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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