TIDMVEL
RNS Number : 5018N
Velocity Composites PLC
20 May 2020
20 May 2020
VELOCITY COMPOSITES PLC
("Velocity" or the "Company")
AIM: VEL.L
Trading Update, New Banking Facility and Notice of Results
Velocity Composites plc, the leading supplier of advanced
composite material kits to the aerospace sector, provides the
following trading update on its performance in the six months to 30
April 2020 ("H1") and details of its new GBP2.0 million banking
facility in the form of a Coronavirus Business Interruption Loan
("CBIL").
The Board believes that, whilst there has been an inevitable
reduction in near-term demand as aerospace industry production is
curtailed by COVID-19, the Company's financial liquidity remains
robust. Velocity is in a strong position to support its composite
aerospace customers with its unique efficiency-focused supply chain
management solutions.
Trading update
As announced in the Trading and COVID-19 Update on 30 March
2020, the financial year ending 31 October 2020 ("FY20") started
well, with the Company achieving good strategic progress on new
aerospace qualifications and winning long-term new business.
Trading to the end of February was in line the Board's expectations
with order visibility showing an improving second-half performance.
The Company's sales demand was then impacted by the global
disruption caused by the measures taken to combat the spread of
COVID-19.
Production levels across all Velocity's customers have been
significantly curtailed since early March 2020, as social
distancing and lockdown measures were implemented. Customers have
had to reconfigure manufacturing practices to ensure the safety of
their employees. Velocity also implemented a rigorous plan to
protect employees, whilst maintaining its services to customers.
The Company is pleased to announce it has implemented its COVID-19
plans and is working on a daily basis with its customers and
suppliers to enable production volumes to be increased. Whilst
there is a planned gradual re-opening of customer production
facilities and subsequent rise in production levels, demand in the
near-term remains substantially below pre-COVID-19 run-rates.
The Company had agreed terms with one major customer on a
multi-year extension of a long-term agreement, as announced in
January 2020. The COVID-19 disruption, however, has resulted in
this new agreement being placed on hold. This does not impact the
business flow from this customer, as both parties have agreed to
trade on the basis of the existing arrangements, including purchase
order cover to mid-2021. Discussions continue.
The Company's short-term revenue forecast has also been impacted
by the continued freeze in Boeing's production of the 737 Max, for
which the Company won a new structural contract in H1 20. However,
the potential for meaningful higher revenue remains once this
programme restarts.
H1 20 revenue and cash
As a result of this rapid change in demand, revenue in H1 20 is
now expected to be circa GBP9.4 million (H1 19: GBP12.2 million).
Cash at bank was circa GBP2.8 million (GBP2.0m after use of Invoice
Discounting facility) at the 30 April 2020, compared with GBP3.4
million at 31 October 2019 when the Invoice Discounting facility
was not utilised. Earlier in the financial year, cash was invested
in the Company's new R&D centre and along with the purchase of
additional cutting machines to support long-term expansion
opportunities in the US. There were also some exceptional cash
payments to settle exceptional costs charged in the prior year. The
Company continues to have access to its GBP5m Invoice Discounting
Facility, which was drawn down GBP0.8m at 30 April with additional
capacity of GBP1.4m as at the 30 April 2020, based on outstanding
receivables.
COVID-19 mitigation activity
As detailed in the last trading update, the Company has taken
the following actions to mitigate the impact of the COVID-19
pandemic on production:
-- Circa 60% of the workforce has now been furloughed with
funding secured through the UK Government's employment retention
scheme;
-- Certain areas of the Company's manufacturing facilities
have been converted to the production of personal protective
equipment ("PPE") for NHS workers, providing additional
work for staff;
-- The Company has put in place a significant inventory reduction
programme, utilising its supply chain management systems,
which will also benefit its customers, through strict alignment
of supply and demand schedules;
-- A series of other cash conservation measures have been undertaken,
including the postponement of planned capital expenditure
programmes until required and the use of UK Government-promoted
measures such as VAT payment holidays and PAYE deferrals.
Banking facilities
Further to the actions outlined above, the Company has secured a
CBIL from its bankers, National Westminster Bank ("NatWest"), which
provides Velocity with an additional GBP2.0 million facility to
support any short-term liquidity requirements. The CBIL can be
drawn down at any point in the next six-months with an
interest-free period for 12 months following drawdown and interest
of LIBOR +3% in the 12 months thereafter. The funds are repayable
in the second year of drawdown by equal instalments.
Combined with its existing GBP5 million Invoice Discounting
Facility with NatWest, the Company now has access to GBP7.0m of
debt facilities, of which GBP0.8m is currently drawn and a further
GBP3.3m of liquidity is currently available
Outlook
There is much speculation on the challenges facing the civil
aerospace industry. The Board believes that there will be a
material contraction in the worldwide demand for and manufacture of
new civil aircraft over the medium term, then a slow recovery back
to pre COVID-19 forecasts within three years. This will place more
pressure on manufacturers in our target markets to reduce costs and
further streamline their operations. This is the essence of
Velocity's customer proposition: the Company has the resources, the
advanced technology and the processes to assist and accelerate
customer cost reductions, whilst improving the quality and
efficiency of their production processes; along with a
comprehensive supply chain management solution, which minimises
inventory levels, the risk of raw material life expiry/obsolescence
and, therefore, reduction in working capital.
Given the lack of short-term visibility on the longevity of UK
and international lockdown restrictions, the Board continues to be
unable to provide financial guidance on the Company's expected
performance in FY20 and FY21.
Various scenarios on the lifting of these restrictions and the
timing of increases in customer demand, both long and short, have
been modelled by management, and, on review of these, the Board is
confident that the Company has adequate cash and banking facilities
to work through this disruption. This includes the possible need
for some restructuring of the Company's operations if required.
Velocity remains engaged with customers on significant new
business opportunities, with a pipeline of major new opportunities
totalling circa GBP30m and has the flexibility to deploy its
operations to adapt to new norms. The Board, therefore, remains
confident the investment proposition for investors remains
compelling, with these industry challenges providing an even more
meaningful commercial rationale for its technology and
services.
Notice of Results
The Company expects to announce its half year results for the
six months ending 30 April 2020 on 23 June 2020.
Jon Bridges, Chief Executive Officer of Velocity, said:
"Whilst we know the near-term effect of the COVID-19 pandemic on
our business and that this can be managed, the wider effects on the
industry become clearer in the coming months. Our prudent planning
and rapid actions have ensured that we have the financial
resilience to weather the storm and the CBIL gives us headroom to
capitalise on the opportunities which will arise as the industry
recovers. We continue to support our stakeholders in this
unprecedented disruption, working closely with our customers and
material suppliers to balance supply and demand in a transparent
way."
Andy Beaden, Non-Executive Chairman of Velocity, added:
"The Velocity team is doing a great job, supporting customers,
managing cash and reducing overheads to minimise the dramatic
impact of this pandemic on our respective businesses. We continue
to work on new business opportunities and I believe that Velocity
is well placed financially to help our customers save costs and
cash, as we work through this crisis together."
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014.
Enquiries:
Velocity
Jon Bridges, Chief Executive Officer
Andy Beaden, Chairman +44 (0) 1282 577577
Cenkos (Nominated Adviser and Broker) +44 (0)20 7397 8900
Russell Cook +44 (0)20 7397 1977
Ben Jeynes +44 (0)20 7397 1974
Belvedere Communications (Financial VelocityPR@belvederepr.com
PR) +44 (0) 7715 769 078
Cat Valentine +44 (0) 7967 816 525
Keeley Clarke
About Velocity
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 A320, A330, A350, A380, Eurofighter
Typhoon, F35 Joint Strike Fighter, Boeing 737 and 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 Europe and North America.
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END
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