TIDMVEL
RNS Number : 7010N
Velocity Composites PLC
22 January 2019
22 January 2019
VELOCITY COMPOSITES PLC
("Velocity", the "Company" or the "Group")
Final Results for the year ended 31 October 2018
Velocity Composites plc, the leading supplier of advanced
composite material kits, providing engineering value-solutions for
the global aerospace industry, is pleased to announce its results
for the year ended 31 October 2018.
Highlights
-- Year on year revenue growth from new and existing customers
of 14% to GBP24.5m (FY17: GBP21.4m)
-- Gross margin of 18% for FY18 (FY17: 18%) with an increased
second half margin of 21% following recovery from lower first half
margins arising from unforeseen customer changes and onboarding
multiple programmes
-- Operating loss for FY18 of GBP1.1m (FY17: GBP0.5m), with an
operating profit of GBP0.1m in second half FY18 (before exceptional
costs of GBP0.3m) arising from the continued investment in growth
and the above improvements to gross margin in H2 FY18
-- Net cash at 31st October 2018 of GBP4.1m (FY17: GBP4.3m)
(after invoice discounting) including GBP3.8m of EIS funds
-- The Group is no longer able to employ the EIS funds by the May 2019 deadline
-- Contracted business of over GBP67m for the FY19-FY21 period,
subject to customer demand fluctuations (including GBP17m of
contract renewals)
-- International NADCAP accreditation awarded for kitting
service provider to all aerospace primes
-- Award of three-year contract to supply complex design
consumable kits to Boeing 737 Max programme (GBP3m)
-- Award from a new customer in continental Europe to supply
composite material kits for a two-year period for the component
parts for the Leading Edge Aviation Propulsion ("LEAP") engines
used on the Airbus A320 NEO and Boeing 737 Max ($6m)
-- Twelve month contract extension awarded providing composite
material kits across the Airbus range of aircraft and regional
business jets (GBP10m)
-- Appointment of two new Independent Non-Executive Directors, Meera Parmar and Brian Tenner
-- The Board expects the revenue and gross margin ratio to be at similar levels in FY19
Mark Mills, Executive Chairman of Velocity said:
"I am pleased to report that our results for the year ended 31st
October 2018 showed a revenue growth of 14% to GBP24.5m and a net
cash balance of GBP4.1m which whilst pleasing for the growth and
underlying profitability was disappointing compared to our plans
for the year."
"Velocity has continued its strategy of disrupting the
composites supply chain and targeting customers where savings can
be generated in material and labour costs alongside other tangible
benefits to aerospace parts' manufacturers. During the year the
Group was awarded a contract to supply complex designed consumable
kits for the Boeing 737 Max programme (GBP3m), a tactical project
supplying structural material kitting for an Airbus A320 aircraft
engine (GBP0.7m), a package from a new continental European
customer who is a Tier 1 manufacturer of component parts for the
Leading Edge Aviation Propulsion ("LEAP") engines used on the
Airbus A320 NEO and Boeing 737 Max ($6m), and an extension to a
Long Term Agreement with an existing UK customer manufacturing
component parts across the Airbus fleet and on regional business
jets (GBP10m)."
"The Board is confident that once the current dialogue with the
founding shareholders has been concluded, the Group will be able to
refocus on its long-term strategic growth, which is to deliver cost
savings for our customers in the aerospace manufacturing supply
chain in a profitable way for the Group, and in the short-term
performance of the Group where it has the resources and skills
available, both business and financial, to enable it to continue to
deliver the services it has built its reputation on in a way which
provides a profitable return to the Group."
The information communicated in this announcement contains
inside information for the purposes of Article 7 of the Market
Abuse Regulation (EU) No. 596/2014. Upon the publication of this
announcement via regulatory news service this inside information is
now considered to be in the public domain.
Ends
CONTACT DETAILS:
Velocity c/o Camarco
Mark Mills, Executive Chairman Tel: 020 3757 4980
finnCap (Nominated Adviser and Broker) Tel: 020 7220 0500
Ed Frisby / Scott Mathieson / Hannah Boros
(Corporate Finance)
Tim Redfern (ECM)
Camarco (Financial PR) Tel: 020 3757 4980
Ed Gascoigne-Pees / Georgia Edmonds
About Velocity Composites
Velocity Composites is a manufacturer of advanced composite
material kits for the aerospace industry, delivering engineered
waste reduction solutions for its customers to build aircraft
components using less time and material. The Company's customers
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 and Boeing 737, 787
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's services are seeing increased demand as the global
aircraft industry enters a more-for-less era. Velocity currently
has customers in the UK and Continental Europe.
For further information please visit:
http://www.velocity-composites.com/
Executive Chairman's Report
Overview
I am pleased to report that our results for the year ended 31st
October 2018 showed a revenue growth of 14% to GBP24.5m and a net
cash balance of GBP4.1m which whilst pleasing for the growth and
underlying profitability, was disappointing compared to our plans
for the year. Business performance improved in the second half of
the year resulting in an operating profit of GBP0.1m (before
exceptional costs of GBP0.3m), and a Gross Margin of 21% for this
period giving an 18% Gross Margin for the whole year.
Velocity has continued its strategy of disrupting the composites
supply chain and targeting customers where savings can be generated
in material and labour costs alongside other tangible benefits to
aerospace parts' manufacturers. The Group's agreements with
customers provide good visibility of future potential revenue,
subject to customer demand fluctuations.
The Board believes that post flotation the Company could have
shown more potential customers in greater detail how Velocity could
help their businesses to manage costs, and this has delayed our
winning of new work. For that reason, during the reporting period,
Velocity continued its investment programme to recruit additional
engineers and increase its business development team to support
sales and business development activities. To stay ahead of the
market, the Group remains committed to investing in a new Research
and Development Centre to bring innovative products and services to
our existing and potential customers, in order to help them to
reduce operating costs and to increase the Group's revenues.
In terms of new business acquisition, to demonstrate commitment
to customers (existing and potential) we opened an Engineering
Support Office in Malaysia during the year, with a small team now
based in Selangor, Malaysia. Since the period under review, we have
progressed our plans to open a similar office in Poland. Both areas
represent different and significant opportunities and complement
our UK facilities in Burnley and Fareham.
During the year the Group was awarded a contract to supply
complex designed consumable kits for the Boeing 737 Max programme
(GBP3m), a tactical project supplying structural material kitting
for an Airbus A320 aircraft engine (GBP0.7m), a package from a new
continental European customer who is a Tier 1 manufacturer of
component parts for the Leading Edge Aviation Propulsion ("LEAP")
engines used on the Airbus A320 NEO and Boeing 737 Max ($6m), and
an extension to a Long Term Agreement with an existing UK customer
manufacturing component parts across the Airbus fleet and on
regional business jets (GBP10m).
There were challenges faced by Velocity during the year in
respect of its growth aspirations and actions were taken to mature
the business and innovate and challenge the industry to enable the
Group to become the "go to" provider when aerospace manufacturers
seek to reduce composite manufacturing costs.
Financial Highlights
-- New business wins totalled GBP18m for delivery over the next three years
-- Revenue continued to strengthen, up 14% to GBP24.5m (2017:
GBP21.4m) and gross profit was up 14% to GBP4.5m (2017:
GBP3.9m)
-- Operating loss of GBP1.1m (2017: GBP0.5m) and loss before tax
of GBP1.2m (2017: GBP0.6m) incorporated impact of additional
administrative expenses
-- Net assets have reduced from GBP10.1m (October 2017) to GBP9.5m (October 2018)
-- Development costs capitalised as intangible asset (GBP0.2m)
The revenue outturn for the twelve months ended 31st October
2018 is GBP24.5m (2017: GBP21.4m) representing an overall increase
of 14% and gross profit of GBP4.5m (2017: GBP3.9m). Gross profit in
the period improved as some programmes which took longer than
originally expected to onboard have stabilised and started to
increase rates. The business continued to invest in business
development and engineering resource in order that new significant
contracts can be secured and additional sites opened. In addition,
operational and functional investments were also made during the
year to support the business growth. The full year costs associated
with being on AIM are also reflected in these accounts which all
combined resulted in a loss before tax of GBP1.2m (2017: GBP0.6m)
with Loss per Share remaining stable at GBP(0.03) (2017:
GBP(0.02)).
The cash balance at the year-end was slightly better than
expected and stood at GBP4.7m (2017: GBP5.4m) with other cash
facilities reducing this to a net cash position of GBP4.1m. At the
year end, the Group still retained GBP3.8m of EIS/VCT qualifying
funds which it is required to employ by May 2019 to meet HMRC
requirements. However, due to the slower growth trajectory than
planned, and the more recent uncertainty following the recent
executive Board changes and discussions with the founding
shareholders, the Group sees that it is no longer able to employ
these funds on EIS qualifying expenditure by May 2019. For the
avoidance of doubt, the Group understands that any EIS funds that
are not spent by this date will become part of the Group's
unrestricted cash resources going forward.
The impact of one-off exceptional restructuring costs and the
expenditure on growth opportunities both in the UK and overseas,
means that underlying trading can be more fairly reflected by an
Adjusted Loss before tax of GBP(0.3)m (2017 Adjusted Profit before
tax: GBP0.7m), and Adjusted Loss Per Share of GBP(0.01) (2017:
GBP(0.02)) (see below and Note 29).
31 October 31 October
2018 2017
GBP'000 GBP'000
------------------------- -------------------------
Reported (loss) before tax (1,207) (627)
Adjustments:
Future growth expenditure relating to
UK
and overseas 675 446
Exceptional restructuring costs 252 -
Exceptional IPO related administrative
expenses - 667
Exceptional share-based payments - 264
Adjusted (loss)/ profit before tax (279) 750
========================= =========================
As at the year end, the Group had visibility of over GBP67m of
revenues in the coming three financial years, subject as always to
fluctuations in the demand signals that the customers have
provided, upon which this visibility is based. Included within this
revenue visibility are assumed renewals of existing contracts
generating GBP17m of revenue over the latter part of this three
year period.
Further commentary relating to the Financial Review can be found
on pages 11 to 14.
Business Strategy
As previously outlined, Velocity uses industry knowledge,
business processes and proprietary software to reduce the amount of
material and labour required by our customers to manufacture
composite parts within the aerospace composites industry and enable
our customers to outsource a significant area of non-value-added
activity from their own businesses.
In turn, the supply chain becomes more efficient and lower cost
and this gives our customers a competitive advantage when bidding
for new packages of work. Feedback from our customers remains that
they wish to focus on their core business of manufacturing, testing
and assembling composite structures but they need to reduce costs
and increase production rates to allow the aircraft manufacturers
to meet the significant increases in aircraft build rates driven by
increasing global demand.
Velocity continues to seek from its target customers, located
globally within the key aerospace manufacturing clusters, a
long-term engagement which will allow us to replicate our UK
business model with strategic manufacturing facilities located
where we can service our customers with just in time deliveries.
Potential customers continue to be visited both in Europe and
further afield and this activity is being increased as the Board
was not satisfied with the reported levels of activity previously.
Long term plans are being developed with supporting site roll-out
plans as each customer approaches contract award. Once Velocity has
secured additional customer contracts in near Europe, we will
proceed to open manufacturing sites, with the medium-term ambition
being to engage with local partners and customers direct in both
North America and Asia in order to develop potential opportunities
in these regions.
As the global growth opportunity continues to be explored by the
Group, we will seek the most appropriate funding routes available
for both the investment into those new territories and to support
our cash flow to facilitate the purchase of materials for kits
supplied to our customers.
Governance and Risk
The Board has continued its previously made decision at IPO to
adhere to the Quoted Companies Alliance (QCA) Corporate Governance
Code for small and mid-size quoted companies, and further details
can be found in the Statement of Corporate Governance on pages 15
to 17, and on the Group's website at
www.velocity-composites.com.
In preparing these financial statements, management are required
to make accounting assumptions and estimates. The assumptions and
estimation methods have been consistently applied throughout the
period. The principal risks and uncertainties that may have a
material impact on activities and results of the Group remain as
set out on pages 12 to 14 of the Financial Review.
Trading review
We continue to see demand for our services as the aerospace
composites industry continues in its "make more-for-less" period
which is expected to continue for some time, and our customers look
for new ways to reduce the cost of manufacture, both in terms of
material and labour. Despite this desire by our customers and
Velocity's active engagement with these customers, the Group has
experienced uncertainty over the precise timing of the award and
the onboarding of contracts, and the resultant impact on revenues
and profits.
Trading and revenue has been lower than planned for the year but
has increased by 14% compared to the last financial year as new
programmes and our Fareham facility delivered additional revenue to
the business.
The Board was pleased to announce during the year that it
successfully achieved Nadcap Special Process accreditation for
Composites scope KSP (Kitting Service Provider), for demonstrating
its ongoing commitment to quality by satisfying customer
requirements and industry specifications. As reported, Nadcap
("National Aerospace and Defence Contractors Accreditation
Program") is the leading worldwide cooperative program of major
aerospace Primes and is designed to manage a cost-effective
consensus approach to special processes and products and provide
continual improvement within the aerospace and defence industries.
NADCAP provides an industry managed supply chain oversight program
that improves quality, while reducing costs, by assessing process
capability for compliance to industry standards and customer
requirements. The accreditation came after Velocity had been
working with various customers over a long and sustained period and
the accreditation provides an enhanced ability to secure work on
both Airbus and Boeing programmes around the world in the medium
and long term.
To supplement the engineering bases in our Burnley and Fareham
facilities, and as a part of the employment of the investment funds
received at IPO, the Group opened an Engineering Support Office in
Selangor near Kuala Lumpur in Malaysia and after the year end,
contracts have been exchanged to erect a new building at our
Burnley site to house a Research and Development facility alongside
a new stores area, additional offices and additional manufacturing
space. Once completed, the Group intends to broaden the services
offered to its aerospace customers by innovating and investing in
the composites arena to help customers to deliver additional cost
savings.
Board and People
As outlined last year, the transition from private ownership to
a publicly listed company listed on the Alternative Investment
Market (AIM) of the London Stock Exchange offered both challenges
and opportunities to the business. During the year, I was delighted
to welcome Meera Parmar and Brian Tenner to the Board and I would
like to thank them for their contributions which have been
noteworthy during a period of uncertainty for the Group.
Towards the year end, two of Velocity's co-founders left the
business as part of a strategic restructuring plan to reduce
ongoing costs and some one-off costs were incurred. In addition,
Jonathan (Jon) Bridges (co-founder) who had moved from Chief
Executive Officer after the trading update in September 2018 to the
role of Chief Technical Officer, left the Board. Following this,
the Group has experienced a period of uncertainty which has delayed
the Group in its growth plans. The Board has worked hard to resolve
and clarify matters for all shareholders and to offer reassurance
to the Velocity team, customers and its supply chain. At the
present time, the Board and founding shareholders are working
collaboratively to attempt to progress these matters toward
resolution and it is hopeful but not yet certain that a way forward
will be agreed shortly. Additional one-off costs have also been
incurred as a result which will adversely affect the FY19
results.
Also, following the September 2018 trading update, Alan Kershaw,
Chief Financial Officer decided to pursue new opportunities and the
Board thanks Alan for his continued contribution to Velocity during
this transition period and his professional and orderly handover to
Interim CFO, Andrew Hebb, ahead of the recruitment of a new
permanent CFO which is progressing.
I always take this opportunity to thank the whole Velocity team
for their efforts during the period and on this occasion, as I have
been more involved in the day-today running of Velocity since
September 2018, I would like to compliment everybody for their
contribution, feedback and tolerance during an unsettling period,
and for their hard work to make Velocity the great place it is to
work.
I look forward, more than ever, to working with the team and its
new members as we grow Velocity and provide cost saving services
for more customers.
Outlook
The Board recognises the need to reset investor expectations in
relation to the speed of growth and profitability. The recent
uncertainty created in the minds of our customers means that the
Board expects the new financial year ending 31 October 2019 to be a
period of consolidation and re-building of customer confidence and
our sales pipeline. As a result, the Board expects to deliver
revenue and gross margin ratio at a similar level in the coming
year.
The Board acknowledges the disappointment and adverse financial
impact on the tax position of certain investors as the EIS funds
are not able to be fully employed by the due date in May 2019.
However, the Board has concluded that it is important that only
high quality approved investments should be made, and given the
shortfall in new business highlighted above, it has not been
possible to deliver these opportunities in the time period
available. The EIS funds will remain available for the Group to use
in high quality growth investments, although the majority of this
is expected to take place after the due date and any associated tax
relief for EIS investors is unlikely to be available.
We have an excellent and committed team looking after a
high-quality customer base which is becoming more international and
we operate on growing aircraft platforms within the growing
composites market with clear focus on scaling Velocity up.
The Board is confident that once the positive dialogue with the
founding shareholders has been concluded, the Group will be able to
refocus on its long-term strategic growth, which is to deliver cost
savings for our customers in the aerospace manufacturing supply
chain in a profitable way for the Group, and in the short-term
performance of the Group where it has the resources and skills
available, both business and financial, to enable it to continue to
deliver the services it has built its reputation on in a way which
provides a profitable return to the Group.
Mark Mills
Chairman
21 January 2019
Financial Review
Review of the Year
Statement of Comprehensive Income
Statement of Comprehensive Income
Our revenue grew by 14.5% during the year ended 31 October 2018
to GBP24.5m (FY17: GBP21.4m). During the financial year new
contracts were awarded with both existing and new customers which
delivered over GBP2m in revenue in the year, with an expectation of
higher revenue levels from these contracts in future years.
European sales increased to GBP0.5m (2017: GBP0.1m) through work
contracted with a customer in continental Europe. No sales have as
yet been achieved in the Asia region.
Gross profit at GBP4.5m increased by 14% over 2017 (GBP3.9m).
Gross margin was stable year on year at 18.3%, although margin in
H1 was lower than expected due to unforeseen customer changes and
the onboarding of multiple programs across our UK sites. Management
action resulted in an improvement in the H2 margin to 21.2% (H1:
15.2%). The reduction in margin in H1 negatively impacted
profitability for the year by GBP0.6m. 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 increased
during the year by GBP1.8m due primarily to the investment in
people related costs to strengthen programme management,
engineering, operations and functional teams (GBP1.2m). As a result
of this investment, administrative headcount increased by 15 during
the year to finish the year with 47 people.
In addition, the following costs increased year on year: Full
year effect of costs incurred by the Group being on AIM GBP0.2m,
EIS related costs of GBP0.2m, Fareham facility full year costs of
GBP0.1m, Depreciation and Amortisation GBP0.1m.
The Group 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 2018
consist of GBP0.3m in relation to the departure of two of the
Founders and also the Chief Financial Officer.
Operating Loss was GBP(1.1)m (2017: GBP(0.5)m) for the full year
with an Operating Loss in H2 of GBP0.2m. The Operating Loss in 2017
included GBP0.9m of costs associated with the Company listing on
AIM covering fees associated with the AIM listing and share based
payments.
The impact of one off exceptional restructuring costs and the
expenditure on growth opportunities both in the UK and overseas,
means that underlying trading can be more fairly reflected by an
Adjusted Loss before tax of GBP(0.3)m (2017: GBP0.7m), and Adjusted
Loss per share of GBP(0.01) (2017: GBP(0.02)) (see Note 30). The
Group internally uses Adjusted Profit before tax as an alternate
performance measure in addition to the statutory reported profit
measures.
Cashflow and Capital Investment
The year-end cash and cash equivalents reduced by GBP0.7m to
GBP4.7m (2017: GBP5.4m). Cash generated from operations of GBP0.5m
(2017: GBP(2.4m)) was offset by cash used in Investing activities
of GBP(0.4)m (2017: GBP(0.7)m) primarily related to property, plant
and equipment and Development expenditure capitalised. Financing
activities utilised GBP0.8m including a decrease in the use of the
Invoice Discounting facility by GBP0.5m. The Invoice Discounting
facility was utilised to the extent of GBP0.6m at 31 October 2018
(2017: GBP1.1m).
Of the GBP4.1m of net cash at 31 October 2018 GBP3.8m is the
balance remaining from the money raised to be invested in EIS
activities. In the financial year the Group utilised GBP0.7m of EIS
money. The Group has to date spent the EIS funds on its research
and development activities and on its exploration of new
territories in Europe and Asia in particular. The Group sees that
it is no longer able to employ the remaining EIS funds by the
24-month anniversary of the Company's IPO due to the slower growth
trajectory than planned, and the more recent uncertainty following
the recent executive Board changes and discussions with the
founding shareholders. The slower growth trajectory has arisen
because not enough customers were visited immediately post IPO,
given the gestation period between first visit and contract award,
which has resulted in a smaller pipeline of fully developed
opportunities.
Working Capital
Inventory levels were reduced at the year-end by GBP0.5m to
GBP2.7m through strategies to more closely align stock levels with
customer demand over raw materials.
Trade and other receivables reduced during the year by GBP0.4m
to GBP5.7m. This arose from an increase in trade receivables of
GBP0.5m and a reduction in sundry debtors of GBP0.9m following a
one-off VAT recovery at last year end. Whilst debtor days have
increased to 72 days (2017: 66 days), only GBP0.1m of the total
receivable balance represents receivables more than 3 months
overdue.
Trade and other payables also reduced during the year by GBP0.4m
to GBP5.2m primarily due to the reduction in the invoice
discounting facility use at the year end.
Financial Key Performance Indicators (KPI's)
The Board have monitored the performance of the Group with
particular reference to the relevant key performance indicators
(KPI's) which are set out below:
Year ended 31 Year ended 31
October 2018 October 2017
---------------------------- ----------------------------
Revenue growth (%) 14.5% 46.2%
Gross Margin% 18.3% 18.4%
Operating Margin% (4.4%) 2.2%
Adjusted Loss before Tax GBP(279)k GBP750k
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 continental Europe and further afield. The Board is
planning to undertake a review of both the financial and non
financial KPI's that the Group needs to target its performance upon
following the appointment of new Board members.
Share price during the year
The share price range during the year from 1 November 2017 to 31
October 2018 was 86p to 29p.
Principal risks and uncertainties
The Board is committed to operating to high standards of
corporate governance, as we believe that doing so will contribute
to the delivery of long-term shareholder value. The aerospace
market also requires the Group to operate on a Right First Time
Every Time basis and the Company's listed status has solidified our
commitment to governance, quality and transparency and as
importantly, further improved the perception of Velocity in our
customers' and potential customers' eyes.
The principal activity risks and uncertainties of the Group are
considered to be the loss of key contracts. Demand has remained
firm in the short term despite the ongoing uncertainty arising in
the UK economy regarding BREXIT, and the Group's view remains that
the demand levels within aerospace manufacturing will continue to
increase due to the global aircraft production backlogs which
currently are estimated to be between five and ten years, and the
increasing use of composites within aerospace manufacturing.
Despite this, the business has been able to continue to grow its
customer base, and to win additional business with its existing
customers.
For many businesses, the negotiations between the United Kingdom
and European Union for its future relationship give cause for
uncertainty and concern. The planned opening of Velocity's new
office in Poland (and recently opened office in Malaysia) go
towards mitigating these uncertainties. Whilst the ongoing
uncertainty is a natural cause for concern, the aerospace sector is
a global market which unlike many other sectors is largely tariff
free. The UK is the second largest aerospace market in the world
and works in global alliance on long term projects which last for
many years. For Velocity, its strategy remains to be country
agnostic and to co-locate in aerospace clusters alongside its
customers, which helps to mitigate some of the risk that Brexit may
otherwise bring to the Group.
In addition, the Group has undertaken various risk mitigation
activities which included planning to hold additional stock levels
during the Brexit transition dates to mitigate any supply chain
issues, undertaking other capacity planning assessments with
customers and suppliers, ensuring any tariff and tax changes are
fully covered in our contracts and liaising with Government bodies
to be prepared for the different outcomes which may come to pass.
Supplier risks are detailed below under operational risks.
The Board is also conscious of the risk of exclusively operating
in the aerospace sector, foregoing many offers from automotive
manufacturers for example, and is comfortable that the risk is
mitigated by the forward order books of the aircraft manufacturers
and strength of the growing aerospace market.
Financial risk management
The Group uses financial instruments including loans, cash and
other items such as trade receivables and trade payables that arise
directly from its operations. The main purpose of these financial
instruments is to raise finance for the Group's operations.
The existence of these financial instruments exposes the Group
to a number of financial risks. These are liquidity risk, credit
risk, interest rate risk and exchange rate risk. The Directors
review and agree policies for managing each of these risks and they
are summarised below.
Liquidity risk
The Group seeks to manage financial risk by ensuring sufficient
liquidity is available to meet its foreseeable needs, by the use of
invoice discounting, loans and other bank facilities, and to invest
cash assets safely and profitably. The Group also has the ability
to seek additional funds from the equity markets if necessary.
Credit risk
The Group's trade receivables relate to amounts owed by
aerospace supply chain manufacturers. Given the size and stability
of the core receivables, the Directors do not believe that credit
risk to the Group is significant. The Directors monitor any default
risk on a regular and ongoing basis.
Interest rate risk
The Group seeks to manage its interest rate risk through
regularly reviewing the interest rates available within the
financial marketplace.
Exchange rate risk
The Group seeks to manage the exposure to exchange rate
fluctuation it experiences with purchasing raw materials in
Sterling, US Dollars and Euros and selling finished kits in the
same currency. The Directors monitor the future projected exchange
rates and look to mitigate any significant exposure where possible,
including by matching receipts and payments in currency and
utilising currency exchange facilities.
Operational Risks
The Group has a number of areas of Operational risk which are
actively managed including materials and products uniquely provided
by a small number of third parties, reliance on key individuals and
health and safety. The Group's business depends on materials and
products uniquely provided by a small number of third parties in
the supply chain. If there is any interruption to the supply of
products by these third parties or timing delays, or problems
maintaining quality standards then the Group's business will be
adversely affected. We meet regularly with our customers to
understand their demand needs which change on a regular basis, as
well as being in regular contact with suppliers. Given the long
lead times on supply this can lead to shortages of products. We
have planned increases in our buffer stocks of products to give us
additional stock holdings assuming we exit the European Union at
the end of March.
The success of the Group will depend upon the continuing efforts
(as referred to in the Business Strategy section of the Executive
Chairman's report above) to convince customers to outsource their
cutting and kitting activities to the Group, and also to then renew
these appointments upon contract expiration. This is largely
dependent upon the continuation of the high quality service
provided by the Group and also by the expertise and relationships
of the Board and other Senior employees with these key customers.
Without these contract wins, the operational success and growth of
the Group will be put at risk.
The Health and Safety of all our staff is a priority item for
the Board and a Health and Safety report is presented at each Board
meeting.
Outlook
Despite the above risks that the Group faces, the Board remains
confident of the ability of the Group to meet the needs of its
existing customer base and to use the resources it has available to
extend this offering to both existing and new customers.
The Strategic Report as set out in the Executive Chairman's
Report, Our Business in the Aerospace Market and the Financial
Review on pages 4 to 14 has been approved by the Board.
Alan Kershaw
Chief Financial Officer
21 January 2019
Statement of Corporate Governance
All members of the Board believe strongly in the value and
importance of good corporate governance and in our accountability
to all of Velocity's stakeholders, including investors, staff,
customers and suppliers. The Board has continued to adhere to the
Quoted Companies Alliance (QCA) Corporate Governance Code for small
and mid-size quoted companies. The corporate governance framework
which the Group operates, including Board leadership and
effectiveness, Board remuneration, and internal control is based
upon practices which the Board believes are proportional to the
size, risks, complexity and operations of the business and is
reflective of the Group's values.
The Directors are committed to continuing to enhance the
corporate governance framework of the Group in order to ensure that
it meets the high standards that it expects, as these are critical
to business integrity and to maintaining trust with its customers,
suppliers, employees and other important stakeholders. One example
of this enhancement has been the appointment of two independent
Non-Executive Directors in the period, as detailed below.
In applying the principle that the Board should maintain a sound
system of internal control to safeguard the Group, the Directors
recognise that they have overall responsibility for ensuring that
the Group maintains proper accounting records and a system of
internal control to provide them with reasonable assurance
regarding effective and efficient operations, internal financial
control and compliance with laws and regulations. There are
however, inherent limitations in any system of internal control and
hence even the most effective system can only provide reasonable,
and not absolute, assurance particularly against misstatement or
loss. As expected, a key control during the period was the
day-to-day supervision of the business by the Executive
Directors.
The Board
At the date of this report the Board comprises of the Executive
Chairman, the Chief Financial Officer and two Non-Executive
Directors. In the latter half of the financial year Jonathan
Bridges left the Board after a move from Chief Executive Officer to
the role of Chief Technical Officer, Mark Mills then became
Executive Chairman on an interim basis and Brian Tenner and Meera
Parmar joined the Board as Non-Executive Directors after Peter
Turner resigned as a Non-Executive Director. Due to the size of the
Board the roles of Chief Financial Officer and Company Secretary
are carried out by the same individual. Alan Kershaw has also
indicated that he will in due course be leaving to pursue new
opportunities, and has begun a handover to Andrew Hebb, Interim
CFO, ahead of the recruitment of a new permanent CFO.
The Chairman has overall responsibility for corporate governance
and in promoting high standards throughout the Group. He leads and
chairs the Board, ensuring that the committees are properly
structured and reviewed on a regular basis, leads in the
development of strategy and setting objectives, and oversees
communication between the Group and its shareholders.
The Board meets on a regular (usually monthly) basis to deal
with matters reserved for its decision. These include agreeing and
monitoring strategic plans and financial targets, major decisions
on resource, overseeing management of the Group and ensuring
processes are in place to manage major risks, treasury matters,
changes in accounting policy, corporate governance issues,
litigation and reporting to Shareholders.
The monthly Board meetings have a regular agenda with standing
items of Health and Safety, Chief Technical Officer report, Chief
Operating Officer report, Chief Commercial Officer report, Chief
Programmes Officer report, Chief Financial Officer report and
management accounts. The Board also receives committee updates on a
regular basis. To enable the Board to discharge its duties all
Directors receive appropriate and timely information. Briefing
papers are distributed by the Company Secretary to all Directors in
advance of the meetings.
The Non-Executive Directors are considered by the Board to be
independent of management and have both the breadth and depth of
skills and experience to fulfil their roles. They meet
independently without Executive Directors present and maintain
ongoing communications with Executive Directors between formal
meetings.
A Board and management evaluation process led by the Chairman
took place in March 2018. As a result of the process a number of
refinements to working practices were identified and have been
adopted. As the business grows, the Executive Directors will be
challenged to identify internal candidates who could potentially
occupy Board positions and set out development plans for these
individuals.
In support of the QCA objective of delivering growth in long
term shareholder value during the year the Group undertook off site
Board discussions over the Group's short, medium and long term
strategic direction, and enabled senior management engagement with
strategic advisors over the SC21 C&G processes (the Aerospace
and Defence Supply Chain Improvement programme) to meet sector
expectations.
Board Committees
There are three formal Board committees that meet independently
of Board meetings and one additional executive and senior
management meeting as follows:
Audit Committee
The Audit Committee currently has three members, Brian Tenner
(Chair), Mark Mills and Meera Parmar. The Chief Financial Officer
and external auditors attend by invitation. The Audit Committee
responsibilities include the review of the scope, results and
effectiveness of the external audit, the review of the Interim and
Annual accounts, and the review of the Group's risk management and
internal control systems. The Audit Committee advises the Board on
the appointment of the external auditors and monitors their
performance. The Audit Committee met on three occasions during the
year.
Remuneration Committee
The Remuneration Committee has three members, Meera Parmar
(Chair), Mark Mills and Brian Tenner. The Committee is responsible
for setting the remuneration arrangements, short term bonus and
long-term incentives for the Executive Directors and senior
management. In addition the committee oversees the creation and
implementation of all employee share plans. The Committee did not
meet separately to the Board during the year.
Nomination Committee
The Nomination Committee has three members, Mark Mills (Chair),
Brian Tenner and Meera Parmar. The Nomination Committee meets as
required and is responsible for proposing candidates for
appointment to the Board and the structure and composition of the
Board as a whole, as well as succession planning. The Committee's
responsibilities were discussed as a part of the Board meetings
during the year.
Executive Committee
The Executive Committee handles the implementation of the Group
strategy on behalf of the Board. The Committee comprises of the
Executive Directors and other senior managers. It focuses on the
long-term vision and strategy for the Group. Primary
responsibilities include the oversight of the development,
maintenance and implementation of the strategy, management of the
overall financial results for the Group, directing operational
management and managing shareholder, corporate governance and
growth.
Relations with Shareholders
Velocity maintains an active dialogue with its Shareholders
through a programme of Investor Relations. We seek to provide
effective communications through our Interim and Annual reports,
Trading Updates along with Regulatory News Service announcements.
Information is also made available to Shareholders through the
company's website (www.velocity-composites.com). The Executive
Chairman and other Executives meet both private and institutional
Shareholders from time to time and all Directors make themselves
available to meet Shareholders at the Annual General Meeting. The
Executive Chairman and Chief Financial Officer meet with
Institutional shareholders and analysts following the release of
full-year and half year results, and through a combination of
formal meetings, roadshows and informal briefings. Following the
year end, Brian Tenner and Meera Parmar have engaged with certain
institutional investors as requested, in relation to the ongoing
discussions between the Company and the founding shareholders.
Engagement with Wider Stakeholders and Social
Responsibilities
The Board and senior management engage with wider stakeholders
including our staff, clients, suppliers, shareholders, industry
bodies and communities in a way to promote the longer-term success
of the business. With our staff we have implemented monthly staff
briefings, a quarterly staff newsletter as well as completing an
annual engagement survey. We are members of industry bodies such as
NWAA and NADCAP who are influential in how the Group is perceived
by clients. We actively participate in the community through our
Social Engagement Team and participate in apprenticeship and other
schemes to provide opportunities for young people. We also engage
with our clients and suppliers in a number of ways: through
dialogue; maintaining high levels of quality; ensuring security of
data; delivering continuous availability.
Internal Control
The Board has overall responsibility for the Group's system of
internal control. The system of internal control is designed to
manage rather than eliminate the risk of failure to achieve
business objectives. In pursuing these objectives, internal
controls can only provide reasonable and not absolute assurance
against material misstatement or loss.
The Board performs a regular review of the effectiveness of the
system of internal control and takes action as necessary to remedy
any significant failings or weaknesses identified in the review.
The processes used by the Board to review the effectiveness of the
system of internal control include the following:
-- An ongoing process of risk assessment to identify, evaluate and manage business risks;
-- Management structure with clearly defined responsibilities and authority limits;
-- A comprehensive system of reporting financial results to the Board;
-- The Audit Committee reviews the effectiveness of the Group's
risk management process and significant risk issues are referred to
the Board for consideration;
-- Appraisal and authorisation of capital expenditure and research and development projects;
-- Dual signatories on all bank accounts.
Mark Mills
Chairman
21 January 2019
Consolidated Statement of Total Comprehensive Income
Year ended Year ended
31 October 31 October
2018 2017
Note GBP'000 GBP'000
-------------------------- --------------------------
Revenue 4 24,478 21,369
Cost of sales (19,991) (17,438)
-------------------------- --------------------------
Gross profit 4,487 3,931
Administrative expenses
excluding exceptional
costs (5,322) (3,481)
Exceptional administrative
expenses 7 (252) (931)
Other operating income 15 21
Operating loss 5 (1,072) (460)
Finance expense 8 (135) (167)
-------------------------- --------------------------
Loss before tax from
continuing operations (1,207) (627)
Income tax
income/(expense) 9 213 (73)
Loss for the period and
total comprehensive
loss (994) (700)
========================== ==========================
Loss per share - Basic 10 (GBP0.03) (GBP0.02)
(GBP) from continuing
operations
========================== ==========================
Loss per share - Diluted 10 (GBP0.03) (GBP0.02)
(GBP) from continuing
operations
========================== ==========================
Consolidated and Company Statement of Financial Position
Group Group Company Company
---------------------- ---------------------- ---------------------- ----------------------
31 31 31 31
October October October October
2018 2017 2018 2017
Note GBP'000 GBP'000 GBP'000 GBP'000
Non-current
assets
Intangible
assets 11 362 317 362 317
Property,
plant and
equipment 12 1,080 1,083 1,080 1,083
Investment in 13 - - - -
subsidiaries
---------------------- ---------------------- ---------------------- ----------------------
Total
non-current
assets 1,442 1,400 1,442 1,400
---------------------- ----------------------
Current
assets
Inventories 14 2,744 3,266 2,744 3,266
Trade and
other
receivables 15 5,727 6,148 5,758 6,148
Corporation
tax 113 - 113 -
Cash and cash
equivalents 16 4,726 5,414 4,718 5,414
---------------------- ---------------------- ---------------------- ----------------------
Total current
assets 13,310 14,828 13,333 14,828
----------------------
Total assets 14,752 16,228 14,775 16,228
---------------------- ----------------------
Current
liabilities
Trade and
other
payables 17 5,197 5,623 5,191 5,623
Grant income
deferred 18 7 22 7 22
Corporation
tax - 35 - 35
Net
obligations
under
finance
leases 19 116 145 116 145
---------------------- ---------------------- ---------------------- ----------------------
Total current
liabilities 5,320 5,825 5,314 5,825
---------------------- ----------------------
Non-current
liabilities
Deferred tax
liabilities 20 - 106 - 106
Net
obligations
under
finance
leases 19 171 211 171 211
---------------------- ---------------------- ---------------------- ----------------------
Total
non-current
liabilities 171 317 171 317
----------------------
Total
liabilities 5,491 6,142 5,485 6,142
Net assets 9,261 10,086 9,290 10,086
Equity
attributable
to equity
holders of
the company
Share capital 22 89 89 89 89
Share premium
account 22 9,727 9,727 9,727 9,727
Share-based
payments
reserve 536 367 536 367
Retained
earnings (1,091) (97) (1,062) (97)
---------------------- ----------------------
Total equity 9,261 10,086 9,290 10,086
====================== ====================== ====================== ======================
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
result for the year was (GBP965,000). The financial statements were
approved and authorised for issue by the Board of Directors on 21
January 2019 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 2016 - - 603 - 603
Loss for the
year - - (700) - (700)
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
- - (97) - (97)
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
Transactions
with
shareholders:
Issue of
ordinary
share
capital 30 10,471 - - 10,501
Bonus issue of
ordinary
share capital 59 (59) - - -
Share-based
payments - - - 367 367
Costs
associated
with issue
of equity
(from the AIM
listing) - (685) - - (685)
As at 31
October 2017 89 9,727 (97) 367 10,086
====================== ====================== ======================= ========================== ======================
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
====================== ====================== ======================= ========================== ======================
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 2016 - - 603 - 603
Loss for the
year - - (700) - (700)
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
- - (97) - (97)
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
Transactions
with
shareholders:
Issue of
ordinary
share
capital 30 10,471 - - 10,501
Bonus issue of
ordinary
share capital 59 (59) - - -
Share-based
payments - - - 367 367
Costs
associated
with issue
of equity
(from the AIM
listing) - (685) - - (685)
As at 31
October 2017 89 9,727 (97) 367 10,086
====================== ====================== ======================= ========================== ======================
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
====================== ====================== ======================= ========================== ======================
Consolidated and Company Statement of Cash Flows
Group Group Company Company
----------------------------- ----------------------- ----------------------- -----------------------
Year ended Year Year Year
31 October ended ended ended
31 31 31
October October October
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ----------------------- ----------------------- -----------------------
Operating activities
Loss for the year (994) (700) (965) (700)
Taxation (213) 73 (213) 73
Loss/ (Profit) on
disposal of
assets 7 (3) 7 (3)
Finance costs 135 167 135 167
Amortisation of
intangible assets 107 80 107 80
Depreciation of
property, plant
and equipment 306 263 306 263
Share-based payments 169 367 169 367
Grant income
amortisation (15) (21) (15) (21)
----------------------------- ----------------------- ----------------------- -----------------------
Operating cash flows
before movements
in working capital (498) 226 (469) 226
Decrease/(Increase) in
trade and
other receivables 424 (3,206) 393 (3,206)
Decrease/(Increase) in
inventories 522 (921) 522 (921)
Increase in trade and
other payables 98 1,461 92 1,461
----------------------- -----------------------
Cash generated from
operations 546 (2,440) 538 (2,440)
Income taxes paid (40) - (40) -
----------------------------- ----------------------- ----------------------- -----------------------
Net cash Inflow/
(outflow) from
operating activities 506 (2,440) 498 (2,440)
Investing activities
Purchase of property,
plant and
equipment (220) (271) (220) (271)
Development
expenditure
capitalised (152) (397) (152) (397)
Proceeds from the sale
of property,
plant and equipment - 4 - 4
Net cash used in
investing activities (372) (664) (372) (664)
Financing activities
Proceeds from issue of
shares - 10,501 - 10,501
Payments of share
issue costs - (685) - (685)
Finance costs paid (135) (167) (135) (167)
Decrease in invoice
discounting (528) (1,025) (528) (1,025)
Repayment of finance
lease capital (159) (145) (159) (145)
Dividends paid - - - -
----------------------------- ----------------------- -----------------------
Net cash generated
from financing
activities (822) 8,479 (822) 8,479
============================= =======================
Net (decrease)/
increase in cash
and cash equivalents (688) 5,375 (696) 5,375
Cash and cash
equivalents at 01
November 5,414 39 5,414 39
----------------------------- ----------------------- ----------------------- -----------------------
Cash and cash
equivalents at 31
October 4,726 5,414 4,718 5,414
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. This
subsidiary company 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 2018. 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 three 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
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 9 'Financial Instruments'. This standard is effective
for accounting periods beginning on or after 1 January 2018 and
will be required to be first applied to the Group's financial
reporting for the year ending 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. The Directors are undertaking a
detailed assessment of the potential impact of IFRS 9.
-- IFRS 15 'Revenue from Contracts with Customers'. This
standard is effective for accounting periods beginning on or after
1 January 2018 and will be required to be first applied to the
Group's financial reporting for the year ending 31 October 2019.
The directors have undertaken an assessment of the impact of IFRS
15. Goods are delivered to customers, and, on their acceptance by
the customer, revenue is recognised. At this point, the Group does
not have any continued involvement or control over the goods
delivered. Customers rarely place specific orders on the Group, and
when this occurs will normally take the delivery once available.
The Directors are undertaking a detailed assessment of the
potential impact of IFRS 15.
-- 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. The Group does have other non-property related operating
leases, but these are not as significant as the property leases.
The directors are undertaking a detailed assessment of the
potential impact of IFRS 16.
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.
Revenue Recognition
Revenue is derived from the engineering and sale of goods and is
measured at the fair value of the consideration received or
receivable excluding discounts, VAT and other sales taxes or duty.
The Group recognises revenue when the engineered goods are
delivered to the customer, at which stage the risks and rewards
have transferred to the customer and it is probable that future
economic benefits will flow to the entity. Invoices raised by the
Group are incorporated into the invoice discounting facility
provided by the Group's bankers. The asset or liability arising is
recognised within the statement of financial position.
Inventory
Inventory is stated at the lower of costs incurred in bringing
each product to its present location and condition compared to net
realisable value as follows:
-- Raw materials, consumables and goods for resale - purchase
cost on a first-in/first-out basis.
-- Work in progress and finished goods - costs of direct
materials and labour plus attributable overheads based on a normal
level of activity
Net realisable value is based on an estimated selling price less
any further costs expected to be incurred for completion and
disposal.
Expenditure
Expenditure is recognised in respect of goods and services
received when supplied in accordance with contractual terms.
Provision is made when an obligation exists for a future liability
relating to a past event and where the amount of the obligation can
be reliably estimated. Goods or services supplied in a foreign
currency are recognised at the exchange rate ruling at the time of
accounting for this expenditure.
Retirement Benefits: Defined contribution schemes
Contributions to defined contribution pension schemes are
charged to the statement of comprehensive income in the year to
which they relate.
Research and development expenditure
Research expenditure - Expenditure on research activities is
recognised as an expense in the period in which it is incurred.
Development expenditure - An internally generated intangible
asset arising from the Group's own development activity is
recognised only if all of the following conditions are met:
-- an asset is created that can be identified and is technically and commercially feasible;
-- it is probable that the asset created will generate future
economic benefits and the Group has available sufficient resources
to complete the development and to subsequently sell and/or use the
asset created; and
-- the development cost of the asset can be measured reliably.
The amount recognised for development expenditure is the sum of
all incurred expenditure from the date when the intangible asset
first meets the recognition criteria listed above. This occurs when
future sales are expected to flow from the work performed. Incurred
expenditure largely relates to internal staff costs incurred by the
Group.
Subsequent to initial recognition, internally-generated
intangible assets are reported at cost less accumulated
amortisation and impairment.
Amortisation
Amortisation is calculated to write off the cost of intangible
assets less their estimated residual values using the straight-line
method over their estimated useful lives and is generally
recognised in the statement of total comprehensive income. The
estimated useful lives are based on the average life of a project
as follows:
Development costs 5 years
Property, plant and equipment
Items of property, plant and equipment are initially recognised
at cost. As well as the purchase price, cost includes directly
attributable costs.
Depreciation is provided on all items of property, plant and
equipment so as to write off their carrying value over the expected
useful economic lives. It is provided at the following methods and
rates:
Plant and machinery 15% straight line
Motor vehicles 25% straight line
Fixtures and fittings 15% straight line
Leasehold Improvements 10% straight line
Exceptional items
Items which are both material and non-recurring are presented as
exceptional items within the relevant income statement category.
The separate reporting of exceptional items helps provide a better
indication of the Group's underlying business performance.
Foreign currency translation
Items included in the financial statements of each of the
group's entities are measured using the currency of the primary
economic environment in which the entity operates ('its functional
currency'). The consolidated financial statements are presented in
sterling, which Velocity Composites plc's functional and
presentation currency.
Foreign currency transactions are translated into the functional
currency using the exchange rates at the dates the transactions
occur. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation of
monetary assets and liabilities denominated in foreign currencies
at year end exchange rates are recognised in the Consolidated
comprehensive statement of income.
The results and financial position of foreign operations that
have a functional currency different from the presentation currency
are translated into the presentation currency, on consolidation, as
follows:
-- assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance
sheet
-- income and expenses for each statement of profit or loss and
statement of comprehensive income are translated at average
exchange rates, and
-- all resulting exchange differences are recognised immediately
in the Consolidated comprehensive statement of income.
Impairment of non-financial assets
The carrying values of non-financial assets are reviewed for
impairment when there is an indication that assets might be
impaired, and at the end of each reporting period. When the
carrying value of an asset exceeds its recoverable amount, the
asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of
an individual asset, the impairment test is carried out on the
asset's cash generating unit (i.e. the smallest grouping of assets
in which the asset belongs for which there are separately
identifiable cash flows).
Impairment charges are included in the income statement, except
to the extent they reverse previous gains recognised in the
statement of comprehensive income.
Financial Instruments
All funding requirements and financial risks are managed based
on policies and procedures adopted by the Board of Directors
encapsulating the normal day to day trading of the Group. The Group
does not use derivative financial instruments such as forward
currency contracts, interest rate swaps or similar instruments. The
Group does not issue or use financial instruments of a speculative
nature.
Financial assets
The Group classifies its financial assets into the categories
discussed below and based upon the purpose for which the asset was
acquired. The Group has not classified any of its financial assets
as held to maturity.
Loans and receivables
These assets are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They
arise principally through the provision of services to customers
(e.g. trade receivables), but also incorporate other types of
contractual monetary asset. They are initially recognised at fair
value plus transactions costs that are directly attributable to
their acquisition or issue and are subsequently carried at
amortised cost using the effective interest method, less provision
for impairment.
The Group's loans and receivables comprise trade and other
receivables included within the statement of financial
position.
Cash and cash equivalents include cash held at bank, bank
overdrafts and marketable securities of very short-term maturity
(typically three months or less) which are not expected to
deteriorate significantly in value until maturity. Bank overdrafts
are shown within loans and borrowings in current liabilities in the
statement of financial position.
Impairment provisions are recognised when there is objective
evidence (such as significant financial difficulties on the part of
the counterparty or default or significant delay in payment) that
the Group will be unable to collect all of the amounts due under
the terms receivable, the amount of such a provision being the
difference between the net carrying amount and the present value of
the future expected cash flows associated with the impaired
receivable. For trade receivables, which are reported net, such
provisions are recorded in a separate allowance account with the
loss being recognised within administrative expenses in the income
statement. On confirmation that the trade receivables will not be
collectable, the gross carrying value of the asset is written off
against the associated provision. The Group does not currently
carry a provision for uncollectable receivables.
Financial liabilities
The Group classifies its financial liabilities as comprising
trade payables and other short-term monetary liabilities, which are
initially recognised at fair value and subsequently carried at
amortised cost using the effective interest method. The Group does
not currently have any borrowings and utilises invoice discounting
in support of its working capital requirements.
Share Capital
Financial instruments issued by the Group are treated as equity
only to the extent that they do not meet the definition of a
financial liability. The Group's ordinary shares are classified as
equity instruments.
Share Premium
Share premium represents the excess of the issue price over the
par value on shares issued less costs relating to the capital
transaction arising on the issue.
Share-based payment
The Group operates an equity-settled share-based compensation
plan in which the Group receives services from Directors and
certain employees as consideration for share options. The fair
value of the services is recognised as an expense over the vesting
period, determined by reference to the fair value of the options
granted.
Leased Assets
Finance Lease
Where substantially all the risks and rewards incidental to
ownership of a leased asset have been transferred to the Group (a
'finance lease') the asset is treated as if it had been purchased
outright. The amount initially recognised as an asset is the lower
of the fair value of the leased asset and the present value of the
minimum lease payments payable over the term of the lease. The
corresponding lease commitment is shown as a liability. Lease
payments are analysed between capital and interest. The interest
element is charged to the Consolidated statement of comprehensive
income over the period of the lease and is calculated so that it
represents a constant proportion of the lease liability. The
capital element reduces the balance owed to the lessor.
Operating Lease
Where substantially all of the risks and rewards incidental to
ownership are not transferred to the Group (an 'operating lease'),
the total rentals payable under the lease are charged to the
Consolidated statement of comprehensive income on a straight-line
basis over the lease term. The aggregate benefit of lease
incentives is recognised as a reduction of the rental expense over
the lease term on a straight-line basis.
Current taxation
The tax currently payable is based on the taxable profit of the
period. Taxable profit differs from profit as reported in the
Consolidated statement of comprehensive income because it excludes
items of income and expense that are taxable or deductible in other
periods and it further excludes items that are never taxable or
deductible. The Group's liability for current tax is calculated
using rates that have been enacted or substantively enacted by the
statement of financial position date.
Deferred taxation
Deferred tax assets and liabilities are recognised where the
carrying amount of an asset or liability in the statement of
financial position differs from its tax base, except for
differences arising on:
- the initial recognition of goodwill;
- the initial recognition of an asset or liability in a
transaction which is not a business combination and at the time of
the transaction affects neither accounting nor taxable profit.
Recognition of deferred tax assets is restricted to those
instances where it is probable that taxable profit will be
available against which the difference can be utilised.
The amount of the asset or liability is determined using tax
rates that have been enacted or substantially enacted by the
balance sheet date and are expected to apply when the deferred tax
liabilities or assets are settled or recovered. Deferred tax
balances are not discounted.
Deferred tax assets and liabilities are offset when the Group
has a legally enforceable right to offset current tax assets and
liabilities and the deferred tax assets and liabilities relate to
taxes levied by the same tax authority on either the same taxable
Company; or different Company entities which intend either to
settle current tax assets and liabilities on a net basis, or to
realise the assets and settle the liabilities simultaneously, in
each future period in which significant amounts of deferred tax
assets and liabilities are expected to be settled or recovered.
Operating Segments
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker has been identified as the Board
of Directors. The Group supplies a single type of product into a
single industry and so has a single segment. Additional information
is given regarding the revenue receivable based on geographical
location of the customer.
No differences exist between the basis of preparation of the
performance measures used by management and the figures in the
Group financial information.
Critical accounting estimates and judgements
The Group makes certain estimates and assumptions regarding the
future. Estimates and judgements are continually evaluated based on
historical experience and other factors, including the expectations
of future events that are believed to be reasonable under the
circumstances. In the future, actual experience may differ from
these estimates and assumptions. The estimates and assumptions that
have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year are discussed below.
Useful lives of depreciable assets
Management reviews the useful lives of depreciable assets (both
tangible and intangible) at each reporting date. At the reporting
date management assesses that the useful economic lives represent
the expected life of the assets to the Group. Actual results,
however, may vary due to unforeseen events.
Impairment of tangible and intangible assets
At each balance sheet date, the Group reviews the carrying
amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent
of the impairment.
If the recoverable amount of an asset (or subsidiary) is
estimated to be less than its carrying amount, the carrying amount
of the asset (is reduced to its recoverable amount. An impairment
loss is recognised as an expense immediately, unless the relevant
asset is carried at a revalued amount, in which case the impairment
loss is treated as a revaluation decrease.
Stock provisions
Stock provisions are made for obsolete, out of life and
slow-moving stock items assessed by key management. Stock is
accounted for on a first in, first out basis.
3. Financial instruments & Risk Management
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies. The overall
objective of the Board is to set policies that seek to reduce risk
as far as possible without unduly affecting the Group's
competitiveness and flexibility. The Group reports in Sterling. All
funding requirements and financial risks are managed based on
policies and procedures adopted by the Board of Directors. The
Group does not use derivative financial instruments such as forward
currency contracts, interest rate swaps or similar instruments. The
Group does not currently issue or use financial instruments of a
speculative nature but as described in the strategic report,
management may consider the potential utilisation of such
instruments in the future. The Group utilises an invoice
discounting facility with its bankers to assist in its cash flow
management. In accordance with the terms of the current facility
(which is available on demand) the risk and management of trade
debtors is retained by the Group.
Financial instruments
Year ended Year ended
Financial instruments by category 31 October 31 October
2018 2017
GBP'000 GBP'000
-------------------------- --------------------------
Current assets
Trade and other receivables - loans and
receivables 5,571 5,921
Trade and other receivables - non financial
assets 269 227
-------------------------- --------------------------
5,840 6,148
========================== ==========================
Cash and cash equivalents - loans and
receivables 4,726 5,414
Total loans and receivables 10,297 11,335
========================== ==========================
Current liabilities
Trade and other payables - at amortised cost 4,688 5,045
Trade and other payables - non financial
liabilities 509 578
-------------------------- --------------------------
5,197 5,623
========================== ==========================
Risk Management
The Group's activities expose it to a variety of financial
risks: market risk (primarily foreign exchange risk and interest
rate risk), credit risk and liquidity risk. The Group's overall
risk management programme focuses on the unpredictability of
financial markets and seeks to minimise potential adverse effects
on the Group's financial performance. Risk management is carried
out by the Board and their policies are outlined below.
a) Market risk
Foreign exchange risk
The Group is exposed to transaction foreign exchange risk in its
operations both within the UK and overseas. Transactions are
denominated in Sterling, US Dollars, Euros and Ringgits. The Group
has commercial agreements in place which allow it to transact with
its customers in the currency of the material purchase, thereby
allowing currency risk to pass through the Group.
The carrying value of the Group's foreign currency denominated
assets and liabilities comprise the inventories in Note 14, trade
receivables in Note 15, cash in Note 16 and trade payables in Note
17.
Whilst the majority of the Group's financial assets are held in
Sterling, movements in the exchange rate of the US Dollar, Euro or
Ringgit against Sterling do have an impact on both the result for
the year and equity. The Group's assets and liabilities that are
held in US Dollar, Euro or Ringgits are held in those currencies
for normal trading activity in order to recover funds from
customers or to pay funds to suppliers. The Group does not
speculatively hold positions in US Dollar, Euro or Ringgits, and
therefore the Group considers the residual risk at the yearend to
be insignificant.
Interest rate risk
The Group carries no significant borrowings apart from leases.
Therefore, with the exception of the invoice discounting facility
which attracts an interest rate of 2.25%, the Directors consider
that there is no significant interest rate risk.
b) Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. In order to minimise this risk, the Group endeavours only to
deal with companies which are demonstrably creditworthy and this,
together with the aggregate financial exposure, is continuously
monitored. The maximum exposure to credit risk is the value of the
outstanding amount.
Supply of products by the Group results in trade receivables
which the management consider to be of low risk, other receivables
are likewise considered to be low risk. However, four of the
customers comprise in excess of 10% of the revenue earned by the
Group (see Note 4). Credit risk on cash and cash equivalents is
considered to be small as the counterparties are all substantial
banks with high credit ratings. The maximum exposure is the amount
of the deposit.
c) Liquidity risk
The Group currently holds cash balances in Sterling, US Dollars,
Euros and Ringgits to provide funding for normal trading activity.
Trade and other payables are monitored as part of normal management
routine. The Group also has access to banking facilities including
invoice finance which it utilises when needed in order to manage
its liquidity risk.
2017 Within One to Two to Over
1 year two five five
years years years
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Finance
lease
liability 172 137 103 -
Trade 3,421 - - -
payables
Accruals 480 - - -
Other - - - -
payables
Invoice 1,144 - - -
discounting
facility
2018 Within One to Two to Over
1 year two five five
years years years
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Finance
lease
liability 134 82 111 -
Trade 3,251 - - -
payables
Accruals 804 - - -
Other 17 - - -
payables
Invoice 616 - - -
discounting
facility
The finance lease liability is shown gross, inclusive of
interest payments.
c) Capital risk management
For the purpose of the Group's capital management, capital
includes issued capital and all other equity reserves attributable
to the equity holders of the Group. The Group's objectives when
managing capital are to safeguard the Group's ability to continue
as a going concern in order to provide returns for shareholders and
benefits for other members. The Group will also seek to minimise
the cost of capital and attempt to optimise the capital
structure.
4. 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
2018 2017
GBP'000 GBP'000
-------------------------- --------------------------
Revenue
United Kingdom 23,984 21,225
Europe 494 144
24,478 21,369
========================== ==========================
During the year four customers accounted for 82.8% of the
Group's total revenue for the year ended 31 October 2018. This was
split as follows; Customer A - 46.7% (2017: 53.9%), Customer B -
22.2% (2017: 13.7%), Customer C - 13.9% (2017: 10.7%) and Customer
D - 13.2% (2017: 8.3%). The majority of revenue arises from the
sale of goods. Where engineering services form a part of revenue it
is only in support of the development or sale of the goods.
During the year the Group operated in Asia. No revenue was
generated in Asia during the year ended 31 October 2018 as the site
operates as an Engineering Support Office.
5. Loss from operations
The operating loss is stated after charging / (crediting):
Year ended Year ended
31 October 31 October
2018 2017
GBP'000 GBP'000
-------------------------- --------------------------
Staff costs (see Note 6) 4,475 3,634
Foreign exchange (gain)/ losses (68) 8
Amortisation of development costs 96 80
Impairment of development costs 11 -
Depreciation:
Owned assets 184 158
Assets held under finance leases 122 105
Loss/ (Profit) on disposal of assets 7 (3)
Grant income amortisation (15) (21)
Operating lease payments 260 226
Auditor's remuneration:
Audit of the accounts of the Group 43 37
Other audit related services (relating to
interim review) 8 9
Taxation compliance services 4 3
Other taxation advisory services 19 51
Other assurance services (relating to IPO) - 134
========================== ==========================
6. Staff costs
Year ended Year ended
31 October 31 October
2018 2017
GBP'000 GBP'000
-------------------------- --------------------------
Wages, salaries and bonuses 3,839 2,931
Social security costs 359 329
Pension costs 108 39
Share-based payments 169 335
-------------------------- --------------------------
4,475 3,634
========================== ==========================
The average monthly number of employees during the period was as
follows:
Year ended Year ended
31 October 31 October
2018 2017
Head count Head count
-------------------------- --------------------------
Manufacturing 85.0 74.5
Administration 47.0 31.5
132.0 106.0
========================== ==========================
Directors costs
Year ended Year ended
31 October 31 October
2018 2017
GBP'000 GBP'000
Directors' remuneration included in staff
costs:
Wages, salaries and bonuses 419 613
Compensation for retirement from office 60 -
Pension costs 20 12
Share-based payments - 232
-------------------------- --------------------------
499 857
========================== ==========================
In addition to the remuneration above, the non-executive directors
have submitted invoices for their fees as follows:
- 18
========================== ==========================
Remuneration of the highest paid director(s):
Wages, salaries and bonuses or fees 180 241
========================== ==========================
7. Exceptional administrative expenses
Year ended Year ended
31 October 31 October
2018 2017
GBP'000 GBP'000
-------------------------- --------------------------
Restructuring costs 252 -
Fees associated with AIM Listing - 667
Share-based payments - 264
-------------------------- --------------------------
252 931
========================== ==========================
Exceptional expenses incurred during the financial year are
in relation to restructuring costs within the business. These
costs relate to unavoidable non-recurring costs following key
management decisions.
Exceptional expenses incurred during the previous financial
year are in relation to costs of converting the Company from
a private limited company to a public limited company and the
subsequent admission of the Company to trading on AIM during
the year. Total costs incurred were GBP1,352,000 with GBP685,000
charged to share premium as being directly related to newly
issued shares. In addition, shares were issued to Mark Mills,
Matthew Turner and Nigel Turner in January 2017 which resulted
in an exceptional charge of GBP264,000 due to the one off nature
of the activity.
8. Finance income and expenses
Year ended Year ended
31 October 31 October
2018 2017
GBP'000 GBP'000
-------------------------- --------------------------
Finance expense
Finance charge from Finance leases 29 55
Other interest & invoice discounting charges 106 112
135 167
========================== ==========================
9. Income tax
Year ended Year ended
31 October 31 October
2018 2017
GBP'000 GBP'000
-------------------------- --------------------------
Current tax (income)/expense
UK corporation tax: in respect of this year (69) 70
UK corporation tax: in respect of prior
years (38)
Adjustment for under provision in prior
periods - (6)
-------------------------- --------------------------
(107) 64
-------------------------- --------------------------
Deferred tax (income)/expense
Deferred tax in respect of this year (106) 9
Adjustments in respect of prior periods - -
Rates adjustment - -
-------------------------- --------------------------
(106) 9
-------------------------- --------------------------
Total tax (income)/expense (213) 73
========================== ==========================
The reasons for the difference between the actual tax charge for
the year and the standard rate of corporation tax in the United
Kingdom applied to profit for the year as follows:
Tax rate 19.0% 19.50%
(Loss) for the year before tax (1,207) (627)
====================== =====================
Expected tax credit based on corporation
tax rate (229) (122)
Expenses not deductible for tax purposes 39 198
Other differences - 3
Tax effect of R&D credits (38) -
Timing differences 15 (6)
Total tax (income)/expense (213) 73
====================== =====================
The UK corporation tax rate was 20% between the period 1 April
2015 to 31 March 2017. The rate reduced to 19% with effect from 1
April 2017 and will reduce to 17% with effect from 1 April 2020.
This will reduce the Group's future current tax credit/charge
accordingly.
The UK corporation tax rate for the year ended 31 October 2018
is calculated at 19% based upon 12 months at 19%. The UK
corporation tax rate for the year ended 31 October 2017 is
calculated at 19.50% based upon five months at 20% and six months
at 19%.
10. Loss per share
Year ended Year ended
31 October 31 October
2018 2017
GBP GBP
-------------------------- --------------------------
Loss for the year (994,000) (700,000)
Shares Shares
-------------------------- --------------------------
Weighted average number of shares in issue 35,795,539 28,378,444
Share options 638,200 638,200
-------------------------- --------------------------
Weighted average number of shares (diluted) 36,433,739 29,016,644
Loss per share (GBP) (basic) (GBP0.03) (GBP0.02)
========================== ==========================
Loss per share (GBP) (diluted) (GBP0.03) (GBP0.02)
========================== ==========================
Share options have not been included in the Diluted calculation
as they would be anti-dilutive with a loss being recognised.
11. Intangible assets
Group and Company Development Group
Costs Total
GBP'000 GBP'000
-------------------------- ----------------------
Cost
At 31 October 2016 - -
Additions 397 397
-------------------------- ----------------------
At 31 October 2017 397 397
Additions 152 152
Disposal (16) (16)
-------------------------- ----------------------
At 31 October 2018 533 533
-------------------------- ----------------------
Amortisation
At 31 October 2016 - -
Charge for the year 80 80
-------------------------- ----------------------
At 31 October 2017 80 80
Charge for the year 96 96
Impairment 11 11
Disposal (16) (16)
-------------------------- ----------------------
At 31 October 2018 171 171
-------------------------- ----------------------
Net book value
At 31 October 2016 - -
-------------------------- ----------------------
At 31 October 2017 317 317
-------------------------- ----------------------
At 31 October 2018 362 362
========================== ======================
Annual test for impairment
The Group tests Development costs at each reporting period for
impairment in accordance with IAS 36 'Impairment of Assets', and
more frequently if there is an indication that the carrying value
might be impaired. An indication of impairment can be generated
from the loss of a customer, or contracted sales. The Board have
provided an impairment of GBP11,000 relating to development costs
capitalised but where no future economic benefits are currently
expected to be generated for the Group.
12. Property, plant and equipment
Group and Plant
Company Leasehold & Motor Fixtures Group
&
Improvements machinery vehicles Fittings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ------------------------ ----------------------- ----------------------- ----------------------
Cost
At 31 October
2016 57 1,163 136 173 1,529
Additions 114 358 19 83 576
Disposal - - (9) - (9)
--------------------------- ------------------------ ----------------------- ----------------------- ----------------------
At 31 October
2017 171 1,521 146 256 2,096
Additions 11 223 - 75 325
Disposal - (12) - (2) (14)
At 31 October
2018 182 1,732 146 329 2,405
--------------------------- ------------------------ ----------------------- ----------------------- ----------------------
Depreciation
At 31 October
2016 - 580 87 89 756
Charge for
the
year 12 192 32 27 263
Disposal - - (8) - (8)
--------------------------- ------------------------ ----------------------- ----------------------- ----------------------
At 31 October
2017 12 772 111 116 1,011
--------------------------- ------------------------ ----------------------- ----------------------- ----------------------
Charge for
the
year 15 227 25 39 306
Disposal - (6) - (2) (8)
At 31 October
2018 27 993 136 153 1,309
--------------------------- ------------------------ ----------------------- ----------------------- ----------------------
Net book
value
At 31 October
2016 57 583 49 84 773
--------------------------- ------------------------ ----------------------- ----------------------- ----------------------
At 31 October
2017 159 749 35 140 1,083
--------------------------- ------------------------ ----------------------- ----------------------- ----------------------
At 31 October
2018 155 739 10 176 1,080
=========================== ======================== ======================= ======================= ======================
Net book value of assets under finance lease agreements:
GBP000's
At 31 October 2016 330
At 31 October 2017 506
At 31 October 2018 457
==================
13. Investment in subsidiaries
Group Group Company Company
31 31 31 31
October October October October
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Subsidiary - - - -
undertakings
- - - -
====================== ====================== ====================== ======================
A list of all the investment in subsidiaries is as follows:
Name of Registered Country Type Proportion Nature of
company office of of of business
registration shares shareholding
and voting
rights held
------------------------- ------------------------- --------------------------- ----------------------- --------------------------- ---------------------------
Directly
owned
Velocity Pentagon Malaysia Ordinary 100% Manufacturer
Composites Suite, of composite
SDN. BHD ES-04, material
Level products
3, Wisma for the
Suria, Aerospace
Jalan sector
Teknokrat
6, Cyber
5,
63000,
Cyberjaya,
Selangor
------------------------- ------------------------- --------------------------- ----------------------- --------------------------- ---------------------------
14. Inventories
Group Group Company Company
31 31 31 31
October October October October
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Raw
materials &
consumables 2,129 2,792 2,129 2,792
Finished
goods 615 474 615 474
---------------------- ---------------------- ---------------------- ----------------------
2,744 3,266 2,744 3,266
====================== ====================== ====================== ======================
Inventories totalling GBP2,744k (2017 - GBP3,266k) are valued at
the lower of cost and net realisable value. The Directors consider
that this value represents the best estimate of the fair value of
those inventories net of costs to sell. The write off of
inventories during the year is not material.
The inventory at 31 October 2018 is after a stock provision of
GBP89k (2017: GBPnil).
Inventories recognised as an expense during the year ended 31
October 2018 amounted to GBP17,791k (2017: GBP15,655k), and these
were included in cost of sales.
15. Trade and other receivables
Group Group Company Company
---------------------- ---------------------- ---------------------- ----------------------
31 31 31 31
October October October October
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Trade
receivables 5,159 4,647 5,159 4,647
Prepayments
and accrued
income 269 227 269 227
Other
receivables 412 1,274 412 1,274
Amounts due
from -
subsidiary
undertakings - 31 -
5,840 6,148 5,871 6,148
====================== ====================== ====================== ======================
Trade receivables are amounts due from customers for goods sold
or services performed in the ordinary course of business. They are
generally due for settlement within 45 days and therefore are all
classified as current. Trade receivables are recognised initially
at the amount of consideration that is unconditional unless they
contain significant financing components, when they are recognised
at fair value. The group holds the trade receivables with the
objective to collect the contractual cash flows and therefore
measures them subsequently at amortised cost. Details about the
group's impairment policies and credit risk are provided in note
3.
Trade receivables overdue by:
31 October 31 October
2018 2017
GBP'000 GBP'000
------------------------- -------------------------
Not more than 3 months 831 565
More than 3 months but not more than 6 months 65 56
More than 6 months but not more than 1 year 25 42
More than 1 year - 4
921 667
========================= =========================
No receivables have been impaired as none are considered to be
uncollectable.
Trade receivables held in currencies other than sterling are as
follows:
31 October 31 October
2018 2017
GBP'000 GBP'000
------------------------- -------------------------
Euro 673 891
US Dollar 3,443 2,316
4,116 3,207
========================= =========================
16. Cash and cash equivalents
Group Group Company Company
---------------------- ---------------------- ---------------------- ----------------------
31 31 31 31
October October October October
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Cash at
bank 4,726 5,414 4,718 5,414
4,726 5,414 4,718 5,414
====================== ====================== ====================== ======================
Of the total cash balance, GBP3,756k (2017: GBP4,554k) relates
to cash to be used in compliance with the conditions relating to
the EIS investment i.e. new product development and investment into
new overseas territories. The Group is required to employ the funds
by May 2019 to satisfy EIS conditions.
17. Trade and other payables
Group Group Company Company
---------------------- ---------------------- ---------------------- ----------------------
31 31 31 31
October October October October
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Current
Trade
payables 3,251 3,421 3,251 3,421
Accruals 804 480 798 480
Other tax
and social
security 509 578 509 578
Other
payables 17 - 17 -
Invoice
discounting
facility 616 1,144 616 1,144
5,197 5,623 5,191 5,623
====================== ====================== ====================== ======================
Book values approximate to fair values.
18. Grant income deferred
Group Group Company Company
---------------------- ---------------------- ---------------------- ----------------------
31 31 31 31
October October October October
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Opening
balance 22 43 22 43
Grant income
amortisation (15) (21) (15) (21)
---------------------- ---------------------- ---------------------- ----------------------
Closing
balance 7 22 7 22
====================== ====================== ====================== ======================
19. Leases
Operating leases
The Group leases motor vehicles and property, comprising both
offices and assembly space, under operating leases. The total value
of minimum lease payments due is payable as follows:
Group 31 October 31 October
2018 2017
GBP'000 GBP'000
------------------------- -------------------------
Motor vehicles
Not later than one year 23 20
Later than one year and not later than two
years 5 10
Later than two years and not later than five 1 -
years
Later than five years - -
------------------------- -------------------------
29 30
========================= =========================
Land and buildings
Not later than one year 249 219
Later than one year and not later than two
years 245 219
Later than two years and not later than five
years 362 559
Later than five years - -
------------------------- -------------------------
856 997
========================= =========================
Company 31 October 31 October
2018 2017
GBP'000 GBP'000
------------------------- -------------------------
Motor vehicles
Not later than one year 23 20
Later than one year and not later than two
years 5 10
Later than two years and not later than five 1 -
years
Later than five years - -
------------------------- -------------------------
29 30
========================= =========================
Land and buildings
Not later than one year 246 219
Later than one year and not later than two
years 245 219
Later than two years and not later than five
years 362 559
Later than five years - -
------------------------- -------------------------
853 997
========================= =========================
As from 1 November 2019, the Group will apply IFRS 16 'Leases'.
The expected impact of this change in operating leases will be
replaced by fixed assets, in the form of a 'Right of Use asset' and
debt on the balance sheet.
Finance leases
The Group leases plant and equipment under finance leases which
are secured against the assets. Future lease payments are due as
follows:
Minimum lease Present
payments Interest value
31 October 2017
Not later than one year 172 27 145
Later than one year and
not later
than two years 137 18 119
Later than two years and
not later
than five years 103 11 92
Later than five years - - -
---------------------------- ----------------------- ----------------------
412 56 356
============================ ======================= ======================
31 October 2018
Not later than one year 134 18 116
Later than one year and
not later
than two years 82 9 73
Later than two years and
not later
than five years 111 13 98
Later than five years - - -
---------------------------- ----------------------- ----------------------
327 40 287
============================ ======================= ======================
20. Deferred Tax
Deferred tax is calculated in full on temporary differences
under the liability method using tax rates appropriate for the
period. The movement on the deferred tax account is as shown
below:
Group and Company 31 October 31 October
2018 2017
GBP'000 GBP'000
------------------------- -------------------------
Deferred tax liability
Opening balance 106 97
Recognised in profit and loss (106) 9
------------------------- -------------------------
Closing balance - 106
========================= =========================
The movement on the deferred tax (asset)/liability is shown
below:
Group and Company 31 October 31 October
2018 2017
GBP'000 GBP'000
------------------------- -------------------------
Excess of taxation allowances over depreciation
of all non-current assets 117 106
Share options - -
Corporation tax losses carried forward (128) -
------------------------- -------------------------
Closing (Asset)/ Liability (11) 106
========================= =========================
The Group has unused tax losses which were incurred by the
holding company. A net deferred tax asset of GBP10,676 is not
recognised in these accounts. Corporation tax losses can be carried
forward indefinitely and can be offset against future profits which
are subject to UK corporation tax.
21. Reconciliation of liabilities arising from financing activities
Group and Company Long-term Short-term Total
borrowings borrowings
GBP'000 GBP'000 GBP'000
-------------------------- -------------------------- -----------------------
At 31 October 2016 106 2,260 2,366
Cash flows
Repayment - (23,534) (23,534)
Proceeds 250 22,491 22,741
Non-cash
Foreign exchange
differences - (73) (73)
Transfer from
Long-term to short
term
borrowings (145) 145 -
-------------------------- -------------------------- -----------------------
At 31 October 2017 211 1,289 1,500
Cash flows
Repayment - (29,121) (29,121)
Proceeds 76 28,454 28,530
Non-cash
Foreign exchange
differences - (6) (6)
Transfer from
Long-term to short
term
borrowings (116) 116 -
-------------------------- -------------------------- -----------------------
As 31 October 2018 171 732 903
========================== ========================== =======================
22. Share capital
31 October 31 October
2018 2017
GBP GBP
------------------------- -------------------------
Share capital issued and fully paid
35,795,539 Ordinary shares of GBP0.0025 each 89,489 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
---------------------- -------------------------
99 Ordinary shares of GBP1 each 89,489 35,795,539
At the beginning of the year & closing share
capital at 31 October 2018 89,489 35,795,539
====================== =========================
23. Share-based payment
The Group's employees are granted option awards under the
Velocity Composites Limited Enterprise Management Incentive and
Unapproved Scheme. The share options have no attached performance
conditions and vest subject only to continued employment. They vest
after 2 years, or earlier if a vesting event occurs as defined in
the rules of the Scheme. Once vested, options may be exercised at
any point up to the 10(th) Anniversary of the grant.
Vesting events are defined within the rules of the Scheme as a
reorganisation, takeover, sale, listing (except on AIM), asset
sales or death of the Option holder.
The Group recognised a cost of GBP168,745 (2017 - GBP367,472)
relating to share-based payment transactions which are all equity
settled, an equivalent amount being transferred to share-based
payment reserve. This reflects the fair value of the options, which
has been derived through use of the Black-Scholes model.
There were no cancellations or modifications to the awards in
the period.
The following options were outstanding as at 31 October
2018:
Scheme and Exercise Vesting Expiry Vested Not vested Total
grant date price GBP date date
13 Mar
13 March 2017 0.0025 13 Mar 2019 2027 - 603,200 603,200
17 October 17 Oct
2017 0.6926 17 Oct 2019 2027 - 35,000 35,000
------- ----------- --------
- 638,200 638,200
======= =========== ========
The cost of share-based payments is included in "Administrative
expenses" within the Statement of total comprehensive income. The
share-based payments reserve is used to recognise the grant date
fair value of options issued to employees but not exercised.
Shares were issued in the prior period to Mark Mills and to
Matthew Turner and Nigel Turner (Peter Turner's sons) the costs
attributed to which (GBP264,000) are also treated as share-based
payments, and included in Exceptional administrative expenses (Note
7).
24. Related party transactions
Balances and transactions between the Company and its
subsidiary, which are related parties, have been eliminated on
consolidation. However, the key transactions with the Company are
disclosed as follows:
Compensation of key management personnel:
31 October 31 October
2018 2017
GBP'000 GBP'000
------------------------- -------------------------
Short term employment benefits 1,016 841
Share-based payments 102 326
------------------------- -------------------------
1,118 1,167
========================= =========================
The following transactions took place with related parties
(purchases or dividends)/sales:
The Group engages Abode Services Limited, which provides graphic
design services. One of the directors of Abode is Christopher
Banks (key management personnel during the period). The Group
paid GBP7,290 (2017: GBP5,076) to Abode during the year and
had GBPnil outstanding at the year end.
The following balances existed at periods end with related
parties (payable)/receivable:
31 October 31 October
2018 2017
GBP'000 GBP'000
------------------------- -------------------------
Related parties - -
========================= =========================
25. 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.
26. Capital commitments
At 31 October 2018 the Group had GBP78,500 (2017: GBP90,320) of
capital commitments relating to the purchase of plant and
machinery.
27. Pension commitments
The Group makes contributions to defined contribution
stakeholder pension schemes. The contributions for the year of
GBP107,573 (2017: GBP39,007) were charged to the Consolidated
Income statement. Contributions outstanding at 31 October 2018 were
GBP17,013 (2017: GBPnil).
28. Contingent liabilities
At 31 October 2018 the Group had in place bank guarantees of
GBP250,000 (2017: GBP250,000) in respect of supplier trade
accounts. The Group is not aware of any conditions which would
realise these contingent liabilities.
29. Reconciliation of Reported and Adjusted Profit
The reported results have been adjusted for exceptional items
and for the additional expenditure on future growth within the UK
and Overseas.
Profit before tax 31 October 31 October
2018 2017
GBP'000 GBP'000
------------------------- -------------------------
Reported (loss) before tax (1,207) (627)
Adjustments:
Future growth expenditure relating to UK
and overseas 675 446
Exceptional restructuring costs 252 -
Exceptional IPO related administrative expenses - 667
Exceptional share-based payments - 264
Adjusted (loss)/ profit before tax (279) 750
========================= =========================
Earnings per share 31 October 31 October
2018 2017
GBP'000 GBP'000
------------------------- -------------------------
Adjusted (loss)/ profit before tax (279) 750
Income tax (expense) / income 213 (73)
------------------------- -------------------------
Adjusted (loss)/ profit for the year (66) 677
========================= =========================
Shares Shares
------------------------- -------------------------
Weighted average number of shares in issue 35,795,539 28,378,444
Share options 638,200 638,200
------------------------- -------------------------
Weighted average number of shares (diluted) 36,433,739 29,016,644
Adjusted (loss) / earnings per share (GBP) (GBP0.01) GBP0.02
(basic)
========================= =========================
Adjusted (loss) / earnings per share (GBP) (GBP0.00) GBP0.02
(diluted)
========================= =========================
The Directors utilise the adjusted profit measures in order to
more fairly reflect the underlying trading performance of the
Group. The above adjustments are made in order to remove one off,
exceptional or developmental spend which is a part of the Group's
growth plans.
The above adjustments for FY18 reflect the impact of one-off
exceptional restructuring costs and the expenditure on growth
opportunities in the UK and overseas which comprise the cost of
time spent on these opportunities, external consultancy costs,
travel costs and the cost of the new operations in these overseas
territories. For FY17 this also included exceptional expenditure in
relation to the listing of the holding company on the stock
market.
30. Preliminary announcement
This preliminary announcement, which has been agreed with the
auditors, was approved by the Board of Directors on 21 January
2019. It is not the Group's statutory accounts. Copies of the
Group's audited statutory accounts for the year ended 31 October
2018 will be available at the Company's website shortly and a
printed version will be despatched to shareholders thereafter.
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 KMGZMZMFGLZZ
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