TIDMVEL
RNS Number : 0713B
Velocity Composites PLC
28 January 2020
28 January 2020
VELOCITY COMPOSITES PLC
("Velocity", the "Company" or the "Group")
AUDITED FINAL RESULTS FOR THE YEARED 31 OCTOBER 2019
Velocity Composites plc (AIM: VEL.L), the leading supplier of
advanced composite material kits to the aerospace market, is
pleased to report its audited results for the year ended 31 October
2019 ("FY19").
Highlights
-- Revenue stable at GBP24.3m (FY18: GBP24.5m)
-- Gross margin improved significantly to 21.7% for FY19
(FY18: 18.3%) through continued operational focus
-- Operating loss for FY19 of GBP0.6m (FY18: Loss GBP1.1m),
after charging GBP0.7m of exceptional administrative expenses
-- Adjusted EBITDA* for FY19 of GBP0.6m (FY18: Loss GBP0.2m)
achieved through improvement in gross margin combined
with cost management
-- Loss per ordinary share (Basic) of 1.77p (FY18: Loss 2.78p)
-- Cash at Bank at 31 October 2019 of GBP3.4m (FY18: GBP4.7m
and GBP4.1m after invoice discounting) including GBP1.6m
of EIS funds earmarked for investment in new production
facilities in the USA and Europe and the Group's new R&D
centre
-- Long Term Agreement extension agreed with largest customer
to provide composite material kits across the Airbus range
of aircraft and regional business jets
-- Boeing approval to produce structural composite kits for
its single aisle narrow body jet platform and extension
to Long Term Agreement
-- Appointment of Andy Beaden as Chairman and Rob Soen as
an Independent Non-Executive Director
-- Reappointment of Jon Bridges, founder and Chief Executive
Officer, to the Velocity Board
*Adjusted Earnings before Interest, Tax, Depreciation and
Amortisation ("EBITDA") adjusted for exceptional administrative
costs and share based payment charges.
Andy Beaden, Chairman of Velocity, said:
"I am pleased to report our results for the year ended 31
October 2019 with stable revenues at GBP24.3m, a significant
improvement in operational performance, and a cash at Bank balance
of GBP3.4m. My first months at Velocity have more than confirmed
this is an exciting and ambitious business with talented staff who
are focused on creating shareholder value through revenue growth
and lean manufacturing-based operational excellence."
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014.
Enquiries:
Velocity Composites plc
Andy Beaden, Chairman
Jon Bridges, Chief Executive Officer +44 (0) 1282 577577
Cenkos Securities (Nominated Adviser
and Broker)
Russell Cook / Ben Jeynes (Corporate
Finance) +44 (0) 20 7397 4000
Belvedere Communications (Financial VelocityPR@belvederpr.com
PR) +44 (0) 7715 769 078
Cat Valentine +44 (0) 7967 816 525
Keeley Clarke +44 (0) 7407 023 147
Llew Angus
About Us
Velocity Composites is a manufacturer of composite material kits
for the aerospace industry, delivering engineered kits for its
customers to build component parts. The Company's clients include
multi-national manufacturers of composite parts and assemblies, who
in turn deliver to the world's leading civil and military aircraft
manufacturers. The Airbus A330, A350, A380, Eurofighter Typhoon,
F35 Joint Strike Fighter and Bell Boeing V22 Osprey are all
constructed using parts manufactured from Velocity's kits. The
Company's business model reduces the operating costs of preparing
composite materials ahead of their usage in the construction of an
aircraft part and as such, its offering is disposed to being
self-financing for aircraft parts' manufacturers. Velocity
Composites also exports to Denmark, France, and Belgium.
CHAIRMAN'S REPORT
Introduction
This is my first report to shareholders since taking over as the
Chairman of the Board of Directors of Velocity Composites plc. I am
pleased to report that my first months at Velocity have more than
confirmed that this is an exciting and ambitious business with
talented staff who are focused on creating shareholder value
through revenue growth and lean manufacturing-based operational
excellence.
Revenue for the 12 months ended 31 October 2019 was broadly in
line with the previous year at GBP24.3m (FY18: GBP24.5m), however,
gross margin improved significantly to 21.7% (FY18: 18.3%) through
a continued focus on operational excellence. The improvement on
gross margins, combined with careful cost management, enabled the
Group to achieve Adjusted EBITDA of GBP0.6m (FY18: loss GBP0.2m).
The reported operating loss of GBP0.6m (FY18: loss GBP1.1m)
includes an exceptional administrative charge of GBP0.7m, without
which the Group would have achieved breakeven.
Board and Management
Rob Soen and I were appointed directors of the Company in July,
following a period of significant disruption at board level. Mark
Mills, Brian Tenner, Meera Parma and Alan Kershaw, all resigned as
directors during the last year, along with Alan Kershaw, resigning
as Company Secretary. We also saw the departure of two of
Velocity's founders, Gerry Johnson and Chris Banks, from their
roles as executive managers. Both Gerry and Chris are deeply
respected in the business for what they achieved establishing the
business from scratch alongside Jon Bridges and other early stage
employees. The Board thanks everyone who has left the Company
during the year and wishes them well.
Since joining the Board, Rob and I have set out to stabilise the
leadership of Velocity, re-establish good corporate governance,
evaluate the strategy with the input of key management and assess
the health and status of the business. Jon Bridges, who was acting
CEO in a non-board capacity, was immediately reappointed to the
Board. We believe it is vital that senior management are
represented directly at board level. Rob and I have now formed a
close working relationship with the senior management team, with
whom we have regular direct consultation and open communication.
This has helped restore and build confidence within the business
and empower all staff to achieve the future growth and operational
targets our stakeholders have been supporting for some time.
Equally important is strengthening the new Board further. We
have begun the search for a new suitably experienced independent
Non-Executive Director. This process is underway, and we look
forward to updating shareholders in due course. This year, we have
benefited from a very experienced interim CFO, Andrew Hebb. It is
our intention to hire a new permanent Chief Financial Officer in
2020 to continue his good work developing our financial systems and
people.
Strategy
The strategy has been re-aligned with a new business development
plan focused on key larger customer opportunities, deeper
development of partnering within the supply chain and exploiting
multiple opportunities available through penetration into the US
and mainland European aerospace markets. Asia remains a longer-term
target for growth. Europe remains our home base, however, it is
entering the US market where Velocity's best in class
value-engineered kitting services can immediately add value in the
composite aerospace sector. This is a very large market and our
entry strategy is to work with our world class partner, Wesco, and
leverage our own blue-chip customer base, established over many
years within Europe.
Our year end cash balance of GBP3.4m, combined with our Invoice
Discounting facility of up to GBP5.5m, gives us the financial
resources necessary to make the next stage investments in
facilities, people and working capital.
Growth requires investment in both facilities and, critically,
business development and operations people and the potential for
high returns on those investments is tangible. New satellite
facilities run on a lean-manufacturing basis and, when filled with
new business, will generate a significant return on capital
employed. We are also developing a number of approaches for
deploying our services on a flexible basis, which will include
customer onsite kitting, as well as from separate facilities
nearby. The strategic driver for this approach is to help the
customer ensure maximum waste reduction, inventory optimisation and
labour efficiency, but it will be implemented with an eye of
driving return on capital too.
Our sales cycle is often an extended one. A detailed
professional approach is required to pitch and agree the gains
customers can achieve through our services, followed by the
onboarding process and regulatory approval maintenance. The
benefits of this approach are longer term contracts, visibility on
demand and barriers to entry for a competitor.
As part of our refreshed strategy, technology will play a
central role in advancing operational excellence and, critically,
in improving customer service. We continue to invest in the
software platform we use for our nesting calculations, which in
turn enables us to reduce wastage in materials. We also need to
develop systems which support our international expansion and
multi-site approach. We are investing in our research and
development capabilities to improve further our offering to
customers and support their growth ambitions.
Summary and Outlook
The new financial year has started well, and the team has made
good progress strategically with milestones being achieved around
contract renewals and new aerospace qualifications. We are carrying
additional inventory to protect our customers from any Brexit
disruption, but hopefully, we will be able to reduce inventory
stocks as the UK's exit plan from the EU becomes clearer later in
the year.
Our focus in 2020 is firmly on the development of new sales
opportunities, which will benefit the top line in future years and
establishing a strong foothold in the US civil aerospace market, as
well as growing our sales in Europe. We aim to maintain a strong
profile and presence in the geographic homes of the two major OEMs
of Europe and the North America in seeking to secure further orders
in what is anticipated to be a period of exceptional growth for the
industry. We have already announced extended terms to our largest,
long-term supply agreement with a UK customer and expanded another
supply agreement to include Boeing higher value structural
composite kits. The Group now has approvals in both the Airbus and
Boeing supply chains, along with a number of other key aerospace
approvals, for both civil and military aircraft platforms. We are
particularly pleased with our growing relationship with Airbus
directly. Though we know the 737 Max programme has some current
issues around production levels, being qualified for Boeing is of
immense strategic significance for Velocity.
To further align staff to shareholder values, we are changing
the way we reward staff. All our people will be part of a new
annual cash reward plan linked to our internal budget targets on
profitable growth. In 2020 all staff will be able to participate in
a new HMRC Velocity Share Investment Plan; management rewards for
profitable growth will be through both cash and equity. We want all
staff to be aligned and rewarded in growing shareholder value.
As a new Board, we would like to thank all our staff, investors,
customers, advisers and suppliers for their support during this
year of change. By working together, we believe the best years for
Velocity lie ahead.
Andy Beaden
Chairman
28 January 2020
CHIEF EXECUTIVE OFFICER'S REPORT
Having returned to the Board in July 2019, I am pleased to
report that full year revenue and Adjusted EBITDA are in line with
market expectations. This has been achieved despite a period of
significant change at the board level and product churn, associated
with our customers' A320 and A330 programmes changing from the CEO
(current engine option) to NEO (new engine option) variants. This
resilient performance is testament to the hard work of all the
great people within Velocity and their commitment to the vision and
values of the company.
Board and People
I would like to welcome Andy Beaden and Rob Soen to the Board.
They bring a broad and unique mix of experience, and their full
profiles can be read later in this report. In the final three
months of the financial year, following their appointment, the new
Board and executive team worked to develop and reshape the business
in order to meet the significant opportunities and challenges of
the global aerospace composites industry. These changes have been
focused on two key areas: new business growth and operational
excellence. These are now embedded in a new Integrated Business
Plan (IBP), developed and embraced by the executive and management
teams, who are working together to deliver the budgeted strategic
objectives.
During the year, we made a number of senior hires, including a
new Quality Manager, Programme Manager and HR Manager. We are in
the process of recruiting a third Non-Executive Director and
seeking hires to our business development and customer programmes
management team. Andrew Hebb has provided excellent support as
interim Chief Financial Officer during the last 12 months but the
Board is now seeking a permanent CFO to join the Board in 2020.
With the new team in place the Company is well placed to enter
the next phase of growth with the strong aerospace focused
executive and experienced non-executive leadership needed.
Trading
Revenues in the financial year were broadly unchanged on the
previous year at GBP24.3m (FY18: GBP24.5m). The majority of revenue
during the financial year was delivered from current contracts that
were in place at the start of the year, which included a
significant amount of programme churn due to changes in customer
demand and new, lower cost materials being introduced by customers,
rather than volume changes. Much of which related to the Airbus
transition from CEO to NEO variants as mentioned earlier.
Critically, we have a strong pipeline of new business
opportunities and have now prioritised around new business growth
concentrated on a smaller number of larger opportunities,
leveraging established global partners where there is a benefit to
capitalise on existing relationships, existing infrastructure and
addressing any perceived risk around the Company's relative size.
This also allows our internal teams to focus on these opportunities
and bring customers through the sales cycle on a more focused and
controlled basis. The addressable market is sizeable and is
growing, with Velocity playing a key role in helping its blue-chip
customers become more efficient as the aerospace composites
industry drives to meet the affordability targets of the two global
OEM's on both current and future platforms. The Board believes that
this can be achieved with a strong return on capital, as we develop
our operating model with our partners and scale up and fill
existing production areas.
Operationally, we improved our performance during the year,
leading to improved gross margin of 21.7% (FY18: 18.3%) and
therefore achieving an adjusted EBITDA of GBP0.6 compared to a loss
in the previous financial year (FY18: loss GBP0.2m). This was
mainly achieved through continuing focus on gross margin, which
showed consistent improvement during the year. Administrative
expenses, excluding non-recurring restructuring costs, were 3%
lower at GBP5.2m (FY18: GBP5.3m). Improving the Company's internal
efficiency through operational excellence is a key pillar of the
new integrated business plan. This has involved improvements to the
real time data analysis of manufacturing operations, not only to
ensure internal compliance to efficiency targets, but also to
measure the effects of continuous improvement activities and drive
improvements through all aspects of our operations. To achieve this
we have invested further in our proprietary software to allow us to
utilise real time data extracted from our freezer storage, cutting
machines and inspection areas, coupled with real time analysis and
reporting on manufacturing. Further improvements are planned, as we
build and integrate our data analysis, whilst incorporating it with
the wider ERP/MRP system across all sites, based on industry 4.0
technologies. All these initiatives are aimed at maintaining and
improving customer service, which in turn provides the platform for
growth through new business wins.
Regulatory
This year has also contained sobering reminders within our
industry as to why the focus on quality, traceability, process
adherence and a relentless push for product excellence are linked
to the safety of airline passengers. Velocity's operations are
entirely focused upon the aerospace market and, therefore, our
processes and systems have been designed from the ground up to meet
the most stringent industry standards. I am pleased to report that
we have maintained all of our industry approvals with highly
complementary feedback from every third-party audit team tasked
with reporting on all aspects of our operations. In pursuing new
business opportunities, we will be required to obtain further
approvals and are confident that the processes we have developed,
and continue to develop, will ensure that Velocity and our
customers remain fully aligned with global industry standards.
After the year end we were very proud to achieve key new Boeing
approvals which then opened up the opportunity of new business
starting in 2020.
Research and Development
The construction of our new Technical Centre is nearing
completion and when open will allow the business to enhance its
current service offerings and develop the next generation of
products and processes, with all trials and new business activities
being performed separately from the day-to-day operations. As
Velocity continues to exploit key Industry 4.0 technologies and
bring benefits to the composites supply chain, our focus will be
around enhanced data analytics, automated optical verification,
advanced real-time nesting, 3D rapid prototyping and paperless
traceability. As we develop and integrate these technologies into
our systems, it will allow us to remove further waste and
non-value-added activity from our processes, allowing us to create
even more compelling business cases for our customers. In addition,
several new products and processes have already been identified
which allow Velocity to integrate further vertically within our
customers process and we are working together with our customers
and technology partners to work collaboratively to deliver these
products and service offerings, both existing and new, as we invest
to become the long term supplier of choice for our customers.
Governance and Risk
The principal risks and uncertainties are detailed in the
Governance section of this report. With regards to Brexit the Group
has undertaken various risk mitigation activities which include
maintaining higher than usual stock levels over the past nine
months of the financial year. This remains the position, but we do
intend to reduce these to more normal levels over the coming
financial year.
The production issues around the 737 Max have not impacted us in
the year under review to any significant degree, but as we have
explained earlier, this high volume programme is strategically
important to us as we win new business in the Boeing supply
chain.
The Board has reaffirmed its previously decision to adhere to
the Quoted Companies Alliance (QCA) Corporate Governance Code for
small and mid-size quoted companies, and further details can be
found on the Group's website at www.velocity-composites.com.
The Health and Safety of all our staff is a priority item for
the Board and management team and is reviewed on a monthly basis at
both Board meetings and the Operational review meeting. In the year
under review, we had only one reportable accident, which resulted
from a slip by a member of staff. We actively encourage staff to
report near misses so that we can ensure appropriate remedial
action is taken.
Outlook
Following the substantial changes made to the Group and its
management over the last six months, I have great confidence in the
direction and prospects of the Company. With improving margins,
profitable operations, good capital reserves and the VCT/EIS
spending committed and approved, coupled with the re-energised
executive management team and a clear strategic plan embedded
through the whole organisation, we believe that Velocity has a
solid platform from which to exploit the substantial growth
forecast in the civil aerospace industry. We are well placed to
deliver extensive, long term, stable commercial propositions to our
customers and growth for all stakeholders.
We look forward to the remainder of FY20 and beyond with renewed
confidence and energy.
Jonathan Bridges
Chief Executive Officer
28 January 2020
FINANCIAL REVIEW
Statement of Comprehensive Income
We achieved a similar level of revenue to last financial year
without the beneficial impact of any significant new contracts. Our
current customers saw a considerable change to a number of their
programmes, which we were required to accommodate through change
requests, including the move to better priced material types in
some cases. Overall revenue was slightly down by 0.7% during the
year ended 31 October 2019 to GBP24.3m (FY18: GBP24.5m), but this
can be explained by the change in value of composite materials. The
Company benefited from both the dollar and euro strength,
particularly in the last quarter of FY19, with a positive impact of
GBP0.1m (FY18: GBP0.1m). International sales increased to GBP2.5m
(2018: GBP0.5m) through work contracted with a customer in
continental Europe. We expect sales from customers in regions
outside the UK and Europe to increase significantly over the next
few years, as we target new business in the USA and eventually
Asia.
The key financial success in this last year was in the
stabilisation of operating margins, with great work from our
operations team. This meant gross profit at GBP5.3m was an increase
of 17% over 2018 at GBP4.5m. Gross margin was much more stable
throughout the year improving further in the 2H to 22.4% compared
to 20.9% in H1, with an overall margin of 21.7%. We have worked
hard to reset contractual positions so we can minimise both
material price risk and FX risks to protect our margins. This means
some 70% of revenues and direct costs relating to material
purchases are naturally hedged which helps to minimise the effects
of exchange rate fluctuation.
Administrative expenses excluding exceptional items decreased
during the year by GBP0.2m due to a focus on a general reduction in
other costs. We have continued to invest in our people though,
including training and development, as we seek to build an
international growth-oriented business.
The Company presents certain items as Exceptional that are
non-recurring and significant. These relate to items which, in the
Board's judgement, need to be disclosed by virtue of their size and
incidence in order to obtain a meaningful understanding of the
underlying trading position. The exceptional items reported in 2019
of GBP0.7m (FY18: GBP0.3m) consist of costs in relation to the
resignations of the previous chairman and non-executive directors,
settlement of a dispute with the founder shareholders, and various
other associated costs relating to the restructuring of the
Board.
Before exceptional items, the Company produced a profit before
tax of GBP0.1m compared to a loss of GBP0.7m in FY18.
The statutory disclosed Operating Loss was GBP0.6m (2018: Loss
GBP1.1m) for the full year. From the Adjusted EBITDA of GBP0.6m
costs of restructuring of GBP(0.7)m, Amortisation and Depreciation
of GBP(0.4) m and Finance charges GBP(0.1)m leave Operating Loss at
GBP0.6m
Historically the Company has used Adjusted profit before tax as
an alternate performance measure to reflect adjustment for
expenditure on growth opportunities in the UK and Overseas and
exceptional restructuring costs. Growth is at the heart of our
strategic plan so we will continue to invest every year in
achieving this ambition. Going forward we will focus upon Adjusted
EBITDA as a better key performance measure to reflect the
operational performance of the business. In addition, we propose to
comment on specific large investments in production facilities that
in year could have a material impact on Adjusted EBITDA.
Adjusted EBITDA amounted to GBP0.6m, an increase of GBP0.9m over
the prior year due to improved gross margins and a reduction in
overheads. EBITDA margin improved to 2.5% (FY18: loss 1.0%).
Adjusted EBITDA 31 October 31 October
2019 2018
Reconciliation from Operating Profit GBP'000 GBP'000
----------- -----------
Operating Loss (594) (1,072)
Add back:
Share-based payments 66 169
Depreciation & Amortisation 449 413
Exceptional Administrative costs 692 252
613 (238)
=========== ===========
Adjusted EBITDA defined as earnings before finance charges, tax,
amortisation, depreciation, share based payments, exceptional
restructuring costs
Cashflow and Capital Investment
The year-end cash and cash equivalents reduced by GBP1.3m to
GBP3.4m (2018: GBP4.7m). Cash utilised from operations of GBP0.3m
(2018: generated from operations GBP0.5m) in particular due to an
improvement in cash collection and a significant reduction in
overdue debts, offset by an increase in inventories and a reduction
in trade creditors. Cash used in Investing activities of GBP (0.2)
m (2018: GBP(0.4) m) primarily related to property, plant and
equipment and development expenditure capitalised. Financing
activities utilised GBP0.8m including a decrease in the use of our
Invoice Discounting facility by GBP0.6m. The Invoice Discounting
facility was not utilised at 31 October 2019 (2018: GBP0.6m),
reflecting the reduced use during the financial year, thanks mainly
to tighter credit control systems now implemented.
The cash balance at 31 October 2019 of GBP3.4m included GBP1.6m
being the balance remaining from the money raised to be invested in
EIS activities. The Company has to date spent the EIS funds on its
research and development activities and on its exploration of new
territories in Europe, USA and Asia. The board intends that the
remaining EIS funds will be deployed on establishing a production
facility in the USA, due to open in 2020; buying equipment for the
new R&D centre due to open in H1 2020; and to investment
further in developing further our Central European activities.
Working Capital
Inventory levels increased at the year-end by GBP0.5m to GBP3.2m
reflecting additional stock levels in relation to the Company's
Brexit strategy.
Trade and other receivables reduced significantly during the
year by GBP1.7m to GBP4.2m as a result of improved monthly routines
to manage the collection of debts. Debtor days have therefore also
decreased significantly to 52 days (2018: 72 days), with less than
GBP0.1m beyond terms.
Trade and other payables also reduced during the year by GBP2.0m
to GBP3.2m due to reduction in Trade Creditors of GBP1.4m and the
reduction in the invoice discounting facility GBP0.6m which was
undrawn at the year end.
Financial Key Performance Indicators (KPI's)
The board have monitored the performance of the Company with
particular reference to the relevant key performance indicators
(KPI's) which are set out below. During the year several of our key
performance indicators showed improvements which was encouraging
including the improvement in gross margins and the positive
EBITDA.
Year ended Year ended
31 October 31 October
2019 2018
----------- -----------
Revenue growth (0.7%) 14.5%
Revenue growth International markets 400.0% 2.0%
Gross Margin 21.7% 18.3%
Adjusted EBITDA 2.5% (1.0) %
Operating Margin (2.4) % (4.1) %
The Board use the above KPI's to represent the strategic targets
it has set to grow the business to a sustainably higher level of
revenue and profits arising from the replication of its UK business
model into the USA and continental Europe. The board will review
both the financial and non-financial KPI's to ensure that the
Company is focused upon and properly targets measurement of the key
drivers for the business. Longer term the Company intends to also
monitor return on capital and earnings per share.
Going concern
The Group has prepared financial projections for the following
two years, year one reflecting the budget. The forecasts include
revenue projections based on current demand plus a weighting of
opportunities in the pipeline. Capital expenditure has been
included to reflect the establishment of a site in the USA in 2020
and Europe in 2021. This expenditure can be flexed if required
along with operational spend if revenue was to fall short of
forecast. Having due regard to these projections and available cash
at 31 October 2019 of GBP3.4m, and an invoice discounting facility
where we can borrow up to GBP5.5m dependent on debtor levels, it is
the opinion of the Board that the Group has adequate resources to
continue to trade as a going concern.
The Strategic Report as set out in the Chairman's Report, CEO
Report, Business Strategy and the Financial Review has been
approved by the Board.
Andrew Hebb
Interim Chief Financial Officer
28 January 2020
CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME
Year ended Year ended
31 October 31 October
2019 2018
Note GBP'000 GBP'000
------------ ------------
Revenue 3 24,316 24,478
Cost of sales (19,047) (19,991)
------------ ------------
Gross profit 5,269 4,487
Administrative expenses excluding
exceptional costs (5,177) (5,322)
Exceptional administrative expenses (692) (252)
Other operating income 6 15
Operating loss (594) (1,072)
--------------------------------------------- ----- ------------ ------------
Operating loss analysed as:
Adjusted EBITDA 4 613 (238)
Depreciation & Amortisation (449) (413)
Share based payments (66) (169)
Exceptional administrative expenses 5 (692) (252)
Finance income and expense (58) (135)
------------ ------------
Loss before tax from continuing operations (652) (1,207)
Income tax income/(expense) 16 213
Loss for the period and total comprehensive
loss (636) (994)
============ ============
Loss per share - Basic (GBP) from 6 (GBP0.02) (GBP0.03)
continuing operations
============ ============
Loss per share - Diluted (GBP) from 6 (GBP0.02) (GBP0.03)
continuing operations
--------------------------------------------- ----- ============ ============
There were no discontinued operations in the current or prior
period.
CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION
Group Group Company Company
----------- ----------- ----------- -----------
31 October 31 October 31 October 31 October
2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
Non-current assets
Intangible assets 318 362 318 362
Property, plant and equipment 1,061 1,080 1,061 1,080
Investment in subsidiaries - - -
----------- ----------- ----------- -----------
Total non-current assets 1,379 1,442 1,379 1,442
----------- -----------
Current assets
Inventories 3,177 2,744 3,177 2,744
Trade and other receivables 4,149 5,727 4,178 5,758
Corporation tax 75 113 75 113
Cash and cash equivalents 3,424 4,726 3,416 4,718
----------- ----------- ----------- -----------
Total current assets 10,825 13,310 10,846 13,333
-----------
Total assets 12,204 14,752 12,225 14,775
----------- -----------
Current liabilities
Trade and other payables 3,223 5,197 3,223 5,191
Grant income deferred - 7 - 7
Net obligations under
finance leases 121 116 121 116
----------- ----------- ----------- -----------
Total current liabilities 3,344 5,320 3,344 5,314
----------- -----------
Non-current liabilities
Deferred tax liabilities - - - -
Net obligations under
finance leases 169 171 169 171
----------- ----------- ----------- -----------
Total non-current liabilities 169 171 169 171
-----------
Total liabilities 3,513 5,491 3,513 5,485
Net assets 8,691 9,261 8,712 9,290
Equity attributable to
equity holders of the
company
Share capital 90 89 90 89
Share premium account 9,727 9,727 9,727 9,727
Share-based payments reserve 537 536 537 536
Retained earnings (1,663) (1,091) (1,642) (1,062)
----------- -----------
Total equity 8,691 9,261 8,712 9,290
=========== =========== =========== ===========
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 (GBP645,000). The financial statements were
approved and authorised for issue by the Board of Directors on 28
January 2020 and were signed on its behalf by
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share-based
Share premium Retained payments Total
capital account earnings reserve equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- --------- --------- ------------ --------
As at 31 October 2017 89 9,727 (97) 367 10,086
Loss for the year - - (994) - (994)
-------- --------- --------- ------------ --------
89 9,727 (1,091) 367 9,092
-------- --------- --------- ------------ --------
Transactions with shareholders:
Share-based payments - - - 169 169
As at 31 October 2018 89 9,727 (1,091) 536 9,261
======== ========= ========= ============ ========
Share Share-based
Share premium Retained payments Total
capital account earnings reserve equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- --------- --------- ------------ --------
As at 31 October 2018 89 9,727 (1,091) 536 9,261
Loss for the year - - (636) - (636)
-------- --------- --------- ------------ --------
89 9,727 (1,728) 536 8,624
-------- --------- --------- ------------ --------
Transactions with shareholders:
Share-based payments - - - 66 66
Transfer of share option
reserve on vesting
of options 1 - 65 (65) 1
As at 31 October 2019 90 9,727 (1,663) 537 8,691
======== ========= ========= ============ ========
COMPANY STATEMENT OF CHANGES IN EQUITY
Share Share-based
Share premium Retained payments Total
capital account earnings reserve equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- --------- --------- ------------ --------
As at 31 October 2017 89 9,727 (97) 367 10,086
Loss for the year - - (965) - (965)
-------- --------- --------- ------------ --------
89 9,727 (1,062) 367 9,121
-------- --------- --------- ------------ --------
Transactions with
shareholders:
Share-based payments - - - 169 169
As at 31 October 2018 89 9,727 (1,062) 536 9,290
======== ========= ========= ============ ========
Share Share-based
Share premium Retained payments Total
capital account earnings reserve equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- --------- --------- ------------ --------
As at 31 October 2018 89 9,727 (1,062) 536 9,290
Loss for the year - - (645) - (645)
-------- --------- --------- ------------ --------
89 9,727 (1,707) 536 8,645
-------- --------- --------- ------------ --------
Transactions with
shareholders:
Share-based payments - - - 66 66
Transfer of share
option reserve on
vesting of options 1 - 65 (65) 1
As at 31 October 2019 90 9,727 (1,642) 537 8,712
======== ========= ========= ============ ========
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
2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
----------- ----------- ----------- -----------
Operating activities
Loss for the year (636) (994) (645) (965)
Taxation (16) (213) (16) (213)
(Profit)/ loss on disposal
of assets (11) 7 (11) 7
Finance costs 58 135 58 135
Amortisation of intangible
assets 134 107 134 107
Depreciation of property,
plant and equipment 315 306 315 306
Share-based payments 65 169 65 169
Grant income amortisation (6) (15) (6) (15)
----------- ----------- ----------- -----------
Operating cash flows before
movements in working capital (97) (498) (106) (469)
Decrease in trade and other
receivables 1,579 424 1,588 393
(Increase)/Decrease in inventories (433) 522 (433) 522
(Decrease)/Increase in trade
and other payables (1,363) 98 (1,363) 92
----------- -----------
Cash generated from operations (314) 546 (314) 538
Income taxes received/(paid) 54 (40) 54 (40)
----------- ----------- ----------- -----------
Net cash (outflow)/inflow
from operating activities (260) 506 (260) 498
Investing activities
Purchase of property, plant
and equipment (156) (220) (156) (220)
Development expenditure
capitalised (89) (152) (89) (152)
Proceeds from the sale of
property, plant and equipment 15 - 15 -
Net cash used in investing
activities (230) (372) (230) (372)
Financing activities
Proceeds from issue of shares - - - -
Payments of share issue - - - -
costs
Finance costs paid (58) (135) (58) (135)
Decrease in invoice discounting (612) (528) (612) (528)
Repayment of finance lease
capital (142) (159) (142) (159)
Net cash generated from
financing activities (812) (822) (812) (822)
----------- ----------- ----------- -----------
Net (decrease) in cash and
cash equivalents (1,302) (688) (1,302) (696)
Cash and cash equivalents
at 01 November 4,726 5,414 4,718 5,414
----------- ----------- ----------- -----------
Cash and cash equivalents
at 31 October 3,424 4,726 3,416 4,718
----------- ----------- ----------- -----------
Notes
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 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.
2. Accounting policies
Basis of preparation
The financial statements have been prepared in compliance with
the measurement and recognition criteria of IFRS as adopted by the
European Union.
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 periods
presented, unless otherwise stated. The financial statements are
presented in sterling and have been rounded to the nearest thousand
(GBP'000).
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 made up
to 31 October 2019. Subsidiaries acquired during the year are
consolidated from the date of acquisition, using the purchase
method (see "Business combinations" below).
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 Adopted IFRS, as from 1 May 2015.
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 gains arising from transactions with equity-accounted
investees are eliminated against the investment to the extent of
the Group's interest in the investee. Unrealised losses are
eliminated in the same way as unrealised gains, but only to the
extent that there is no evidence of impairment.
Going concern
Having made reasonable enquiries, the Directors are of the
opinion that the Group has sufficient resources to continue in
operational existence for the foreseeable future and hence these
financial
statements have been prepared on a going concern basis. This
assessment has been supported by the preparation and consideration
of detailed forecasts for the two years to 31 October 2021 to
project the future growth of the Group and flexing these forecasts
through sensitivity analyses.
The forecasts include the revenue of the Group's existing
contracts based on demand information provided by its customers,
consideration of the cash position of the Group and the appropriate
utilisation of the various facilities available for funding this
growth. We have also discussed with our bankers and other financial
advisers the resultant trading performance and they have indicated
a strong desire to continue to support the funding of these growth
activities.
Changes in accounting policies
The Group has applied the following accounting standards and
amendments for the first time for their annual reporting period
commencing on the 1 November 2018:
-- IFRS 9 'Financial Instruments'. This standard applied from
the 1 November 2018 and is reflected in the Group's financial
reporting for the year ended 31 October 2019. The standard
addresses the accounting principles for the financial reporting of
financial assets and financial liabilities, including
classification, measurement, impairment, derecognition and hedge
accounting. Financial assets will continue to be measured at
amortised cost. The impairment model under IFRS 9 will reflect
'expected' credit losses, as opposed to 'incurred' credit losses
under IAS 39. It is no longer necessary for a credit event to have
occurred before credit losses are recognised. As the Group activity
monitors the ageing profile of trade receivables, impairments are
made where credit risk is apparent. There has been no material
impact to the accounts.
-- IFRS 15 'Revenue from Contracts with Customers'. This
standard applied from the 1 November 2018 and is reflected in the
Group's financial reporting for the year ended 31 October 2019. The
Group had to change its accounting policies following the adoption
of IFRS 15. There was no material impact to the accounts from
transition.
New standards, amendments and interpretations issued and not
applied to these financial statements:
The International Accounting Standards Board (IASB) and the IFRS
Interpretations Committee (IFRS IC) have issued the following
standards which are yet to be applied by the Group:
-- IFRS 16 'Leases'. This standard was issued on 13 January 2016
and is effective for accounting periods beginning on or after 1
January 2019 and will first apply to the Group's financial
reporting for the year ending 31 October 2020. The standard
requires lessees to recognise assets and liabilities for all leases
with lease terms of more than 12 months, unless the underlying
asset is of low value. The most significant impact will be from the
Group's operational sites, specifically Burnley, Fareham &
Malaysia in relation to material rent agreements. The Group does
have other non-property related operating leases, but these are not
as significant as the property leases. A full assessment has been
performed and approved by the board, with further details on the
impact of transition in note 19.
There are no other IFRSs or IFRIC interpretations that are not
yet fully effective that could be expected to have a material
impact on the Group.
3. Segmental analysis
The Group supplies a single type of product into a single
industry and so has a single reportable segment. The Group's
subsidiary company, Velocity Composites Sendirian Berhad, is
located in Malaysia. 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
2019 2018
GBP'000 GBP'000
------------ ------------
Revenue
United Kingdom 21,850 23,984
Europe 2,435 494
Rest of the World 31 -
------------ ------------
24,316 24,478
============ ============
4. 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, share-based payments
and exceptional restructuring costs.
Adjusted EBITDA 31 October 31 October
2019 2018
Reconciliation from Operating Profit GBP'000 GBP'000
----------- -----------
Operating Loss (594) (1,072)
Add back:
Share-based payments 66 169
Depreciation & Amortisation 449 413
Exceptional Administrative costs 692 252
613 (238)
=========== ===========
Adjusted EBITDA defined as earnings before finance charges, tax,
amortisation, depreciation, share based payments, exceptional
restructuring costs
5. Exceptional administrative expenses
Year ended Year ended
31 October 31 October
2019 2018
GBP'000 GBP'000
------------ ------------
Restructuring costs 692 252
692 252
============ ============
The exceptional items reported in 2019 of GBP0.7m (FY18:
GBP0.3m) consist of costs in relation to the resignations of the
previous chairman and non-executive directors, settlement of a
dispute with the founder shareholders, and various other associated
costs relating to the restructuring of the board. The disputes has
been fully resolved, all costs settled and there are no further
liabilities in relation to these matters.
6. Loss per share
Year ended Year ended
31 October 31 October
2019 2018
GBP GBP
------------ ------------
Loss for the year (636,000) (994,000)
Shares Shares
------------ ------------
Weighted average number of shares in issue 35,860,652 35,795,539
Weighted average number of share options 587,101 638,200
------------ ------------
Weighted average number of shares (diluted) 36,447,753 36,433,739
Loss per share(GBP) (basic) (GBP0.02) (GBP0.03)
============ ============
Loss per share (GBP) (diluted) (GBP0.02) (GBP0.03)
============ ============
Share options have not been included in the Diluted calculation
as they would be anti-dilutive with a loss being recognised.
7. Share capital
31 October 31 October
2019 2018
GBP GBP
----------- -----------
Share capital issued and fully paid
35,916,179 Ordinary shares of GBP0.0025
each 89,791 89,489
=========== ===========
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.
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 period, is set out in note 23.
Nominal Number
Movements in share capital value of shares
GBP
Ordinary shares of GBP0.0025 each
At the beginning of the year 89,489 35,795,539
Exercising of share options 302 120,640
-------- -----------
Closing share capital at 31 October 2019 89,791 35,916,179
======== ===========
On 18 April 2019, the Company issued 120,640 new ordinary shares
of GBP0.0025 each to satisfy the exercise of options granted under
the Group's 2017 Share Option Scheme.
8. 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.
9. Capital commitments
At 31 October 2019 the Group had GBP445,369 (2018: GBP78,500) of
capital commitments relating to the purchase of leasehold
improvements, plant and machinery and fixture and fittings.
10. Pension commitments
The Group makes contributions to defined contribution
stakeholder pension schemes. The contributions for the year of
GBP115,654 (2018: GBP107,573) were charged to the Consolidated
Income statement. Contributions outstanding at 31 October 2019 were
GBP24,374 (2018: GBP17,013).
11. Contingent liabilities
At 31 October 2019 the Group had in place bank guarantees of
GBPnil (2018: GBP250,000) in respect of supplier trade
accounts.
This preliminary announcement, which has been agreed with the
auditors, was approved by the Board of Directors on 27 January
2020. It is not the Group's statutory accounts. Copies of the
Group's audited statutory accounts for the year ended 31 October
2019 will be available at the Company's website shortly and a
printed version will be despatched to shareholders on the 28
January 2020.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GZGZMRNDGGZM
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January 28, 2020 02:00 ET (07:00 GMT)
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