REG - Velocity Composites - Trading Update

Velocity CompositesAnnouncement

26/07/2023 07:00

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RNS Number : 1751H  Velocity Composites PLC  26 July 2023

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 26 July 2023

 

VELOCITY COMPOSITES PLC

("Velocity, the "Company" or the "Group")

 

Trading Update

 

Velocity Composites plc (AIM: VEL), the leading supplier of composite material
kits to aerospace and other high-performance manufacturers, provides 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.

 

Andy Beaden, Chairman, Velocity, said:

 

"Velocity is focused on successfully completing the FAI with the Customer,
enabling it to achieve operational success in its projects. Collaboration with
the Customer has been close knit, working together on what is one of the
largest composite kit supply FAI processes ever conducted in the industry.

 

The last year has been one of transition and investment. The investments we
have made will be repaid many times through the new contracted business we
have already won and the new business we can now target.  In the next
financial year, we will see a transformational upturn in annual revenue at
Velocity. We have built a significant asset in the US in terms of production
capability and engineering resource, which with organic growth in the UK, will
make the Company profitable.

 

We will continue to invest in skills and technical engineering abilities to
drive business development and project implementation. The appointment of
Kevin Hickey as COO will help the team in our next exciting growth phase. We
remain confident that more contracts can be won as the use of composites grows
as part of the next generation of aircraft, and as other industries look to
use composites to deliver their net zero goals. We expect our investment in
people and technology to be fully rewarded in the coming years as we expand at
scale."

 

Enquiries:

 Velocity                                   Tel: +44 (0) 1282 577577
 Andy Beaden, Chairman

 Jon Bridges, Chief Executive Officer

 Adam Holden, Chief Financial Officer

 Cenkos (Nominated Adviser and Broker)      Tel: +44 (0)20 7397 8900
 Katy Birkin

 Ben Jeynes

 George Lawson

 SEC Newgate (Financial Communications)     Tel: +44 (0)7540 106 366

 Robin Tozer                                Email: velocity@secnewgate.co.uk

 George Esmond

 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.

 

 

 

 

 

 

 

 

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