REG - Velocity Composites - Trading Update & Notice of Results

Velocity CompositesAnnouncement

24/05/2023 07:00

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RNS Number : 4205A  Velocity Composites PLC  24 May 2023

 

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24 May 2023

 

VELOCITY COMPOSITES PLC

("Velocity or the "Company")

 

Trading Update & Notice of Results

 

Trading in line with expectations as US facility begins manufacturing kits

 

Velocity Composites plc (AIM: VEL), the leading supplier of composite material
kits to aerospace and other high-performance manufacturers, provides the
following trading update for the six months ended 30 April 2023 ("H1 FY23").
The Company expects to publish its H1 FY23 results on 11 July 2023.

 

The Board is pleased to confirm that trading has been in line with
expectations for the six months ended 30 April 2023. Sales are expected to be
£7.0 million, up 15% compared to H1 FY22. 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.

 

Growth will increasingly come from Velocity's new advanced manufacturing
facility in Tallassee, Alabama, which is now complete with AS9100 quality
approvals granted (the "US Facility"). In April 2023, the US Facility
manufactured the first production kits at the site to support the five-year
Work Package Agreement announced in December 2022 with GKN Aerospace (the
"Customer"). The agreement with the Customer is expected to be worth in excess
of US$100 million in revenue over five years, with the Customer confirming
strong end-user demand for its parts into 2024.

 

Significant operational progress has been made in the US to qualify the new
programmes being onboarded in the GKN Aerospace contract, although sales only
started at the end of H1 FY23 with £0.1m of revenue recognised in the period.
This was due to the rigorous nature of the First Article Inspection process.
The ramp-up of US sales remains on track to achieve the Company's FY23
objectives, with all the new programmes expected to be at the contracted
production levels by year-end.

 

There has been significant investment in developing the US Facility, and
approximately £0.4m of short-term overheads, including travel, operational
management, and engineering support have been incurred. As a result, reported
EBITDA is expected to be a loss of £0.9m for H1 FY23 (H1 FY22: £0.2m loss),
These costs should be recovered in H2 FY23 as the US Facility increases
production towards the contracted full rates.

 

The challenging macroeconomic conditions in H1 FY23 has put pressure on
margins. However, by the latter part of the reporting period, price increases
had been successfully agreed with key customers, and this will provide a
larger benefit for the next half year. 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 longer-term
global margin objectives.

 

The Group's cash position, as at 30 April 2023, was £1.2m and its net debt
was £1.8m. The GKN Aerospace contract's working capital is supported by
supply chain finance lines provided by the Customer, 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.

 

Outlook

 

As well as delivering the GKN Aerospace contract, there has been a focus on
using the US Facility to target the US composite materials market, which is
significantly larger than the market in Europe. The US Facility has been
constructed so it can double again in capacity.

 

Outside the US, there also remain significant opportunities for European
growth through current UK customers and increased usage of our 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 commercial value of contracted business is currently
estimated to be worth between £30m to £36m 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 current UK and US manufacturing facilities are being
expanded to meet this rapid increase in order book and with the new US
facility setup, can be doubled again in capacity, to meet further new business
and contracted volumed growth, of up to £70m. The US facility build also
demonstrates the Company's proven ability to then 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 US is
significantly larger than current contracted business and facility capacities.

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. Wider adoption of composite material
technologies will also continue, with lightweighting 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 already has some business in the development stages of these new
initiatives.

 

As a result, there are high levels of global interest in Velocity's services
and development of its own Velocity Resource Planning ("VRP") digitalised
supply chain services, which form an important part of our IP.  Velocity
engineering staff, along with our VRP solution, help eliminate most material
production wastage, speed up customer production cycles and increase inventory
turns, and enable better production planning and ordering of expensive
materials, which have long lead times from material manufacturers.

 

Andy Beaden, Chairman, Velocity, said: "The recent start of manufacturing at
our new facility in Alabama was a major milestone and demonstrated the
significant progress we have made over the last 12 months.  We have trebled
the value of commercial business under contract compared to this time last
year. The global aerospace industry continues to recover, and alongside our
new US base, we anticipate significant revenue growth in the coming years,
particularly in North America.

 

"Furthermore, the global focus on Net Zero brings the need for more and more
industries to make greater use of composite material technologies. This
creates more opportunities for the business and we are excited about the
Company's long-term prospects."

 

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

 

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