TIDMVEL
RNS Number : 7177Q
Velocity Composites PLC
23 June 2020
23 June 2020
VELOCITY COMPOSITES PLC
("Velocity", the "Company" or the "Group")
UNAUDITED HALF YEAR RESULTS
For the six months ended 30 April 2020
Velocity Composites plc, the leading supplier of advanced
composite material kits to the aerospace market, announces its
unaudited half-year results for the six months ended 30 April 2020
(the "Period" or "H1 FY20").
Andy Beaden, Non-Executive Chairman, said:
"The effects of the COVID-19 pandemic and resulting lockdowns on
the aerospace industry have been dramatic and unprecedented. Whilst
we are not where we expected to be right now, our vision and
strategy for Velocity's growth are unchanged. The increased
challenges facing our industry provide an even more meaningful
commercial rationale for Velocity's technology and services, as the
industry drives for even greater efficiencies in their production
programmes.
"T he Company's financial liquidity remains robust and the Board
believes it has adequate cash and banking facilities to work
through this disruption. With this in mind, the Board is confident
that Velocity is well placed to benefit as production levels pick
up and that the prospects for the Company in the mid- to long-term
remain positive."
Key financials
-- Revenue of GBP9.5m (H1 FY19: GBP12.2m)
-- Gross margin of 20.5% (H1 FY19: 20.9%)
-- Operating loss of GBP0.7m (H1 FY19: loss GBP0.4m after exceptional
administrative expenses of GBP0.4m)
-- Adjusted EBITDA(1) loss of GBP0.3m (H1 FY19: profit of GBP0.2m)
-- Loss per ordinary share of 1.7p (H1 FY19: loss 1.2p)
-- Cash at Bank at 30 April 2020 of GBP2.8m including GBP1.2m
of EIS funds(2)
(1) Adjusted EBITDA defined as earnings before finance charges,
tax, amortisation, depreciation, share based payments, exceptional
restructuring costs.
(2) EIS f unds earmarked for EIS/VCT qualifying expenditure and
is deemed to be 'employed' for those purposes in accordance with
the relevant regulations.
Operating highlights
-- Approval from Boeing in January 2020 to supply structural
composite material kits for its single aisle aircraft platform.
Whilst production on 737 Max is currently frozen, this remains
a strategically important step for the Company when it returns
to service.
-- NADCAP Merit approval now achieved for all special processes
at all Velocity production facilities.
-- Margaret Amos appointed to the Board as Independent Non-executive
Director bringing extensive world class aerospace engineering,
strategic finance, and supply chain experience.
-- Business development and customer programmes management team
reorganised, strengthened with more senior aerospace expertise
and over GBP30m pipeline of tangible opportunities being developed.
Impact of COVID-19
-- Management acted swiftly to the significant reduction of circa
75% in near-term customer demand, as COVID-19 air travel restrictions
negatively impacted aircraft production due to airline confidence.
-- Circa 60% of the workforce were furloughed, with funding secured
through the UK Government's employment retention scheme.
-- Production of personal protective equipment ("PPE") for NHS
workers commenced in April 2020, providing additional work
for staff.
-- Significant raw material inventory reduction programme was
implemented, utilising supply chain management systems, which
will also benefit customers, through strict alignment of raw
material supply and demand schedules.
-- The actions above and other cash conservation measures demonstrate
the robustness of the business and management.
Post half year end
-- Appointment of experienced Customer Programmes Director in
May 2020 to support identified strategic growth opportunity
with global customers.
-- Accelerated Customer Benefits Proposal formulated and deployed
swiftly to take advantage of opportunities arising from COVID-19.
-- Coronavirus Business Interruption Loan ("CBIL") secured in
May 2020, providing an additional GBP2.0m facility to support
any short-term liquidity requirements.
-- Further update on LTA: Major customer extends existing agreement
with Velocity until 31 December 2020, whilst the longer-term
demand requirements of its customers are established - purchase
order cover is in place until mid-2021.
Current trading and outlook
-- Lower levels of customer demand expected to continue for at
least the duration of the lockdown and until the OEMs issue
longer-term demand schedules to the Tier 1 manufacturers.
-- Velocity expects that restructuring in the industry as a result
of the impact of COVID-19 will present immediate and longer-term
opportunities for its cost-reducing service offering.
-- Strong proposition and pipeline of new business opportunities,
totalling circa GBP30m on a full year basis.
-- Robust liquidity position with cash balances of GBP2.2m at
22 June 2020 (no invoice discounting used) and debt facilities
of up to GBP7m, adequate resources to withstand likely modelled
recovery scenarios.
-- Management will continue to take the necessary actions needed
to ensure that the wellbeing of the Company's people is prioritised,
its business capabilities are preserved, and cost and performance
are optimised.
-- The Board remains confident in the long-term prospects of the
Company.
-- Financial performance guidance for FY20 and FY21 remains withdrawn,
until the Board has greater visibility on market activity.
Enquiries:
Velocity
Jon Bridges, Chief Executive Officer
Andy Beaden, Chairman +44 (0) 1282 577577
Cenkos (Nominated Adviser and Broker) +44 (0)20 7397 8900
Russell Cook +44 (0)20 7397 1977
Ben Jeynes +44 (0)20 7397 1974
Belvedere Communications (Financial VelocityPR@belvederepr.com
PR) +44 (0) 7715 769 078
Cat Valentine +44 (0) 7967 816 525
Keeley Clarke
About Velocity
Velocity Composites is a manufacturer of composite material kits
for the aerospace industry, delivering engineered kits for its
customers to build component parts. The Company's clients include
multi-national manufacturers of composite parts and assemblies, who
in turn deliver to the world's leading civil and military aircraft
manufacturers. The Airbus A320, A330, A350, A380, Eurofighter
Typhoon, F35 Joint Strike Fighter, Boeing 737, and V22 Osprey are
all constructed using parts manufactured from Velocity's kits. The
Company's business model reduces the operating costs of preparing
composite materials ahead of their usage in the construction of an
aircraft part and as such, its offering is disposed to being
self-financing for aircraft parts' manufacturers. Velocity
Composites also exports to Europe and North America.
HALF YEARLY REVIEW TO 30 APRIL 2020
("the Period" or "H1 FY20")
Introduction
The financial year ending 31 October 2020 ("FY20") started well,
with the Company making important strategic progress, expanding its
portfolio of key aerospace qualifications, including achieving
Boeing Approval, and securing new long-term supply agreements.
Trading to the end of February 2020 was in line the Board's
expectations, with order visibility showing an improving second
half-year weighted performance.
In March 2020, the aerospace industry, like many others, was
impacted dramatically by the travel restrictions and lockdown
measures taken by governments worldwide to combat the spread of
COVID-19. Production levels throughout Velocity's customer base
were immediately curtailed, as social distancing and lockdown
measures were put in place to protect employees and the delivery of
new aircraft to airline operators was halted, following the
near-total grounding of international passenger flights.
The industry shut down in March led to a cascading reduction in
orders throughout the aerospace supply chain. Velocity was no
exception, with near-term demand (three to six months) reducing by
circa 75%. The management team has implemented a rigorous plan to
protect employees, to mitigate the effect of this disruption on
sales and to conserve cash, whilst maintaining services to
customers and protecting the capabilities of the business and its
ability to recover rapidly from this unprecedented situation.
Action was taken to strengthen the Company's financial liquidity
position, in May 2020, securing a CBIL from its bankers, National
Westminster Bank, which provides Velocity with an additional GBP2.0
million facility to support any short-term liquidity requirements,
which will be drawn down fully in July. The Board believes that the
Company's financial liquidity is robust and is confident that the
business has adequate cash and banking facilities to withstand the
disruption.
H1 FY20 Financial Review
Revenue in the Period was GBP9.5 million (H1 FY19: GBP12.2
million), with circa GBP1.7 million of sales lost through COVID-19
related reductions to customer demand schedules; and delays in the
production of structural and consumable products for the 737 Max
impacting contracted revenues further. Gross margin was also
impacted by a change in product mix, reducing by 0.4% to 20.5% (H1
FY19: 20.9%). Administrative expenses, excluding exceptional items,
were in line with the previous year at GBP2.6 million (H1 FY19:
GBP2.6m). No exceptional costs were incurred in the Period,
compared to GBP0.4m in H1 FY19.
The EBITDA loss in the Period rose by GBP0.5 million to GBP0.3
million (H1 FY19: profit of GBP0.2 million), as a result of the
reduction in revenue. Loss before tax from continuing operations
was GBP0.7 million (H1 FY19: loss of GBP0.4 million), resulting in
an increased loss per share of 1.7p (H1 FY19: loss of 1.2p).
Cash at bank at 30 April 2020 was GBP2.8 million, compared to
GBP3.4 million at 31 October 2019. The level of invoice discounting
being used at 30 April 2020 was GBP0.8m (Oct FY19: nil). Cash at
bank includes an amount of GBP1.2 million of EIS/VCT funds, which
are allocated for investment in new production facilities in the
US, mainland Europe and the UK. As such, they are deemed to be
'employed' for those purposes in accordance with the relevant
regulations. Those funds, while accessible to the business, are
maintained in a separate bank facility to facilitate management and
tracking of expenditure.
As mentioned above, the Company was successful in obtaining a
24-month CBIL of GBP2.0 million in May 2020. The CBIL can be drawn
down at any point in the next six-months, with an interest-free
period for 12-months following drawdown and interest of LIBOR +3%
in the 12-months thereafter. The funds are repayable in the second
year of drawdown by equal instalments. It remains undrawn at the
date of this announcement, but draw-down is planned in July.
Combining the CBIL with existing Invoice Discounting facility of
up to GBP5.0 million, the Company has debt facilities of up to
GBP7.0 million.
COVID-19
As detailed in the last trading update, the Company has taken
the following actions to mitigate the impact of the COVID-19
pandemic on production:
-- circa 60% of the workforce has now been furloughed with
funding secured through the UK Government's employment retention
scheme;
-- certain areas of the Company's manufacturing facilities
have been converted to the production of personal protective
equipment ("PPE") for NHS workers, providing additional
work for staff;
-- the Company has put in place a significant inventory reduction
programme, utilising its supply chain management systems,
which will also benefit its customers, through strict alignment
of supply and demand schedules; and
-- a series of other cash conservation measures have been undertaken,
including the postponement of planned capital expenditure
programmes until required and the use of UK Government-promoted
measures such as VAT payment holidays and PAYE deferrals.
The management is mindful that the Company must maintain full
capability and skills through this difficult period and will ensure
the business remains ready for the recovery and anticipated growth
with the cash resources to fund the ramp-up when activity resumes.
Whilst not affecting the support and delivery of new business
opportunities, Velocity will need to align its manufacturing and
costs and capacity with expected lower demand levels in the short
to medium-term or until the landscape becomes clearer.
The market and new business
Prior to the COVID-19 outbreak, the total addressable market for
Velocity was estimated to be over GBP1 billion, with the UK and EU
circa GBP50-60 million and GBP120-GBP130 million, respectively. All
the Company's revenue is currently generated in the UK (circa 90%)
and EU (circa 10%). Larger opportunities, however, exist in the
North American and Asia Pacific regions, where markets are
estimated to be (GBP450 million - GBP475 million) and (GBP425
million - GBP450 million) respectively.
Velocity's unique service offer to customers reduces the cost of
composite parts, through the supply of just in time material kits,
removing the need for its aerospace manufacturing customers to
purchase, store and cut the composite material. This saves time,
reduces waste and costs. While production in the industry has been
hit severely globally, Velocity currently has a small market share.
As customers restructure to match lower levels of demand, they will
have an even greater focus on cost, outsourcing what they would
consider non-value-added activities, which plays to the strength of
Velocity's offer. Velocity is adapting and tailoring new business
bids to showcase its value-add services as an immediate and
necessary requirement, rather than a "nice-to-have" long-term
strategic goal and has formulated and deployed a Customer
Accelerated Benefits Proposal.
Despite the disruption, and as part of the Company's strategy to
pursue a smaller number of larger contracts, work has continued in
both mainland Europe and North America with Wesco (now called
Incora) on a number of larger new business opportunities.
As part of this growth strategy, James Eastbury has recently
been appointed to the new role of Customer Programmes Director. He
will lead a team of technically skilled programme managers and new
business engineers in developing and executing comprehensive
multi-level plans of engagement with identified customers and be
responsible for the expansion of Velocity's revenue, with a focus
on Europe. James has over 10 years' experience in the aerospace
division of Solvay Composite Materials, an advanced materials and
specialty chemicals company, where latterly he was Key Account
Manager for Airbus.
Material Supplier Partnerships
The management of raw materials, which have a limited shelf life
and require freezer storage, from industry enabled materials
suppliers ("EMS") is a key part of Velocity's customer offering.
The speed and scale of the disruption caused by the COVID-19
pandemic created an unprecedented change in customer demand, which
fell outside the usual longer aerospace lead times. Velocity and
the EMS are collaborating daily to effectively match supply with
demand and Velocity is working quickly and accurately to provide
the EMS with clear updates on material delivery schedules, pushing
out the demand and preventing the delivery of material which is no
longer needed. Velocity has received very positive feedback on this
process from the EMS, a further endorsement of how Velocity can
reduce risk to both customers and suppliers.
Advanced Technology and Development Centre ("ATDC")
The Company's dedicated ATDC at its Burnley site is near
completion, and will support Velocity's growth plans and capitalise
on the identified market opportunities. The new facility will focus
on next generation products and processes for the industry,
including further development of the Company's proprietary VRP
System, enabling Velocity to improve its unique cost saving service
further and support its aerospace customers, as they seek new ways
to reduce costs and improve efficiency.
The VRP System, which manages and semi-automates Velocity's
unique processes using Industry 4.0 principles to drive further
efficiency through a focus on data analytics, includes real time
demand management, automated optical verification, advanced
material nesting, 3D rapid prototyping and paperless traceability.
This system supports the Company's strategy to locate cost
effective pop-up manufacturing hubs either near to or on customers'
facilities by allowing Velocity to deploy its services quickly and
uniformly from a central HQ without the need for duplication of
back office services at each site.
The building will also house new office facilities and the
Company's new ambient temperature stores environment, which will
maximise materials management and increased material storage and
bring economies of scale as the business grows.
The final fitting out of these important new facilities early in
the Period and will recommence once the COVID-19 restrictions are
lifted.
Update on extension of major customer Long-Term Agreements
("LTA")
The Company had agreed terms with one major customer on a
multi-year extension of an LTA, as announced in January 2020. The
COVID-19 disruption, however, has resulted in this new agreement
being placed on hold, as announced on 30 March 2020. The customer
has since extended its existing agreement with Velocity until 31
December 2020, whilst it establishes the longer-term demand
requirements of its customers. Purchase order cover is in place
until mid-2021. Though the Group prefers to operate through LTAs
with all its customers, these do not represent contractually bound
orders. Customers place individual contractually-binding orders,
the terms of which reference back to their LTA.
Board and People
Along with James Eastbury, the Board was delighted to welcome
Margaret Amos, who joined the Company as an Independent
Non-Executive Director in April 2020. Margaret has 27 years'
experience working for Rolls Royce Holdings plc and held a number
of important senior roles in Finance, Strategy Development, Supply
Chain and Programme management, including the position of
Divisional Finance Director - Engineering, IT and Corporate Sector.
She has already made a valuable contribution to the business,
providing wise counsel in challenging circumstances. Margaret is
chair of the Audit Committee. With Margaret and James, plus the
changes made in 2019, the leadership of the Company has been
radically strengthened, with a deep focus on the aerospace sector
and composite supply-chain technologies.
The Board would like to thank the Group's staff for their
continued hard work and commitment to the business, during this
extremely challenging period. It is their dedication that has
enabled Velocity to remain focused on delivering excellent customer
service, which underpins our strategy and will ensure our future
success.
Risk
In preparing these interim financial statements, the management
is required to make accounting assumptions and estimates. The
assumptions and estimation methods are consistent with those
applied to the Annual Report and financial statements for the year
ended 31 October 2019. With one exception, the principal risks and
uncertainties that may have a material impact on activities and
results of the Group remain materially unchanged from those
described in the Annual Report. The exception is the risk that has
arisen from the COVID-19 pandemic which has caused significant
disruption to supply chains and a major impact on the aerospace
sector.
For many businesses, the ongoing negotiations between the United
Kingdom and European Union for its future relationship will give
cause for uncertainty and concern in the second half of the year.
While the general election in December 2019 resulted in a
Government with a clear majority to negotiate a new trade deal, the
negotiations through to the end of 2020 could lead to disruptions
in supply chains. 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.
Outlook
The Company is experiencing artificially suppressed demand due
to supply side disruption caused by COVID-19, with key customers
implementing temporary site closures as they adjust to the new
production rates being issued by the OEM's. The aftershock of
COVID-19 is currently being forecast to adversely impact build
rates of civil aircraft for two or three years. The bulk of this
disruption is expected to impact the business in H2 FY20. In
response, Velocity is resetting its cost structure, which it can
flex and align with these short-term changes in demand. By the end
of the current financial year, 31 October 2020, our cost base will
have been reset, while still developing our key capabilities ready
for the increasing demand which we expect in FY21. These
expectations are supported by the work we have secured on the
Boeing 737 Max programme, which we expect will start in the new
calendar year, as this platform returns to production.
As we look forward, we remain confident there are numerous new
programmes for us to onboard our unique, cost reducing kitting
services and believe our technology solutions will benefit the
customer base, as increasing efficiencies are sought. Our
commercial relationships are deepening with customers and
suppliers. We are also developing our service offering into the
defence sector, a sector which has not experienced the same
headwinds as those weathered in civil aviation.
In conclusion, the Company remains well funded, the pipeline of
opportunities is significant, when compared to our current market
share, and the business continues to widen its sales reach into new
territories and new work packages, for all composite aircraft
programmes. With this in mind, the Board continues to view the
long-term future of the business with confidence.
Andy Beaden
Non-Executive Chairman
23 June 2020
CONDENSED CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE
INCOME
For the six months ended 30 April 2020
Half year Half year Year
ended ended ended
31
30 April 30 April October
2020 2019 2019
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
-------------------------- -------------------------- ------------------------
Revenue 3 9,502 12,243 24,316
Cost of sales (7,558) (9,679) (19,047)
-------------------------- -------------------------- ------------------------
Gross profit 1,944 2,564 5,269
Administrative
expenses
excluding
exceptional costs (2,589) (2,571) (5,177)
Exceptional
administrative
expenses - (377) (692)
Other operating
income - 4 6
Operating loss
analysed
as:
Adjusted EBITDA (259) 280 613
Depreciation &
Amortisation (326) (219) (449)
Share based
payments (60) (64) (66)
Exceptional
administrative
expenses - (377) (692)
Operating loss (645) (380) (594)
-------------------------- -------------------------- ------------------------
Finance income and
expense (40) (50) (58)
-------------------------- -------------------------- ------------------------
Loss before tax
from continuing
operations (685) (430) (652)
Income tax income 67 - 16
Loss for the
period and
total
comprehensive
loss (618) (430) (636)
========================== ========================== ========================
Loss per share -
Basic (pence
per share) from
continuing
operations 5 (1.7) (1.2) (1.8)
========================== ========================== ========================
Loss per share -
Diluted
(pence per share)
from continuing
operations 5 (1.6) (1.2) (1.7)
========================== ========================== ========================
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 30 April 2020
As at As at As at
31
30 April 30 April October
2020 2019 2019
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
Non-current
assets
Intangible
assets 281 350 318
Property,
plant and
equipment 1,848 1,130 1,061
Right of use
assets 4 1,265 - -
-------------------------- -------------------------- ------------------------
Total
non-current
assets 3,394 1,480 1,379
-------------------------- -------------------------- ------------------------
Current
assets
Inventories 3,361 3,048 3,177
Trade and
other
receivables 2,924 4,639 4,149
Corporation
tax - 113 75
Cash and cash
equivalents 2,841 4,371 3,424
-------------------------- -------------------------- ------------------------
Total current
assets 9,126 12,171 10,825
Total assets 12,520 13,651 12,204
-------------------------- -------------------------- ------------------------
Current
liabilities
Trade and
other
payables 2,699 4,386 3,223
Grant income
deferred - 3 -
Net
obligations
under lease
liabilities 4 436 144 121
-------------------------- -------------------------- ------------------------
Total current
liabilities 3,135 4,533 3,344
-------------------------- -------------------------- ------------------------
Non-current
liabilities
Deferred tax
liabilities - - -
Net
obligations
under lease
liabilities 4 1,252 224 169
-------------------------- -------------------------- ------------------------
Total
non-current
liabilities 1,252 224 169
Total
liabilities 4,387 4,757 3,513
Net assets 8,133 8,894 8,691
Equity
attributable
to equity
holders of
the company
Share capital 6 90 90 90
Share premium 9,727 9,727 9,727
Share-based
payments
reserve 559 534 537
Retained
earnings (2,243) (1,457) (1,663)
-------------------------- -------------------------- ------------------------
Total equity 8,133 8,894 8,691
========================== ========================== ========================
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 April 2020
Share-based
Share Share Retained Payments Total
capital premium earnings reserve Equity
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
As at 31
October 2018 89 9,727 (1,091) 536 9,261
Loss for the
period - - (430) - (430)
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
89 9,727 (1,521) 536 8,831
Transactions
with
shareholders:
Share-based
payments - - - 62 62
Vesting of
share options 1 - 64 (64) 1
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
As at 30 April
2019 90 9,727 (1,457) 534 8,894
Loss for the
period - - (206) - (206)
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
90 9,727 (1,663) 534 8,688
Transactions
with
shareholders:
Share-based
payments - - - 3 3
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
As at 31
October 2019 90 9,727 (1,663) 537 8,691
Loss for the
period - - (618) - (618)
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
Transactions
with
shareholders:
Share-based
payments - - - 60 60
Vesting of
share options - - 38 (38) -
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
As at 30 April
2020 90 9,727 (2,243) 559 8,133
====================== ====================== ======================= ========================== ======================
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 30 April 2020
Half year Half year Year
ended ended ended
30 April 30 April 31 October
2020 2019 2019
(unaudited) (unaudited) (audited)
-------------------------- -------------------------- -------------------------
GBP'000 GBP'000 GBP'000
-------------------------- -------------------------- -------------------------
Operating activities
Loss for the period (618) (430) (636)
Taxation (67) - (16)
Profit on disposal
of assets - (1) (11)
Finance costs 39 50 58
Amortisation of
intangible assets 65 64 134
Depreciation of
property, plant and
equipment 261 155 315
Share-based payments 60 62 65
Grant income
amortisation - (4) (6)
-------------------------- -------------------------- -------------------------
(260) (104) (97)
Decrease in trade
and other
receivables 1,225 1,088 1,579
Increase in
inventories (184) (304) (433)
Decrease in trade
and other payables (1,331) (392) (1,363)
-------------------------- -------------------------- -------------------------
Cash
(used)/generated
from operations (550) 288 (314)
Income taxes
received 142 - 54
-------------------------- -------------------------- -------------------------
Net cash
(outflow)/inflow
from operating
activities (408) 288 (260)
Investing activities
Purchase of
property, plant and
equipment (730) (59) (156)
Development
expenditure
capitalised (28) (52) (89)
Proceeds from
disposal of
property,
plant and equipment - - 15
Net cash used in
investing
activities (758) (111) (230)
Financing activities
Proceeds from issue
of shares - - -
Payment of share
issue costs - - -
Finance costs paid (39) (50) (58)
Increase/(Decrease)
in invoice
discounting 807 (418) (612)
Repayment of finance
lease capital (185) (64) (142)
--------------------------
Net cash generated
from/(used in)
financing
activities 583 (532) (812)
========================== ========================== =========================
Net decrease in cash
and cash
equivalents (583) (355) (1,302)
Cash and cash
equivalents at
beginning
of period 3,424 4,726 4,726
-------------------------- -------------------------- -------------------------
Cash and cash
equivalents at end
of
period 2,841 4,371 3,424
========================== ========================== =========================
NOTES TO INTERIM REPORT
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.
The Company holds shares in a wholly owned subsidiary company,
Velocity Composites Sendirian Berhad, which is domiciled in
Malaysia. During this financial period, the company has provided
engineering services to the Group. The Company also wholly owns
Velocity Composites Aerospace Inc. to prepare for future expansion
in the United States of America. These subsidiaries together with
Velocity Composites plc, now forms the Velocity Composites Group
('the Group').
The Group's principal activity is that of the sale of kits of
composite material and related products to the aerospace
industry.
The condensed consolidated interim financial statements are
unaudited and do not constitute statutory financial statements
within the meaning of Section 435 of the Companies Act 2006. The
review report on these interim financial statements is set out on
page 13. The financial information for the year ended 31 October
2019 has been derived from the published statutory financial
statements for the Company. A copy of the full accounts for that
period, on which the auditor issued an unmodified report that did
not contain statements under Section 498(2) or 498(3) of the
Companies Act 2006, has been delivered to the Registrar of
Companies.
These interim financial statements will be posted to the
Company's shareholders and are available from the Registered Office
at AMS Technology Park, Billington Road, Burnley, Lancashire, BB11
5UB or from our website at www.velocity-composites.com.
2. Accounting policies
Basis of preparation
These condensed consolidated interim financial statements are
for the six months ended 30 April 2019. This interim financial
report has been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union, and has been prepared using consistent
accounting policies as applied in the Company's full year accounts
to 31 October 2018 and as expected to be applied in the full year
accounts to 31 October 2019. They have therefore 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) except where otherwise
indicated.
The following standards have been adopted for the first time in
the current financial year.
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 has
been applied to the Group's financial reporting for these interim
accounts. 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.
On the transition date of 1 November 2019, the Group capitalised
GBP492,000 in respect of outstanding lease liabilities that
satisfied the criteria under IFRS 16. This was applied using the
modified retrospective approach and therefore had no impact on
opening retained earnings. These assets are recognised as a 'right
of use' asset with a corresponding lease liability. During the
financial period, the Group also acquired a new building lease and
recognised a right of use asset and liability to the value of
GBP885,000. Further details on transition can be found in note
4.
Going concern
The financial statements are prepared on a going concern basis
which the Directors believe is appropriate given robust financial
liquidity, with adequate cash and banking facilities to work though
this crisis. The Company is financed by its cash, invoice
discounting facility of up to GBP5m and CBIL loan of GBP2m.
This assessment has been supported by the preparation of
forecasts for the 18-month period through to 31 October 2021 based
on revenue, margin, cost and working capital assumptions. In any
set of forecasts there are inherent risks relating to each of these
assumptions. In preparing these forecasts we have undertaken
sensitivity analysis and assumed a 70% reduction for H2 FY20
pre-COVID-19 revenue levels based on demand levels from our
customers, a 40% reduction in FY21 pre Covis-19 revenue levels, and
assumed no new business. In addition, management believe they will
be able to take decisive actions to manage the Company's cost base
and working capital. The Company has taken action to reduce its
stock levels significantly over the forecast period compared to
pre-COVID-19 levels, by adjusting material supply with its
suppliers. Some of this planning was already in place as a result
of Brexit with the need not to maintain the same level of safety
stocks. Debtors remain well managed with a low level of overdue
debt. After taking these factors into account the forecasts
demonstrate that the Company has strong headroom with its current
facilities.
With the impact of COVID-19 difficult to predict we have
considered a further downside scenario, which we consider severe,
and reduces revenue to 25% of pre-COVID-19 levels in FY20 and
maintains this low level of revenue through FY21, again with no new
business assumed. The latest government information is that the
risk of a second spike is reduced, and lockdown continues to be
eased on a week by week basis, pointing towards this downside
scenario being avoided. This downside scenario shows that the
Company still has sufficient liquidity through this period. If the
impact of the pandemic should be worse than the assumptions applied
in construction of this prudent downside scenario, the Company
would undertake more substantive restructuring to mitigate the
impact. W e have also modelled a scenario which reduces future
revenues to only those committed currently. Even in this extreme
scenario our forecasts demonstrate sufficient headroom, utilising
current facilities, to continue as a going concern.
The Directors believe that the Company it is well placed to
manage its business risks, and after reviewing its forecasts and
scenarios and undertaking stress testing, consider the existing
cash and banking facilities provide the Company with adequate
resources to continue in operational existence in the period
following the release of these financial statements. Therefore, the
Directors continue to adopt a going concern basis of accounting in
preparing these financial statements.
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 Company.
3. Segmental analysis
The Group supplies a single range of kitted products into a
single industry and so has a single segment. Additional information
is given below regarding the revenue receivable based on
geographical location of the customer.
Half year Half year Year
ended ended ended
30 April 30 April 31 October
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------------------------- -------------------------- -------------------------
Revenue
United Kingdom 8,413 11,116 21,850
Rest of Europe 1,066 1,115 2,435
Rest of World 23 12 31
9,502 12,243 24,316
========================== ========================== =========================
Four customers of the Group are responsible for over 10% of the
total revenue in each of the periods presented. 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.
4. Leases and IFRS 16
At the start of the period, the Group transitioned to IFRS 16
using the modified retrospective approach, whereby assets were
measured at the amount equal to the lease liability, adjusted by
the amount of any prepaid or accrued lease payments relating to
those leases recognised on the balance sheet as at 31 October 2019.
As a result, there were no prior period adjustment or impact to
retained earnings. A significant increase in non-current assets
representing right of use assets and a corresponding lease
liability was recognised. The impact of IFRS 16 on assets and
liabilities from transition and acquired during the period has been
summarised below:
Right of use assets
Land and
property Motor vehicles Total
Cost GBP'000 GBP'000 GBP'000
Balance as at 1 November 2019 - - -
Adjustment on transition to IFRS
16 on 1 November 2019 479 9 488
Additions 885 - 885
Disposals - - -
------------------------ ----------------------------- ----------------------
Balance as at 30 April 2020 1,364 9 1,373
======================== ============================= ======================
Depreciation
Balance as at 1 November 2019 - - -
Adjustment on transition to IFRS
16 on 1 November 2019 - - -
Depreciation charge for the year 104 4 108
Disposals - - -
------------------------ ----------------------------- ----------------------
Balance as at 30 April 2020 104 4 108
======================== ============================= ======================
Net book value at 30 April 2020 1,260 5 1,265
======================== ============================= ======================
Right of use liabilities Total
Balance as 1 November 2019 -
Adjustment on transition to IFRS 16 on 1 November 2019 488
Repayments (137)
Addition to right-of-use assets in exchange for increase
in lease liabilities 885
Other lease movements 16
--------------------
Balance as at 30 April 2020 1,252
====================
There is no impact on deferred tax. The assets will be
classified for capital allowances, with interest based on a
discount factor being allowable for corporation tax purposes.
In relation to the right of use assets, the following expenses
were charged to the income statement:
GBP'000
Depreciation of Land and buildings 104
Depreciation of Motor vehicles 4
Interest expense (included in Finance costs) 16
----------------------
Total expense in income statement relating to Right
of Use assets 124
======================
The adoption of IFRS 16 for HY2020 has led to the elimination of
lease payments of GBP123k and the introduction of additional
depreciation of GBP108k and finance costs of GBP16k. The impact of
this is an increase in operating profit of GBP15k and, after taking
account of finance costs, a reduction in profit before tax of
GBP1k.
5. Loss per share
Half year Half year Year
ended ended Ended
30 April 30 April 31 October
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------------------------- -------------------------- -------------------------
Loss for the period (618) (430) (636)
Weighted average
number of shares Shares Shares Shares
-------------------------- -------------------------- -------------------------
Weighted average
number of shares
in issue 35,943,337 35,803,582 35,860,652
Weighted average
number of share
options 2,195,402 630,157 587,101
-------------------------- -------------------------- -------------------------
Weighted average
number of shares
(diluted) 38,138,739 36,433,739 36,447,753
========================== ========================== =========================
Share options have not been included in the Diluted calculation
as they would be anti-dilutive with a loss being recognised.
Half year Half year Year
ended ended ended
30 April 30 April 31 October
2020 2019 2019
GBP GBP GBP
------------------------ ------------------------ -------------------------
Loss per share
Basic & Diluted (0.02) (0.01) (0.02)
6. Share capital of the Company
Number of
shares Share Capital Share Premium
GBP GBP
------------------------- ---------------------------- ----------------------------
Share capital
issued and fully
paid
Ordinary shares
of GBP0.0025
each
as at 1
November 2018, 35,795,539 89,489 9,727,158
Shares issued to
satisfy
exercise
of share
options on 18
April 2019 120,640 302 -
------------------------- ---------------------------- ----------------------------
Ordinary shares
of GBP0.0025
each
as at 30 April
2019 & 31
October
2019 35,916,179 89,791 9,727,158
Shares issued to
satisfy
exercise
of share
options on 20
February
2020 70,000 175 -
------------------------- ---------------------------- ----------------------------
Ordinary shares
of GBP0.0025
each
as at 30 April
2020 35,986,179 89,966 9,727,158
========================= ============================ ============================
Ordinary shares carry the right to one vote per share at general
meetings of the Company and the rights to share in any distribution
of profits or returns of capital and to share in any residual
assets available for distribution in the event of a winding up.
7. Capital Commitments
At 30 April 2020 the Group had GBPNIL of capital commitments
relating to the purchase of plant and machinery (30 April 2019 -
GBP21,950).
INDEPENT REVIEW REPORT TO VELOCITY COMPOSITES PLC
Introduction
We have reviewed the consolidated, condensed set of financial
statements in the half-yearly financial report of Velocity
Composites PLC (the 'group') for the six months ended 30 April 2020
which comprises consolidated statement of total comprehensive
income, consolidated statement of financial position, consolidated
statement of changes in equity, consolidated statement of cash
flows and the related notes. We have read the other information
contained in the half-yearly financial report and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of
financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with International Financial
Reporting Standards as adopted by the European Union. The condensed
set of financial statements included in this half-yearly financial
report has been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union.
Our responsibility
Our responsibility is to express a conclusion to the company on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity'. A review of interim financial information consists
of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
The impact of macro-economic uncertainties on our audit
Our review of the condensed set of financial statements in the
half-yearly financial report requires us to obtain an understanding
of all relevant uncertainties, including those arising as a
consequence of the effects of macro-economic uncertainties such as
Covid-19 and Brexit. Such reviews assess and challenge the
reasonableness of estimates made by the directors and the related
disclosures and the appropriateness of the going concern basis of
preparation of the financial statements. All of these depend on
assessments of the future economic environment and the company's
future prospects and performance.
Covid-19 and Brexit are amongst the most significant economic
events currently faced by the UK, and at the date of this report
their effects are subject to unprecedented levels of uncertainty,
with the full range of possible outcomes and their impacts unknown.
We applied a standardised firm-wide approach in response to these
uncertainties when assessing the company's future prospects and
performance. However, no review of interim financial information
should be expected to predict the unknowable factors or all
possible future implications for a company associated with a course
of action such as Brexit.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
April 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union.
Use of our report
This report is made solely to the company, as a body, in
accordance with International Standard on Review Engagements (UK
and Ireland) 2410, 'Review of Interim Financial Information
performed by the Independent Auditor of the Entity'. Our review
work has been undertaken so that we might state to the company
those matters we are required to state to them in an independent
review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company as a body, for our review work, for
this report, or for the conclusion we have formed.
Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Manchester
23 June 2020
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR KLLFLBQLZBBD
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