued execution of
the Company's stated growth strategy as the primary means of delivering
shareholder value in the near term and has no current intention of declaring
dividends, the proposed Cancellation would provide greater scope to do so in
the future if the Board determined that the declaration of dividends were
appropriate.
In addition, the Cancellation would provide the Board with the option of
purchasing the Company's own Ordinary Shares pursuant to the power granted at
the Company's annual general meeting on 28 February 2023, which requires
sufficient distributable reserves to do so.
FURTHER DETAILS ON THE CANCELLATION PROCEDURE
Under the Act, a company limited by shares may reduce its share premium
account, as long as it is not restricted from doing so by its articles of
association, by obtaining the approval of its shareholders by special
resolution and the confirmation of the Court.
The Company is not restricted in any way by its articles of association from
carrying out the cancellation of Share Premium Account and is, therefore,
seeking approval of its shareholders to the Cancellation. Please see the
Notice of General Meeting, which sets out the Reduction Resolution (resolution
6), at the end of the Circular.
If the Shareholders approve the Reduction Resolution at the General Meeting,
the Board intends to make an application to the Court to obtain its approval
to the Cancellation as soon as possible following the General Meeting.
Provisional dates have been obtained for the required Court hearings of the
Company's application, but they are subject to change and dependent on the
Court's timetable. If the hearings go ahead on the provisional dates, the
present timetable provides that the final hearing, at which it is hoped that
the Court will make an order confirming the Cancellation, will take place on
20 September 2023.
Prior to confirming the Cancellation, the Court will need to be satisfied that
the creditors of the Company will not be adversely affected. The Company is
satisfied, having taken advice, that it will be able to satisfy the Court in
that regard.
The Cancellation does not take effect until the Court's order is filed with
and registered by Companies House. The Board intends to file the required
documentation with Companies House as soon as possible following the final
Court hearing and, subject to compliance with all procedural requirements,
Companies House will usually register the documents within 10 Business Days.
On the present timetable, which is subject to change and dependent on the
Court's timetable, this would mean that the Cancellation would take effect on
or before 29 September 2023.
CURRENT TRADING
As detailed in the interim results announcement dated 11 August 2023, the
Board confirmed revenue for H1 FY23 increased to £7.0 million, up 19%
compared to H1 FY22. During H1 FY23, there was significant investment,
including approximately £0.5 million of costs relating to the development of
the Alabama Advanced Manufacturing Facility. As a result, the Company reported
an EBITDA loss of £0.9 million for H1 FY23 (H1 FY22: £0.2 million loss).
These costs should be recovered in H2 FY23 as the Alabama Advanced
Manufacturing Facility increases production towards the contracted full rates.
The Group's cash position, as at 30 April 2023, was £1.2 million and net debt
was £1.8 million.
On 26 July 2023, the Company announced the following Trading Update:
"As previously announced, Velocity is progressing the first article inspection
("FAI") process and production ramp up of the US$100 million, five-year Work
Package Agreement ("the Agreement") announced in December 2022. The
development of the Company's Advanced Manufacturing Facility in Alabama, US
(the "Site") continues with further manufacturing cells being installed, and
additional workers being recruited and trained.
The first two launch programmes for the Customer at the Site, which account
for 49% of expected revenues for the year ending 31 October 2024 ("FY2024"),
have successfully completed the FAI process. The first programme is at volume
production and the second, the largest, is expected to be up to the full rate
of production by August 2023, once the Customer has signed off on the final
FAI kits as they are built into finished parts.
Further to the announcement dated 18 April 2023, an updated FAI timeline for
the remaining programmes has now been agreed with the Customer, with the FAI
process for the third group of programmes (12% of FY24 revenue) expected to
commence in September 2023, the fourth group (26% of FY24 revenue) in October
2023, and the fifth group (8% of FY24 revenue) in March 2024.
The FAI process is extremely complicated and has required extensive time and
work on both sides. The Customer and Velocity are in discussions for the
five-year term of the Agreement announced in December 2022, with the term
initially expected to commence in March 2023, to now start on 1 January 2024,
when all the critical kits have been outsourced. All other contractual terms,
including the full-term revenue under the Agreement of US$100m, are expected
to remain unchanged, at the underlying base of US$20m per annum based on
current programme production rates. Using current exchange rates of
GBP1:US$1.30, this is worth approximately £15.4m of revenue to Velocity for
each year of the Agreement.
As a result of the updated FAI timeline, revenue that was expected to be
realised in the ramp up stage of production in the US for the year ending 31
October 2023 ("FY2023") has been reduced to £2.2m from £5.0m. However, any
FY2023 revenue achieved under the Agreement is in addition to the US$20m per
annum for the five-year period of the Agreement and therefore has no
commercial impact on the value of that contract long term. Once the programme
transfer from the Customer to Velocity is completed, revenues under the
Agreement will be more predictable, as they will follow the platform run rates
required by the Customer.
For FY2023, with the adjustment to FAI process sales estimates and changes in
exchange rates, the Group is now expecting to report revenue of between £15m
to £17m, and an EBITDA loss of between £1.2m to £1.6m (subject to
finalising the capitalisation of certain costs in the US).
In FY2024, once the contract extension is in place, the Agreement term is
expected to commence at volume rates in January 2024, with a renewal due by
the end of calendar year 2028, though the contract can be subject to further
annual extensions. As a result, FY2024 revenue is expected to be between £30m
and £36m, and EBITDA profit of between £1.7m to £2.5m, including additional
investment to fund further growth opportunities as they emerge.
The Board is pleased to announce that it is in advanced discussions with a
large, global Tier 1 composites manufacturer with multiple sites in the US on
another agreement. Further announcements will be made, as appropriate.
In the UK, demand is growing. In FY2023, growth of at least 15% is expected
compared to FY2022. In FY2024, Velocity is planning for extra work from a UK
manufacturer seeking to expand its capacity to meet growing demand. With
expected UK growth and the start of the full rate production under the
Agreement in the US, the Company can deliver profitability in FY2024.
To accommodate the planned growth in the US and the UK, the Company is pleased
to announce the appointment of Kevin Hickey as Group Chief Operating Officer
(a non-Board position). Kevin previously worked at the Company between early
2017 and late 2020, where he was responsible for the establishment, ramp up
and ongoing management of the Company's production facility in Fareham, UK.
Prior to this, Kevin held a range of senior operational management roles both
in the UK and internationally at GE Aviation and brings a wealth of experience
in the industry and the Company's processes as Velocity's existing facilities
grow, and new facilities are established."
USE OF PROCEEDS
The Company has conditionally raised gross proceeds of approximately £6.20
million by way of the Placing and the Subscription, and any funds raised in
the REX Retail Offer will be in addition to this amount. The net proceeds of
the Placing and the Subscription will be used as follows:
Use of funds £m
CAPEX 1.2
People (engineering, software and business development) 1.5
Working capital for expansion 3.0
Total 5.7
Additional amounts raised from the REX Retail Offer will be used to further
strengthen the balance sheet.
THE PLACING
The Company has conditionally raised gross proceeds of £5.76 million through
a placing of 14,400,000 Placing Shares at the Issue Price with institutional
and other investors, comprising 1,900,000 Firm Placing Shares and 12,500,000
EIS/VCT Placing Shares. The Issue Price represents a discount of 13.0 per
cent. to the closing mid-market price of 46.0 pence per Ordinary Share on 2023
(being the last practicable date prior to the date of the announcement 8
August of the Fundraising). The Placing Shares represent 39.0 per cent. of the
Existing Ordinary Shares and will, when issued, rank pari passu with the
Existing Ordinary Shares.
As part of the Placing, the Company is seeking to raise funds through the
EIS/VCT Placing by the issue of the EIS/VCT Placing Shares to investors either
seeking the benefit of relief under the EIS or seeking the benefit of tax
relief through VCTs. The EIS/VCT Placing Shares will be issued to the relevant
Placees at Second Admission so that Placees investing as part of the EIS/VCT
Placing shall be able to benefit from tax advantages available to Venture
Capital Trusts and pursuant to the Enterprise Investment Scheme as governed by
HMRC.
The Company has applied for, and received on 10 July 2023, advanced assurance
from HMRC that the EIS/VCT Placing Shares will be able to benefit from the tax
advantages available for the purposes of the Enterprise Investment Scheme,
subject to the Company first undertaking the Cancellation such that the
accumulated losses become less than half of the subscribed share capital. In
addition, the Company has received advice that, based on the EIS advance
assurance received, subject to certain conditions, including the Cancellation
taking place before VCTs make their investment, a subscription for EIS/VCT
Placing Shares by a VCT would be regarded as qualifying holdings for the
purposes of Part 6 of the Income Tax Act 2007 and would be regarded as
"eligible shares" as defined in section 285(3A) of that Act, provided that the
investment by the VCT (including any existing investment in the Company) will
not exceed 15% by value of its total investments at the date of the
investment.
However, none of the Company, the Directors or any of the Company's advisers
give any warranty or undertaking that reliefs will be available and not
withdrawn at a later date.
Pursuant to a placing agreement between the Company and Cenkos dated 9 August
2023 (the "Placing Agreement"), Cenkos has conditionally agreed to use its
reasonable endeavours to procure subscribers for the Placing Shares at the
Issue Price. Cenkos has conditionally placed the Placing Shares with certain
new and existing institutional and other investors at the Issue Price.
In addition to the Placing, the Company has conditionally raised £0.44
million by the issue of 1,100,000 new Ordinary Shares at the Issue Price by
way of a direct subscription by a certain private subscriber. The Subscription
Shares represent 3.0 per cent. of the Existing Ordinary Shares and will, when
issued, rank pari passu with the Existing Ordinary Shares.
The Placing has not been underwritten by Cenkos or any other party. The
Company has the authority to issue and allot the Firm Placing Shares and the
Subscription Shares pursuant to certain existing shareholder authorities
granting such powers to the Directors at the Company's annual general meeting
held on 28 February 2023.
The Firm Placing and the Subscription are conditional, inter alia, on:
· the Placing Agreement not having been terminated in accordance
with its terms prior to First Admission; and
· First Admission of the Firm Placing Shares, the Subscription
Shares and the Retail Offer Shares becoming effective by no later than 8.00
a.m. on 15 August 2023 or such later time and/or date as the Company and
Cenkos may agree (being no later than 8.00 a.m. on 31 August 2023).
The EIS/VCT Placing is conditional, inter alia, on:
· the Placing Agreement not having been terminated in accordance
with its terms prior to Second Admission;
· First Admission having taken place;
· Resolutions 1, 2 and 6 (including the Reduction Resolution) being
passed which will provide shareholder authority for the issue by the Company
of the EIS/VCT Placing Shares on a non-pre-emptive basis; and
· Admission of the EIS/VCT Placing Shares becoming effective by no
later than 8.00 a.m. on 6 October 2023 or such later time and/or date as the
Company and Cenkos may agree (being no later than 8.00 a.m. on 20 October
2023).
Shareholders should note that the expected dates for the confirmation of the
Cancellation by the Court, the Cancellation becoming effective and Second
Admission are based on provisional dates that have been obtained for the
required Court hearings of the Company's application. These provisional
hearing dates are subject to change and dependent on the Court's timetable.
Completion of the Retail Offer is conditional, inter alia, upon the completion
of the Firm Placing and the Subscription. Completion of the Firm Placing and
Subscription are not conditional on the completion of the Retail Offer.
Completion of the Firm Placing and the Subscription are inter-conditional.
The Placing Agreement contains customary warranties given by the Company in
favour of Cenkos in relation to, amongst other things, the accuracy of the
information in the Circular and other matters relating to the Group and its
business. In addition, the Company has agreed to indemnify Cenkos (and their
respective affiliates) in relation to certain liabilities which they may incur
in respect of the Placing. Under the Placing Agreement, the Company has agreed
to pay to Cenkos a fixed sum and/or commissions based on the aggregate value
of the Placing, and the costs and expenses incurred in relation to the
Placing.
Cenkos has the right to terminate the Placing Agreement in certain
circumstances prior to First Admission and/or Second Admission, in particular,
in the event of breach of the warranties, the occurrence of a material adverse
change or if the Placing Agreement does not become unconditional.
THE REX RETAIL OFFER
The Company has separately agreed to use the REX Platform to undertake an
intermediaries offer of New Ordinary Shares at the Issue Price, alongside the
Placing, to existing retail investors of the Company. For the avoidance of
doubt, the REX Retail Offer Shares are not part of the Placing and do not form
part of the Placing Shares.
In recognition of their continued support to the Company, the Board believes
that the REX Retail Offer provides the Company's longstanding and supportive
retail Shareholders with an opportunity to participate in the Fundraising.
Assuming full take up for an aggregate of up to 1,250,000 REX Retail Shares,
the REX Retail Offer will raise gross proceeds of up to approximately £0.5
million at the Issue Price.
Pursuant to the terms of the Intermediaries Agreement, the Company has made
the REX Retail Offer to holders of Existing Ordinary Shares only through
Intermediaries via the REX Platform. The obligations of the Intermediaries
under the Intermediaries Agreement are conditional in all respects upon: (a)
the Placing Agreement becoming unconditional and not having been terminated in
accordance with its terms; and (b) Admission. Under the Intermediaries
Agreement, the Company has agreed to pay the provider of the REX Platform and
the Intermediaries fees based on the aggregate value of the REX Retail Offer.
It is a term of the REX Retail Offer that the total value of the REX Retail
Offer Shares available for subscription at the Issue Price does not exceed the
Sterling equivalent of €8 million.
The REX Retail Offer has not been underwritten and has been offered in the
United Kingdom under the exemption against the need to publish a prospectus
approved by the FCA in section 86(1)(e) of FSMA. The REX Retail Offer has not
been made into any jurisdiction other than the United Kingdom.
ADMISSION, SETTLEMENT, DEALINGS AND TOTAL VOTING RIGHTS
The New Ordinary Shares will, when issued, be credited as fully paid up and
will rank pari passu in all respects with the Existing Ordinary Shares,
including the right to receive all dividends and other distributions declared,
made or paid on or in respect of the Ordinary Shares after the date of issue
of he New Ordinary Shares, and will on issue be free of all claims, liens,
charges, encumbrances and equities.
Application will be made to the London Stock Exchange for the admission of the
New Ordinary Shares to trading on AIM. First Admission of the Firm Placing
Shares, the Subscription Shares and the Retail Offer Shares to trading on AIM
is expected to occur at 8.00 a.m. on 15 August 2023 (or such later times(s)
and/or date(s) as Cenkos and the Company may agree).
Second Admission of the EIS/VCT Placing Shares to trading on AIM is expected
to occur at 8.00 a.m. on 6 October 2023 (or such later times(s) and/or date(s)
as Cenkos and the Company may agree).
Following First Admission, the total number of Ordinary Shares in the capital
of the Company in issue (assuming full take up of the Retail Offer) is
expected to be 41,170,785 with each Ordinary Share carrying the right to one
vote. There are no Ordinary Shares held in treasury and therefore the total
number of voting rights in the Company is expected to be 41,170,785. The above
figure may be used by Shareholders in the Company as the denominator for the
calculations by which they will determine if they are required to notify their
interest in, or a change to their interest in, the share capital of the
Company under the FCA's Disclosure, Guidance and Transparency Rules.
DIRECTORS' RECOMMENDATION AND IRREVOCABLE UNDERTAKINGS
The Directors consider the Fundraising and Cancellation to be in the best
interests of the Company and its Shareholders as a whole. Accordingly, the
Directors recommend unanimously that Shareholders vote in favour of the
Resolutions to be proposed at the General Meeting, as they intend to do in
respect of their own shareholdings, which total 6,084,404 Existing Ordinary
Shares, representing approximately 16.48 per cent. of the Existing Ordinary
Shares.
The Company has received irrevocable undertakings to vote in favour of the
Resolutions in respect of, in aggregate, 15,021,315 Ordinary Shares,
representing approximately 40.69 per cent. of the Existing Ordinary Shares.
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
2023
Announcement of the Placing and publication and posting of this document and 7.00 a.m. on 9 August
the Form of Proxy
Announcement of the REX Retail Offer 7.01 a.m. on 9 August
Announcement of the results of the Retail Offer 14 August
First Admission effective and dealings in the Firm Placing Shares, 8.00 a.m. on 15 August
Subscription Shares and Retail Offer Shares expected to commence on AIM
CREST accounts credited in respect of the Firm Placing Shares, Subscription 15 August
Shares and Retail Offer Shares to be held in uncertificated form (subject to
First Admission)
Where applicable, expected date for dispatch of definitive share certificates within 10 Business Days following First Admission
for Firm Placing Shares, Subscription Shares and Retail Offer Shares to be
held in certificated form
Latest time and date for receipt of completed Forms of Proxy and receipt of 11.00 a.m. on 24 August
electronic proxy appointments via the CREST system
General Meeting 11.00 a.m. on 29 August
Announcement of result of General Meeting 29 August
Expected date for final hearing and confirmation of the Cancellation by the 20 September
Court
Expected date that the Cancellation become effective 29 September
Second Admission effective and dealings in the EIS/VCT Placing Shares expected 8.00 a.m. on 6 October
to commence on AIM
CREST accounts credited in respect of the EIS/VCT Placing Shares to be held in 6 October
uncertificated form (subject to Second Admission)
Where applicable, expected date for dispatch of definitive share certificates within 10 Business Days following Second Admission
for EIS/VCT Placing Shares to be held in certificated form
DEFINITIONS AND GLOSSARY
The following definitions and glossary apply throughout the Circular
(including the Notice of General Meeting) and the Form of Proxy unless the
context otherwise requires:
"Act" the Companies Act 2006 (as amended);
"Admission" means First Admission and Second Admission;
"AIM" the market of that name operated by the London Stock Exchange;
"AIM Rules for Companies" the AIM Rules for Companies, as published and amended from time to time by the
London Stock Exchange;
"Australia" the Commonwealth of Australia, its states, territories and possessions;
"Board" or "Directors" the directors of the Company as at the date of the Circular, whose names are
set out on page 6 of the Circular;
"Business Day" any day (excluding Saturdays and Sundays) on which banks are open in London
for normal banking business and the London Stock Exchange is open for trading;
"Canada" Canada, its provinces, territories and all areas subject to its jurisdiction
and any political sub-division thereof;
"Cancellation" the proposed cancellation of the Company's capital by the cancellation of the
Share Premium Account, as described in the Circular;
"Cenkos Securities" Cenkos Securities plc, a public limited company incorporated in England and
Wales under registered number 05210733 and having its registered office at
6.7.8 Tokenhouse Yard, London, EC2R 7AS, the Company's nominated adviser and
broker;
"certificated" or "in certificated form" an ordinary share recorded on a company's share register as being held in
certificated form (namely, not in CREST);
"Chairman" the chairman of the Board;
"Circular" the circular posted to Shareholders on 9 August 2023;
"Company" or "Velocity" Velocity Composites plc, a company registered in England and Wales with
registered number 06389233;
"Court" the High Court of England and Wales;
"CREST" the relevant system (as defined in the CREST Regulations) for paperless
settlement of share transfers and holding shares in uncertificated form, in
respect of which Euroclear UK & International is the operator (as defined
in the CREST Regulations);
"CREST Manual" the rules governing the operation of CREST as published by Euroclear;
"CREST member" a person who has been admitted by Euroclear as a system member (as defined in
the CREST Regulations);
"CREST participant" a person who is, in relation to CREST, a system-participant (as defined in the
CREST Regulations);
"CREST participant ID" shall have the meaning given in the CREST Manual;
"CREST Regulations" the Uncertificated Securities Regulations 2001 (SI 2001/3755) including any
enactment or subordinate legislation which amends or supersedes those
regulations and any applicable rules made under those regulations or any such
enactment or subordinate legislation for the time being in force;
"CREST sponsor" a CREST participant admitted to CREST as a CREST sponsor;
"CREST sponsored member" a CREST member admitted to CREST as a CREST sponsored member;
"Disclosure, Guidance and Transparency Rules" the disclosure, guidance and transparency rules made by the FCA under Part V
of the FSMA from time to time;
"EIS" Enterprise Investment Scheme;
"EIS/VCT Placing" the conditional placing of the EIS/VCT Placing Shares at the Issue Price by
Cenkos as described in the Circular;
"EIS/VCT Placing Shares" 12,500,000 new Ordinary Shares to be issued pursuant to the EIS/VCT Placing,
to EIS or VCT investors;
"Enlarged Share Capital" the entire issued share capital of the Company on Second Admission following
completion of the Fundraising and assuming full take up under the Retail
Offer;
"Euroclear" Euroclear UK & International Limited;
"EUWA" European Union (Withdrawal) Act 2018 (as amended);
"Existing Ordinary Shares" the 36,920,785 Ordinary Shares in issue at the date of the Circular;
"FCA" the UK Financial Conduct Authority;
"Firm Placing" the conditional placing of the Firm Placing Shares at the Issue Price by
Cenkos as described in the Circular;
"Firm Placing Shares" 1,900,000 new Ordinary Shares to be issued pursuant to the Firm Placing, under
the Company's existing authorities granted at the Company's Annual General
Meeting on 28 February 2023;
"First Admission" admission of the Firm Placing Shares, the Subscription Shares and the Retail
Offer Shares to trading on AIM;
"First Article Inspection" a supplier surveillance process which provides for the verification of a
supplier's first article, including physical verification of individual
characteristics as deemed necessary by the manufacturer, to ensure all
engineering, design and specification requirements have been fulfilled;
"Form of Proxy" the form of proxy for use by Shareholders in relation to the General Meeting,
enclosed with the Circular;
"FSMA" the Financial Services and Markets Act 2000 (as amended);
"Fundraising" together, the Placing, Subscription and the Retail Offer;
"FY22" the financial year ended 31 October 2022 of the Company;
"FY23" the financial year ended 31 October 2023 of the Company;
"FY24" the financial year ended 31 October 2024 of the Company;
"General Meeting" or "GM" the General Meeting of the Company convened for 11.00 a.m. on 29 August 2023
or any adjournment thereof, notice of which is set out at the end of the
Circular;
"GKN Agreement" the five-year work package agreement announced in December 2022 between the
Company and GKN Aerospace expected to be worth in excess of US$100 million in
revenue over five years;
"Group" the Company and its subsidiaries (as defined in the Act);
"HMRC" HM Revenue & Customs;
"Intermediaries" any financial intermediary appointed by the Company in connection with the REX
Retail Offer and "Intermediary" shall mean any one of them;
"Intermediary Agreements" the agreements entered between each of the Intermediaries, the Company and
Peel Hunt LLP containing terms and conditions in relation to the REX Retail
Offer;
"Issue Price" 40 pence per New Ordinary Share;
"ITA" UK Income Tax Act 2007;
"Japan" Japan, its cities and prefectures, territories and possessions;
"London Stock Exchange" London Stock Exchange Group plc;
"New Ordinary Shares" the Placing Shares, Subscription Shares and/or the Retail Offer Shares (as the
context permits);
"Notice of General Meeting" the notice convening the General Meeting as set out at the end of the
Circular;
"Official List" the Official List of the FCA;
"Ordinary Shares" the ordinary shares of 0.25p each in the capital of the Company in issue from
time to time;
"PDMR" a person discharging managerial responsibilities as defined in Article 3(25)
of UK MAR;
"Placees" subscribers for the Placing Shares;
"Placing" the conditional placing of the Placing Shares at the Issue Price by Cenkos as
described in the Circular, comprising the Firm Placing and the EIS/VCT
Placing;
"Placing Agreement" the conditional placing agreement dated 9 August 2023 between Cenkos and the
Company, details of which are set out in paragraph 7 of the Circular;
"Placing Shares" 14,400,000 new Ordinary Shares to be issued, in aggregate, pursuant to the
Placing, comprising 1,900,000 Firm Placing Shares and 12,500,000 EIS/VCT
Placing Shares;
"Prospectus Regulation Rules" the prospectus regulation rules of the Financial Conduct Authority made under
Part VI of FSMA;
"Prospectus Rules" the rules made by the FCA under Part VI of FSMA in relation to offers of
transferable securities to the public and admission of transferable securities
to trading on a regulated market;
"Reduction Resolution" the special resolution (resolution 6) relating to the Cancellation to be
proposed at the General Meeting;
"Registrar" Equiniti Limited, the Company's registrar;
"Regulatory Information Service" a service approved by the FCA for the distribution to the public of regulatory
announcements and included within the list maintained on the FCA's website;
"Republic of South Africa" the Republic of South Africa, its territories and possessions;
"Resolutions" the resolutions to be proposed at the General Meeting, details of which are
set out in the Notice of General Meeting, and each being a "Resolution";
"Retail Offer" or the proposed offer of REX Retail Offer Shares having an aggregate value, at
the Issue Price, of up to £0.5 million to retail investors who are
"REX Retail Offer" Shareholders by the Company through Intermediaries using the REX Platform and
on the basis of the terms and conditions set out in the REX Retail Offer
Announcement and Intermediaries Agreements;
"REX Platform" Peel Hunt's Retail Capital Markets platform;
"REX Retail Offer Announcement" the announcement dated 9 August 2023 giving details, inter alia, of the REX
Retail Offer;
"REX Retail Offer Shares" or "Retail Offer Shares" the up to 1,250,000 new Ordinary Shares to be issued for cash at the Issue
Price, pursuant to the REX Retail Offer;
"Second Admission" admission of the EIS/VCT Placing Shares to trading on AIM;
"Securities Act" US Securities Act of 1933 (as amended);
"Shareholders" the holders of Existing Ordinary Shares, and the term "Shareholder" shall be
construed accordingly;
"Share Options" share options granted under the Velocity Composites plc Enterprise Management
Incentive and Unapproved Scheme, to subscribe for new Ordinary Shares;
"Share Premium Account" the share premium account of the Company from time to time (including as
enlarged by the issue of the Firm Placing Shares and the Subscription Shares);
"Subscription" the subscription by certain private subscribers for the Subscription Shares at
the Issue Price;
"Subscription Shares" the 1,100,000 new Ordinary Shares to be issued and allotted pursuant to the
Subscription;
"uncertificated" or "uncertificated form" means recorded on the relevant register or other record of the share or other
security concerned as being held in uncertificated form in CREST, and title
to which, by virtue of the CREST Regulations, may be transferred by means of
CREST;
"United Kingdom" or "UK" the United Kingdom of Great Britain and Northern Ireland;
"United States" or "US" the United States of America, each State thereof, its territories and
possessions (including the District of Columbia) and all other areas subject
to its jurisdiction;
"USE" Unmatched Stock Event;
"USE Instructions" an Unmatched Stock Event instruction in CREST;
"US Facility" Velocity's new advanced manufacturing facility in Tallassee, Alabama, United
States;
"£", "pounds sterling", "sterling" "pence" or "p" the lawful currency of the United Kingdom;
"US dollar" or "US$" the lawful currency of the United States; and
"VCT" Venture Capital Trust.
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