TIDMVEL
RNS Number : 6298N
Velocity Composites PLC
24 January 2023
24 January 2023
VELOCITY COMPOSITES PLC
("Velocity or the "Company")
FINAL RESULTS FOR YEARED 31 OCTOBER 2022
Velocity Composites plc (AIM: VEL), the leading supplier of
composite material kits to aerospace and other high-performance
manufacturers, is pleased to announce the Company's audited results
for the twelve months to 31 October 2022.
Financial Highlights
-- Revenue increased 22% to GBP12.0m (FY21: GBP9.8m) as the UK
civil aerospace market began to recover.
-- Gross margin decreased from 26% to 23% due to significant
inflationary pressures. This should prove to be temporary as prices
increase and efficiencies catch up in the medium term.
-- Full year adjusted EBITDA [*] loss of GBP0.5m (FY21: loss of
GBP0.5m) as anticipated, due to prioritising investment and
carrying overheads to achieve long term growth objectives.
-- Net cash position of GBP0.2m as at 31 October 2022 (FY21:
GBP0.9m) reflecting investment in new US facility.
Operational Highlights:
-- Development of the Velocity Resource Planning (VRP) system
for better controls, more efficient operational scenarios and full
traceability from long-term demand or order management to the
delivery of composite kits to customers.
-- Developing the digitisation of the entire demand and
forecasting system, alongside the rollout of the digital cell from
the development area into the production area, proving invaluable
in managing material supply chain issues in the first half of the
year.
-- Implementation of a new business system for the non-VRP
processes to help with the scalability and standardisation needed
as the Company expands into the US.
-- Continued to improve existing customer partnerships and
targeted new business development in key locations and markets
(aerospace, high-end automotive, lightweight transport).
Post-Period Highlights:
-- Five-year Work Package Agreement ("WPA") signed in December
2022 with GKN Aerospace in the United States worth in excess of
US$100 million in revenue over five years as part of US
Expansion.
Outlook:
-- As a result of the Company's investments, the business is
expected to grow very significantly in the next two years. Growth
is largely expected to come in the North American region.
-- The Company has contracted UK and US business which, when in
full production (at current OEM run rates), will significantly
increase revenue.
-- Strong pipeline of new business which can also potentially
increase revenue even further over the next few years
-- Composites will play an important role in reducing the use of
fossil fuels through greater fuel efficiency.
Andy Beaden, Chairman of Velocity, said : "As a result of our
investments, we expect the business to grow very significantly in
the next two years. This growth is largely expected to come in the
North American region, and we have designed our new facility in
Alabama so it can expand to manage this expected expansion.
"To deliver our ambitious targets, we also expect some growth to
come from the non-aerospace sector in industries such as
high-performance automotive, alternative fuel solutions, and large
consumer products. Global defence spending is expected to increase
significantly in the next few years, and we believe this will feed
further growth and opportunities. With both demand for and the
costs of composite materials increasing, there will be greater
pressure on manufacturers to save on material wastage, which is at
the core of our VRP solution. The Board feel confident in
Velocity's ability to achieve strong growth opportunities over
2023."
Jon Bridges, CEO, Velocity added: "Our actions in FY22 have
prepared the business for a return to growth in FY23 in terms of
cost management, targeted investment, a forecasted increase in
existing programme production rates and significant new business
opportunities in the UK and the US. Our scalable and digital
business model will open up opportunities in the global industry at
a scale much higher than historic programmes. Our business model is
more relevant now as customers look to prioritise their core
business post Covid-19, and the industry strives to meet its
sustainability targets. Composites will play an important role in
reducing the use of fossil fuels through greater fuel
efficiency."
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the UK version of the EU Market Abuse Regulation (2014/596) which
is part of UK law by virtue of the European Union (Withdrawal) Act
2018, as amended and supplemented from time to time. Upon the
publication of this announcement, this inside information is now
considered to be in the public domain.
Enquiries:
Velocity Tel: +44 (0) 1282 577577
Andy Beaden, Chairman
Jon Bridges, Chief Executive
Officer
Adam Holden, Group Finance Director
Cenkos (Nominated Adviser and Tel: +44 (0) 20 7397 8900
Broker)
Katy Birkin
Ben Jeynes
George Lawson
SEC Newgate (Financial PR) Tel: +44 (0) 7540 106 366
Robin Tozer / George Esmond velocitycomposites@secnewgate.co.uk
Harry Handyside
About Velocity Composites
Based in Burnley, UK, Velocity Composites is the leading
supplier of composite material kits to aerospace and other
high-performance manufacturers, that reduce costs and improve
sustainability. Customers include Airbus, Boeing, Safran and
GKN.
By using Velocity's proprietary technology, manufacturers can
also free up internal resources to focus on their core business.
Velocity has significant potential for expansion, both in the UK
and abroad, including into new market areas, such as wind energy,
urban air mobility and electric vehicles, where the demand for
composites is expected to grow.
Chairman's Report
Market Recovery
The global civil aerospace sector has started to recover and
combined with a robust defence industry and opportunities outside
aerospace, we are selling our services and technology into strong
growing markets. Our investment in innovation and extended supply
chain services is paying off. As we enter 2023, our contracted
business, when fully onboarded, is close to three times the run
rate of most of FY22. This is mainly a result of our new US
business, but also more work flowing from existing UK
contracts.
The Company's future is underpinned by these long-term contracts
with leading blue-chip industry customers and the accelerating need
to meet sustainability targets. Composite material technology has a
key part to play in light-weighting aircraft, along with enabling
new fuel systems to be introduced. Our offering provides customers
and suppliers with the ability to achieve far more ambitious
sustainability goals.
FY22 Financial results
Revenue increased 22% to GBP12.0m as the UK civil aerospace
market recovered to an extent, although it remains significantly
below pre-pandemic levels. It was essential, therefore, that
Velocity expanded internationally, particularly into the US, which
is the largest aerospace market in the world.
Over the past year, we have focused on developing our services
and technology to further support customers productivity and
sustainability goals. The Board decided to re-invest any margin
growth and cost efficiencies back into growth opportunities. The
EBITDA result of a GBP0.5m loss, was therefore expected, as we
carried overheads to achieve our longer-term growth objectives.
These initial objectives are achievable with the current contracted
UK and US business for 2023 and 2024.
With inflation in all our major supply inputs, our gross margin
came under very significant pressure, decreasing slightly from 26%
to 23%. However, this should prove to be temporary as prices
increase and efficiencies catch up in the medium term.
Given the challenges, the Board is pleased to have achieved a
positive operating cash flow after tax as a result of effective
working capital management. We were also able to recover some of
our FY22 innovation costs through UK R&D tax credits.
The strategic progress and financial results are explained
further in the Financial Review below.
Board
There were a number of changes to the Board during the year as
we looked to strengthen and develop its composition.
Annette Rothwell joined the Board as a Non-executive Director in
March 2022, bringing with her experience as a senior executive in
global procurement and supply chain management across our core
industry partners. Dr David Bailey, CEO of Composites UK, was
appointed as a Non-executive Director in June 2022. He has had a
long career in aerospace operational management, and has a deep
understanding of composite technology, as well as tackling
sustainability objectives, across aerospace and other industries.
Both Annette and David are highly respected in the industries we
serve.
Robert Soen stepped down from the Board as a Non-executive
Director at the end of our financial year. He has moved to a more
commercial part-time consultancy role at Velocity, working with our
CEO, Jonathan Bridges, across various global supply chain projects.
His contribution in the last three years has been immense and I
want to thank him personally for his support. Annette has taken
over as Chair of the Remuneration Committee and David has taken on
a new role as Chair of our Sustainability Committee.
On behalf of the Board, I would also like to thank Chris
Williams, who stepped down as Group Finance Director in December
2022 and we welcome Adam Holden, as our new Group Finance Director
and Company Secretary.
Employees
Our staff have worked under significant pressure in the last few
years and we are grateful for their efforts. Velocity's
achievements in terms of innovation, new systems, advance
manufacturing, and new business, are a lasting legacy to their hard
work. We also welcome new employees that have joined us in the USA.
We expect the full commissioning of our facility in Alabama in
2023, with progress well advanced in 2022 thanks to the UK team's
efforts around design and setup.
Velocity is committed to the development of a diverse and highly
skilled workforce as a key asset for delivering our future growth.
Retention and development of staff is therefore a critical
objective for the business.
Sustainability
The environmental risks to our planet are the main driver for
innovation in our industry. At Velocity, we have built a business
that supports the efficient use of composite materials and delivers
a significant reduction in waste. Over time, we have invested in
digital technologies on the manufacturing shop floor and in our
engineering services. This has resulted in the development of the
Group's advanced Velocity Resource Planning ("VRP") technology and
supply chain services, which we believe has a major contribution to
make in helping our customers and suppliers achieve their targets.
Helping to meet sustainability objectives is a key element of our
customer service offering.
Industries outside aerospace, such as specialist automotive and
various forms of electric powered transportation, are also looking
to achieve similar sustainability objectives. We are active in
trials and proof of concept projects in these other industrial
sectors. We expect that over time these will become meaningful
growth areas and help rebalance our customer portfolio.
Our new Non-executive Director, David Bailey, is chairing a
specialist committee to oversee our business initiatives that drive
forward sustainability across Velocity and support our customers
and suppliers in their own objectives in this area. At Velocity we
are proud to work across the supply chain to support those
companies and their employees to achieve progressive improvements
each year in sustainability objectives.
Outlook
As a result of our investments, we expect the business to grow
significantly in the next two years. This growth is largely
expected to come in the North American region, and we have designed
our new facility in Alabama so it can be expanded to manage this
expected expansion.
We have contracted UK and US business which, when in full
production (at current OEM run rates), will significantly increase
revenue, several times the FY22 level. This is combined with a
strong pipeline of new business which can also potentially increase
revenue even further over the next few years. To deliver our
ambitious targets, we expect some growth to come from non-aerospace
sectors, in industries such as high performance automotive,
alternative fuel solutions and large consumer products. Global
defence spending is also expected to increase significantly in the
next few years, and we believe this will generate further growth
and opportunities. With both demand for, and the costs of composite
materials increasing, there will be greater pressure on
manufacturers to save on material wastage, which is at the core of
our VRP solution.
Both Airbus and Boeing produce regular and detailed market
forecast documents which are available to download from their
websites and key data is sourced from:
www.boeing.com/commercial/market/commercial-market-outlook
and
www.airbus.com/en/products-services/commercial-aircraft/market/global-market-forecast
Ultimately, international sustainability targets will underpin
the long-term growth opportunities and continued demand for our
products and services.
The Board, employees and external investors have all supported
the Company's growth aspirations and we expect a significant return
on that investment.
Andrew Beaden
Chairman
23 January 2023
CEO Report
Overview
In FY22, business confidence started to improve in our existing
and prospective customer base. We focused our business development
on key scale opportunities, including outside the UK. In the last
few years, our strategy has switched to targeted investment to grow
a smaller number of larger customers, we believed could benefit
from utilising our advanced technology to support "total cost of
ownership" ("TCO") business cases. TCO business cases focus on
increased productivity, reduced inventory and higher levels of
quality control.
Our new approach is to perform a detailed assessment of our
customers' current front production operations and then provide
them with a clear commercial business case, utilising the latest
VRP solution. We have been able to do this due to the investments
we have made in our technology in recent years. Being able to
clearly detail all the benefits of our services to potential
customers has given Velocity a healthy pipeline of opportunities.
It was this approach that led to our largest contract agreement to
date, announced post year end in December 2022. We have signed a
five-year Work Package Agreement with GKN Aerospace in the United
States expected to be worth in excess of US$100 million in revenue
over five years.
It is testament to the hard work of the Velocity team that we
delivered this agreement within our existing resources, under close
cost control, with a smaller number of key staff due to the
pandemic.
Customers
While existing programme customer rates are still to recover to
pre-pandemic levels, our focus has been on the following
pillars:
-- Technology - to drive efficiencies and optimisation in
existing programmes and assist in winning new business.
-- Data - use the TCO business case model to clearly identify
customer benefits to the point where the document created can be
used as an internal business case for the customer, speeding up the
pipeline process.
-- Customers - focus on enhancing value with existing customers
and targeted business development in key locations and markets
(aerospace, high end automotive, lightweight transport).
Our customers are advanced manufacturers and innovators in their
specialist technology field. We have tailored our services and new
business approach to support them in delivering their specific
sustainability and efficiency objectives.
The development of the TCO business case process has been
instrumental in all our business development activities as we
streamline and speed up the onboarding process. Working with global
aerostructure manufacturers with complex supply chains, it was time
consuming to communicate all the benefits of Velocity's offering
through many layers of the organisation.
The TCO model has created a structured new business process.
Working with actual customer data, we can identify all the savings
available and compare this to the customer's current process in a
detailed business case document. We have successfully used this
with existing and new customers. Furthermore, by building
relationships at the highest level within customer organisations we
can ensure that Velocity receives senior leader sponsorship.
Velocity has also progressed opportunities to balance the ratio
of civil aerospace and defence programmes in our customer portfolio
to protect it from any future disruptions in any one part of the
composites industry. The results of this can be seen in the mix of
new contracts we have won and this will continue as we increase our
presence in the large US defence industry.
Operational and Technology Progress
Our VRP system has created better controls, more efficient
operational scenarios, and full traceability from long term demand
or order management to the delivery of composite kits into
customers' manufacturing areas. This has included the digitisation
of the entire demand and forecasting system, plus the roll out of
the digital cell from the development area into the production
area. This proved invaluable in managing material supply chain
issues in the first half of FY22, and the implementation of larger,
more complex nesting scenarios for both existing customers and
business development.
As the VRP system fully digitises, this will help Velocity as it
expands into new geographic locations and means we can implement
the standardisation of our processes and aid training of new staff;
all with real time links back into central management.
In addition, we have started the implementation of a new
business system for the non-VRP processes, which will help with the
scalability and standardisation needed as the business expands into
the US.
US Expansion
In December 2022, Velocity signed an agreement with GKN
Aerospace in the US and has opened an Advanced Manufacturing
Facility in Alabama to deliver the project. The Group remains on
track for site approvals and first article testing by February
2023, in order for volume production to start in Q1 2023. The
processes, equipment and technology used in the US are identical to
the UK facilities which assisted the customer decision based on the
proven service model, reputation and confidence in our
delivery.
The facility itself can be scaled to support multiple customers
in the region and work continues with other potential large-scale
customers utilising the TCO business case and senior level
approach, and we are working towards securing additional agreements
in 2023.
Employees
As with previous years I am pleased to report that staff
turnover has remained low. The Company has continued to invest for
growth and, as such, has retained staff in critical areas. We have
expanded teams in business development, technology development and
information systems to support business improvement and bid
activities. This has been delivered by external recruitment,
internal career development and external contractor support, and as
new business moves into full implementation there will be budgeted
proportionate growth in direct employees with targeted increases in
indirect roles. We have welcomed Andy Caunce as Head of Operations
to help as we return to growth in multiple locations.
Outlook
Looking ahead, our actions in FY22 have prepared the business
for a return to growth in FY23 in terms of cost management,
targeted investment, a forecasted increase in existing programme
production rates and significant new business opportunities in the
UK and the US.
We believe our TCO business case model and senior level
engagement approach to key customers, coupled with an increase in
existing production rates as aircraft deliveries recover, will
deliver the planned growth. Our scalable and digital business model
is expected to open up opportunities in the global industry at a
scale much higher than historic programmes.
Our business model is more relevant now as customers look to
prioritise their core business post Covid-19, and the industry
strives to meet its sustainability targets. Composites will play an
important role in reducing the use of fossil fuels through greater
fuel efficiency.
Section 172 Statement
In accordance with section 172 of the Companies Act 2006, the
Directors, collectively and individually, confirm that during the
year ended 31 October 2022, they acted in good faith and have
upheld their 'duty to promote the success of the Group' to the
benefit of its stakeholder groups.
The Directors acknowledge the importance of forming and
retaining a constructive relationship with all stakeholder groups.
Effective engagement with stakeholders enables the Board to ensure
stakeholder interests are considered when making decisions which is
crucial for achieving the long-term success of the Group. The main
mechanisms for wider stakeholder engagement and feedback can be
found on page 20 onwards in the Statement on Corporate Governance
of the 2022 Annual Report and Financial Statements.
Jonathan Bridges
Chief Executive Officer
23 January 2023
Financial Review
Statement of Comprehensive Income
Revenue for FY22 of GBP12.0m (FY21: GBP9.8m) represents an
increase of 22%, as a result of both recovery in civil aerospace
production rates and smaller contract wins in the UK. Though UK
sales and production volumes remain significantly below
pre-pandemic levels, contracted long term business is now above
those levels, with production at the new US operating facility to
commence in 2023. When reviewing these historical results, it
should be noted that a large element of the overhead cost base has
been focused on services innovation and expansion of our business
on a global basis.
The increased volume has generated a gross profit of GBP2.7m,
GBP0.2m ahead of the GBP2.5m achieved in FY21, resulting in a
reported gross margin percentage of 23.0% (FY21: 26.0%). This
reduction is expected to be temporary, as it results from a lag in
some increased cost pressures, when compared to revising contracted
pricing with customers. All things being equal, this timing
difference, should correct itself through 2023.
Administrative expenses have increased GBP0.2m from GBP3.9m in
FY21 to GBP4.1m in FY22. This small increase is a major
achievement, given the significant investment, in and focus on,
business development and innovation. Costs have increased in many
areas and there was a major effort required to counter these
pressures. Though we expect the cost base to increase with the US
operations opening in 2023, the central costs will be spread over
two to three times the activities, once the new contracted business
is onboarded.
The increase in volume has therefore been offset by the
investment in overheads to support the future growth, resulting in
an Adjusted EBITDA [2] loss of GBP0.5m (FY21: loss of GBP0.5m).
31 October 31 October
2022 2021
Reconciliation from operating loss GBP'000 GBP'000
----------- -----------
Operating loss (1,317) (1,364)
Add back:
Share-based payments 170 90
Depreciation and amortisation 263 305
Depreciation on right of use assets under
IFRS 16 432 421
----------- -----------
Adjusted EBITDA (452) (548)
----------- -----------
The investment in business development, technology and staff
development during FY22 means the Group is well placed for the now
contracted volume growth in the forthcoming year. US growth will be
delivered through the Work Package Agreement with GKN which will
commence in early FY23 and is expected to be at full rate
production by August 2023. Growth in the UK will be through an
increase to existing contract volumes, with new opportunities to
pursue in both regions, as aircraft deliveries continue to recover
following the pandemic.
Therefore, Velocity is in an excellent position to deliver this
growth, without a linear increase to its overhead base and will
also benefit in FY23 from the technological investments that have
driven efficiencies in the operational process .
Cashflow and Capital Investment
The decrease in the year end cash and cash equivalents position
of GBP1.2m to GBP2.3m (FY21: GBP3.5m) is a reflection of a
combination of factors. Firstly, the Adjusted EBITDA loss referred
to above has been partially offset by a positive movement in
working capital of GBP0.3m (FY21: GBP0.9m), resulting in a cash
outflow from operations of only GBP0.2m (FY21: cash inflow from of
operations of GBP0.3m). After adjusting for tax receipts in respect
of R&D expenditure of GBP0.5m (FY21: GBPNil), the overall
result was a cash inflow from operating activities of GBP0.3m
(FY21: GBP0.3m).
The tight control on working capital, can be further analysed as
follows: A positive working capital movement through a GBP1.1m
increase in trade and other payables from suppliers (FY21: decrease
of GBP0.4m). GBP0.5m of this funded an increase in inventory (FY21:
decrease of GBP1.0m), partly due to the increase in volume, but
also follows a strategic decision to minimise the risk of supply
chain disruption. Whilst there has also been an increase in trade
and other receivables of GBP0.4m due from customers (FY21: decrease
of GBP0.3m), this is a product of the increased volume, rather than
an increase to terms as the overall trade receivable days have
reduced to 68 days, compared to 70 days at the end of FY21.
A cash outflow from investment activities of GBP0.4m is
reflective of the increase in Non-Current Assets to support the
development of the production facility in the US. A further GBP1.1m
has been used in financing activities, driven by repayments of the
CBILS loan, the capital element of the Group's lease liabilities
and associated financing costs.
Despite the loss in the year, the business remains in a net cash
position at the end of the year, with GBP0.2m net cash (FY21:
GBP1.0m). This includes Cash at Bank, offset by the outstanding
CBIL balance and invoice discounting facility.
31 October 31 October
2022 2021
GBP'000 GBP'000
------------------------- -------------------------
Cash 2,344 3,476
CBIL loan (2,009) (2,516)
Invoice discounting facility (175) 2
------------------------- -------------------------
Net cash 160 962
------------------------- -------------------------
The Board consider this a significant achievement in cash
management, given the investment milestones achieved in the last
year and transformation of future business opportunities.
Adam Holden
Group Finance Director
23 January 2023
Consolidated Statement of
Total Comprehensive
Income
Year ended Year ended
31 October 31 October
2021 2021
Note GBP'000 GBP'000
-------------------------- --------------------------
Revenue 4 11,959 9,767
Cost of sales (9,213) (7,228)
-------------------------- --------------------------
Gross profit 2,746 2,539
Administrative expenses (4,063) (3,903)
Operating loss 5 (1,317) (1,364)
----------------------------------------- ------------------- -------------------------- --------------------------
Operating loss analysed
as:
Adjusted EBITDA 29 (452) (548)
Depreciation of property,
plant and
equipment (210) (229)
Amortisation (53) (76)
Depreciation of
right-of-use assets
under IFRS 16 (432) (421)
Share-based payments (170) (90)
Finance income and expense 8 (187) (182)
-------------------------- --------------------------
Loss before tax from
continuing operations (1,504) (1,546)
Corporation tax
recoverable 9 167 340
-------------------------- --------------------------
Loss for the year and
total comprehensive
loss (1,337) (1,206)
-------------------------- --------------------------
Loss per share - basic
(GBP) from 10 (GBP0.04) (GBP0.03)
continuing operations
-------------------------- --------------------------
Loss per share - diluted
(GBP) from 10 (GBP0.04) (GBP0.03)
continuing operations
-------------------------- --------------------------
There is no other comprehensive income in the current or prior
year.
Consolidated and Company Statement of Financial Position
Group Group Company Company
---------------------- ---------------------- ---------------------- -------------------------
31 31 31 31 October
October October October
2022 2021 2022 2021
Note GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- -------------------------
Non-current
assets
Intangible
assets 11 173 91 173 91
Property,
plant and
equipment 12 1,099 1,051 1,099 1,051
Right-of-use
assets 19 2,269 1,688 1,812 1,688
---------------------- ---------------------- ---------------------- -------------------------
Total
non-current
assets 3,541 2,830 3,084 2,830
---------------------- ---------------------- ---------------------- -------------------------
Current
assets
Inventories 14 1,407 877 1,407 877
Trade and
other
receivables 15 2,521 2,162 2,569 2,195
Corporation
tax - 341 - 341
Cash and cash
equivalents 16 2,344 3,476 2,337 3,470
---------------------- ---------------------- ---------------------- -------------------------
Total current
assets 6,272 6,856 6,313 6,883
---------------------- ---------------------- ---------------------- -------------------------
Total assets 9,813 9,686 9,397 9,713
---------------------- ---------------------- ---------------------- -------------------------
Current
liabilities
Loans 18 503 514 503 514
Trade and
other
payables 17 2,207 1,058 2,207 1,058
Obligations
under lease
liabilities 19 405 309 313 309
---------------------- ---------------------- ---------------------- -------------------------
Total current
liabilities 3,115 1,881 3,023 1,881
---------------------- ---------------------- ---------------------- -------------------------
Non-current
liabilities
Loans 18 1,506 1,998 1,506 1,998
Obligations
under lease
liabilities 19 1,792 1,240 1,442 1,240
---------------------- ---------------------- ---------------------- -------------------------
Total
non-current
liabilities 3,298 3,238 2,948 3,238
---------------------- ---------------------- ---------------------- -------------------------
Total
liabilities 6,413 5,119 5,971 5,119
---------------------- ---------------------- ---------------------- -------------------------
Net assets 3,400 4,567 3,426 4,594
Equity attributable to equity holders of the company
Share capital 22 91 91 91 91
Share premium
account 9,727 9,727 9,727 9,727
Share-based
payments
reserve 684 539 684 539
Retained
earnings (7,102) (5,790) (7,076) (5,763)
---------------------- ---------------------- ---------------------- -------------------------
Total equity 3,400 4,567 3,426 4,594
---------------------- ---------------------- ---------------------- -------------------------
The Company has taken advantage of the exemption allowed under
section 408 of the Companies Act 2006 and not presented its own
statement of profit and loss in these financial statements. The
loss for the year was GBP1,338,000. The financial statements were
approved and authorised for issue by the Board of Directors on 23
January 2023 and were signed on its behalf by:
Adam Holden
Director
Co No: 06389233
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 2020 91 9,727 (4,626) 490 5,682
Loss for the
year - - (1,205) - (1,205)
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
91 9,727 (5,831) 490 4,477
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
Transactions
with
shareholders:
Share-based
payments
(note 23) - - - 90 90
Transfer of
share option
reserve on
vesting of
options and
issue of
equity - - 41 (41) -
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
As at 31
October 2021 91 9,727 (5,790) 539 4,567
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
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 2021 91 9,727 (5,790) 539 4,567
Loss for the
year - - (1,337) - (1,337)
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
91 9,727 (7,127) 539 3,230
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
Transactions
with
shareholders:
Share-based
payments
(note 23) - - - 170 170
Transfer of
share option
reserve on
vesting of
options and
issue of
equity - - 25 (25) -
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
As at 31
October 2022 91 9,727 (7,102) 684 3,400
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
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 2020 91 9,727 (4,598) 490 5,710
Loss for the
year - - (1,206) - (1,206)
---------------------- ---------------------- ----------------------- ----------------------- ----------------------
91 9,727 (5,804) 490 4,504
---------------------- ---------------------- ----------------------- ----------------------- ----------------------
Transactions
with
shareholders:
Share-based
payments
(note 23) - - - 90 90
Transfer of
share option
reserve on
vesting of
options and
issue of
equity - - 41 (41) -
---------------------- ---------------------- ----------------------- ----------------------- ----------------------
As at 31
October 2021 91 9,727 (5,763) 539 4,594
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 2021 91 9,727 (5,763) 539 4,594
Loss for the
year - - (1,338) - (1,338)
---------------------- ---------------------- ----------------------- ----------------------- ----------------------
91 9,727 (7,101) 539 3,256
---------------------- ---------------------- ----------------------- ----------------------- ----------------------
Transactions
with
shareholders:
Share-based
payments
(note 23) - - - 170 170
Transfer of
share option
reserve on
vesting of
options and
issue of
equity - - 25 (25) -
---------------------- ---------------------- ----------------------- ----------------------- ----------------------
As at 31
October 2022 91 9,727 (7,076) 684 3,426
---------------------- ---------------------- ----------------------- ----------------------- ----------------------
Consolidated and Company Statement of Cash Flows
Group Group Company Company
---------------------- ---------------------- ---------------------- -------------------------
Year Year Year
ended ended ended Year ended
31 31 31
October October October 31 October
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- -------------------------
Operating activities
Loss for the year (1,337) (1,206) (1,338) (1,206)
Taxation (167) (341) (167) (341)
Profit on sale of
assets (38) (13) (38) (13)
Finance costs 187 182 187 181
Amortisation of
intangible
assets 53 76 53 76
Depreciation of
property,
plant and equipment 210 229 210 229
Depreciation of
right-of-use
assets 432 421 432 421
Share-based payments 170 90 170 90
---------------------- ---------------------- ---------------------- -------------------------
Operating cash flows
before movements in
working
capital (490) (562) (491) (563)
(Increase)/Decrease
in
trade and other
receivables (359) 302 (374) 294
(Increase)/Decrease
in
inventories (530) 1,031 (530) 1,031
Increase/(Decrease)
in
trade and other
payables 1,149 (446) 1,149 (440)
---------------------- ---------------------- ---------------------- -------------------------
Cash
(outflow)/inflow
from operations (230) 325 (246) 322
Tax received 510 - 510 -
---------------------- ---------------------- ---------------------- -------------------------
Net cash inflow from
operating
activities 280 325 264 322
Investing activities
Purchase of
property,
plant and equipment (262) (64) (262) (64)
Purchase of
development
expenditure (136) - (136) -
Proceeds from the
sale
of property, plant
and
equipment 42 13 42 13
---------------------- ---------------------- ---------------------- -------------------------
Net cash used in
investing
activities (356) (51) (356) (51)
Financing activities
Loan received - 634 - 634
Finance costs paid (187) (181) (187) (181)
Loan repayment (503) (119) (503) (119)
Repayment of lease
liabilities
capital (366) (400) (351) (400)
---------------------- ---------------------- ---------------------- -------------------------
Net cash used in
financing
activities (1,056) (66) (1,041) (66)
---------------------- ---------------------- ---------------------- -------------------------
Net
Increase/(Decrease)
in cash and cash
equivalents (1,132) 208 (1,133) 205
Cash and cash
equivalents
at 1 November 3,476 3,268 3,470 3,265
---------------------- ---------------------- ---------------------- -------------------------
Cash and cash
equivalents
at 31 October 2,344 3,476 2,337 3,470
---------------------- ---------------------- ---------------------- -------------------------
Notes to the Financial Statements
1. General information
Velocity Composites plc (the 'Company') is a public limited
company incorporated and domiciled in England and Wales. The
registered office of the Company is AMS Technology Park, Billington
Road, Burnley, Lancashire, BB11 5UB, United Kingdom. The registered
Company number is 06389233.
In order to prepare for future expansion in the Asia region, the
Company established a wholly owned subsidiary company, Velocity
Composites Sendirian Berhad, which is domiciled in Malaysia. The
subsidiary company commenced trading on 18 April 2018. The Company
also established a wholly owned subsidiary company, Velocity
Composites Aerospace Inc. to prepare for future expansion in the
United States of America. These subsidiaries, together with
Velocity Composites plc, now form 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 consolidated financial statements of Velocity Composites plc
have been prepared in accordance with UK-adopted international
accounting standards and International Financial Reporting
Interpretations Committee (IFRIC).
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 years
presented, unless otherwise stated. The financial statements are
presented in sterling and have been rounded to the nearest thousand
(GBP'000). References to "FY22" refer to the year ended 31 October
2022, whilst references to "FY21" are in respect of the year ended
31 October 2021.
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 and are
made up to 31 October 2022. Subsidiaries are consolidated from the
date of acquisition, using the purchase method.
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 IFRS standards.
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 losses are eliminated in the same way as unrealised
gains, but only to the extent that there is no evidence of
impairment.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all years presented in the
consolidated financial statements.
There are no new accounting standards or interpretations that
are not yet fully effective that could be expected to have a
material impact on the Group.
Going concern
Management continues to undertake a significant level of cash
flow forecasting and detailed financial projections for the
following 24 month rolling period to 31 October 2024 have been
prepared. A number of sensitivities have been performed to
understand the cash flow impact of various scenarios and even in
the most severe down-side scenario modelled the business had
sufficient liquidity to continue trading as a going concern.
The aerospace sector lends itself to long-term planning due to
the nature and length of customer programmes, typically a minimum
of three years, but often five years or more. This has enabled the
business to fully model the period to 31 October 2024 and undertake
more strategic, longer-term planning for growth and full recovery
emerging from the pandemic.
The cash flow forecasts are, however, reviewed monthly through
Management's Integrated Business Planning (IBP) process and the
assumptions updated for any new knowledge to ensure there is no
change in the Group's liquidity outlook. This is linked in with
Management's monthly risk review and should the outlook change
significantly with no mitigating actions the Group's liquidity risk
rating on the risk register will be adjusted to reflect this and
subsequently discussed at Board through the Audit Committee's
quarterly risk register review.
In preparing the latest two-year forecasts, Management has
included revenue projections based on current demand, the newly
signed Work Package Agreement with GKN in the US, plus a weighting
of opportunities in the pipeline. The cost base included in the
projections is reflective of the significant cost reductions that
have already taken place in the Group, but also realistic about the
investment required to implement the growth.
It is the investment in growth and technological advancements
throughout FY22, and which is anticipated to continue in FY23, that
has resulted in the forecasts indicating that the Group's Invoice
Discounting Facility, secured against Trade Debtors, will be
utilised during certain months within the going concern period.
Whilst this facility is designed to be short-term and can be
withdrawn with 3 months' notice, the latest discussions have
reflected the bank's support for Velocity's growth strategy and as
such we expect this facility will remain available for the
foreseeable future. Utilisation of the facility is forecast to be
temporary as the benefits from the investment in growth become
tangible in the second half of FY23. However, should alternative
financing be required the Group would preserve cash by delaying
certain investment activities until longer-term funding could be
implemented, such as asset-based financing against new capital
expenditure or equity funding.
Alongside the robust forecasting and governance process, the
Group has demonstrated strong cash flow management through the
Covid-19 pandemic, successfully reducing inventory levels and
navigating through right-sizing efforts to deliver significant
reductions to administrative overheads.
Having due regard for these recent deliverables and latest
projections, with available cash at 31 October 2022 of GBP2.3m, an
invoice discount facility where the Group can borrow up to GBP3m
dependent on debtor levels, access to an invoice discounting
facility with one of our major customers, and continued support
from our banks and shareholders, it is the opinion of the Board
that the Group has adequate resources to continue to trade as a
going concern.
Revenue recognition
Revenue is recognised as performance obligations are satisfied
as control of the goods and services is transferred to the
customer. Contracts are satisfied over a period of time, with the
dispatch of goods at a point in time. Revenue is therefore
recognised when control is transferred to the customer, which is
usually when legal title passes to the customer and the business
has the right to payment, for example, on delivery.
The Group generates revenue from the sale of structural and
consumable materials for use within the aerospace industry. This is
the sole revenue stream of the Group.
At contract inception (which is upon receipt of a purchase order
from a customer), an assessment is completed to identify the
performance obligations in each contract. Performance obligations
in a contract are the goods that are distinct.
At contract inception, the transaction price is determined,
being the amount that the Group expects to receive for transferring
the promised goods - this is a fixed price with no variable
consideration. The transaction price is allocated to the
performance obligations in the contract based on their relative
standalone selling prices - this reflects the agreed price as per
purchase order for each product. The Group has determined that the
contractually stated price represents the standalone selling price
for each performance obligation.
Revenue from sale of goods is recognised when a performance
obligation has been satisfied by transferring the promised product
to the customer at a point in time, usually when legal title passes
to the customer and the business has the right to payment, for
example, on delivery. Standard payment terms are in place for each
customer.
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. Goods
or services supplied in a foreign currency are recognised at the
exchange rate ruling at the time of accounting for this
expenditure.
Provisions
A 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.
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.
Short-term employee benefits
A liability is recognised for benefits accruing to employees in
respect of wages and salaries, annual leave and sick leave in the
year the related service is rendered at the undiscounted amount of
the benefits expected to be paid in exchange for that service.
Research and development expenditure
Research expenditure - expenditure on research activities is
recognised as an expense in the year 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:
Land and buildings Over the term of
(right-of-use) the lease
Plant and machinery 15% straight line
Motor vehicles 25% straight line
Fixtures and fittings 15% straight line
Leasehold improvements Over the term of
the lease
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 is 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 statement of financial
position presented are translated at the closing rate at the date
of the statement of financial position
-- 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 year. 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, or similar instruments. The Group does not
issue or use financial instruments of a speculative nature.
Bank borrowings
Interest-bearing loans are recorded initially at their fair
value, net of direct transaction costs. Such instruments are
subsequently carried at their amortised cost and finance charges
are recognised in the statement of comprehensive income over the
term of the instrument using an effective rate of interest. Finance
charges are accounted for on an accrual's basis to the statement of
comprehensive income.
The Group has current borrowings of CBIL loans and can utilise
its invoice discounting facility in support of its working capital
requirements.
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.
Trade and other 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
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 of financial assets
Impairment provisions are recognised through the expected credit
losses model (ECL). IFRS 9's impairment requirements use
forward-looking information to recognise expected credit losses -
the 'expected credit loss (ECL) model'.
The Group considers a broader range of information when
assessing credit risk and measuring expected credit losses,
including past events, current conditions, reasonable and
supportable forecasts that affect the expected collectability of
the future cash flows of the instrument.
Trade and other payables
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.
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
Leases
The Group makes the use of leasing arrangements principally for
the buildings and motor vehicles. The rental contracts for offices
are typically negotiated for terms of 5 and 10 years and some of
these have extension terms. The Group does not enter into sale and
leaseback arrangements. All the leases are negotiated on an
individual basis and contain a wide variety of different terms and
conditions.
The Group assesses whether a contract is or contains a lease at
inception of the contract. A lease conveys the right to direct the
use and obtain substantially all of the economic benefits of an
identified asset for a period of time in exchange for
consideration.
Measurement and recognition
At lease commencement date, the Group recognises a right-of-use
asset and a lease liability in its consolidated statement of
financial position. The right-of-use asset is measured at cost,
which is made up of the initial measurement of the lease liability,
any initial direct costs incurred by the Group, and any lease
payments made in advance of the lease commencement date.
The Group depreciates the right-of-use asset on a straight-line
basis from the lease commencement date to the earlier of the end of
the useful life of the right-of-use asset or the end of the lease
term. The Group also assesses the right-of-use asset for impairment
when such indicators exist.
At the commencement date, the Group measures the lease liability
at the present value of the lease payments unpaid at that date,
discounted using the Group's incremental borrowing rate because as
the lease contracts are negotiated with third parties it is not
possible to determine the interest rate that is implicit in the
lease.
The incremental borrowing rate is the estimated rate that the
Group would have to pay to borrow the same amount over a similar
term, and with similar security to obtain an asset of equivalent
value. This rate is adjusted should the lessee entity have a
different risk profile to that of the Group.
Subsequent to initial measurement, the liability will be reduced
by lease payments that are allocated between repayments of
principal and finance costs. The finance cost is the amount that
produces a constant periodic rate of interest on the remaining
balance of the lease liability.
The lease liability is reassessed when there is a change in the
lease payments. Changes in lease payments arising from a change in
the lease term or a change in the assessment of an option to
purchase a leased asset. The revised lease payments are discounted
using the Group's incremental borrowing rate at the date of
reassessment when the rate implicit in the lease cannot be readily
determined. The amount of the remeasurement of the lease liability
is reflected as an adjustment to the carrying amount of the
right-of-use asset. The exception being when the carrying amount of
the right-of-use asset has been reduced to zero then any excess is
recognised in profit or loss.
Payments under leases can also change when there is either a
change in the amounts expected to be paid under residual value
guarantees or when future payments change through an index or a
rate used to determine those payments, including changes in market
rental rates following a market rent review. The lease liability is
remeasured only when the adjustment to lease payments takes effect
and the revised contractual payments for the remainder of the lease
term are discounted using an unchanged discount rate. Except for
where the change in lease payments results from a change in
floating interest rates, in which case the discount rate is amended
to reflect the change in interest rates.
The remeasurement of the lease liability is dealt with by a
reduction in the carrying amount of the right-of-use asset to
reflect the full or partial termination of the lease for lease
modifications that reduce the scope of the lease. Any gain or loss
relating to the partial or full termination of the lease is
recognised in profit or loss. The right-of-use asset is adjusted
for all other lease modifications.
The Group has elected to account for short-term leases and
leases of low-value assets using the practical expedients. These
leases relate to property security. Instead of recognising a
right-of-use asset and lease liability, the payments in relation to
these are recognised as an expense in profit or loss on a
straight-line basis over the lease term.
See the accounting policy on Property plant and equipment for
the depreciation methods and useful lives for assets held under
lease.
Government grants
Grants from the government are recognised at their fair value
where there is reasonable assurance that the grant will be
received, and the Group will comply with all attached conditions.
Government grants relating to cost are deferred and recognised in
the profit or loss by deducting from the related expense over the
period necessary to match them with the costs that they are
intended to compensate.
Current taxation
The tax currently payable is based on the taxable profit of the
year. 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
years 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.
R&D tax credit
R&D tax credits are recognised at the point when claims have
been quantified relating to expenditure within current or previous
years and recovery of the asset is virtually certain, these tax
credits relating to R&D are recognised within the tax on profit
line of the income statement.
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;
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 executive directors. The Chief
Operating Decision Makers have been identified as the Chief
Executive Officer and the Chief Financial Officer. The Group
supplies a single type of product into a single industry and so has
a single operating 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.
Provisions for inventory
Provisions are made for obsolete, out of life and slow-moving
stock items. In estimating the provisions, the group makes use of
key management experience, precedents and specific contract and
customer issues to assess the likelihood and quantity. Stock is
accounted for on a first in, first out basis.
The provision percentage is applied to various aging categories
dependent on stock type, this is a key estimate made by management
based on judgement and if change is applied to the percentage for
the aged stock, then the outcome of the value of the provision
would differ.
Sensitivity analysis
A 5% increase in the levels of the current stock provision would
lead to and finance impact of an increase in stock provision of
GBP10k.
3. Financial instruments and 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, 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
Group Group Company Company
31 31 31 31
October October October October
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Current
assets
Trade and
other
receivables 2,238 1,902 2,238 1,902
Trade and
other
receivables
-
prepayments 283 260 331 293
---------------------- ---------------------- ---------------------- ----------------------
2,521 2,162 2,569 2,195
Cash and
cash
equivalents
- loans and
receivables 2,344 3,476 2,337 3,470
---------------------- ---------------------- ---------------------- ----------------------
Total loans
and
receivables 4,865 5,638 4,906 5,665
====================== ====================== ====================== ======================
Current
liabilities
Trade and
other
payables 1,750 921 1,750 921
Trade and
other
payables
- accruals 457 137 457 137
---------------------- ---------------------- ---------------------- ----------------------
2,207 1,058 2,207 1,058
Loans 503 514 503 514
Obligations
under lease
liabilities 405 309 313 309
---------------------- ---------------------- ---------------------- ----------------------
Total
current
liabilities 3,115 1,881 3,023 1,881
====================== ====================== ====================== ======================
For non-current liabilities please see notes 17 and 18.
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 and Euros. 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 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 or Euro
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 or Euros are held in those currencies for normal trading
activity in order to recover funds from customers or to pay funds
to suppliers.
The Groups exposure to foreign currency risk is as follows. This
is based on the carrying amount of monetary financial
instruments.
As at 31 October 2022
US Dollar Euro Total
GBP'000 GBP'000 GBP'000
Trade debtors 1,729 163 1,892
Cash and cash equivalents 1,352 249 1,601
Trade payables (750) (32) (782)
------------------------ ---------------------- ----------------------
Balance sheet exposure 2,331 380 2,711
======================== ====================== ======================
As at 31 October 2021
US Dollar Euro Total
GBP'000 GBP'000 GBP'000
Trade debtors 1,651 194 1,845
Cash and cash equivalents 993 1,035 2,028
Trade payables (408) (35) (443)
------------------------ ---------------------- ----------------------
Balance sheet exposure 2,236 1,194 3,430
======================== ====================== ======================
Sensitivity analysis
A 5% strengthening of the following currencies against the pound
sterling at the balance sheet date would have reduced the loss by
the amounts shown below. This calculation assumes that the change
occurred at the balance sheet date and had to be applied to risk
exposures existing at that date.
31 October 31 October
2022 2021
GBP'000 GBP'000
US dollar 117 112
Euro 19 60
This analysis assumes that all other variables, in particular
other exchange rates and interest rates remain constant. A 5%
weakening of the above currencies against pound sterling in any
year would have had the equal but opposite effect to the amounts
shown above.
Interest rate risk
The Group carries borrowings from leases and CBIL loans. Lease
borrowings are at a fixed rate of interest whilst the interest on
the CBIL loans is a combination of fixed rate and Bank of England
base rate plus 3.96%. The Directors do not consider there to be a
significant interest rate risk on the element of loans linked to
movements in the Bank of England base rate. The Group also has
access to an invoicing discounting facility that carries a fixed
monthly charge plus interest at a fixed rate of 2.25%.
a) 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.
b) Liquidity risk
The Group currently holds cash balances in Sterling, US Dollars
and Euros 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.
As at 31 October 2022
One to Two to Over
Within two five five
1 year years years years
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Loan 503 503 1,003 -
Obligations
under lease
liabilities 405 419 1,373 -
Trade
payables 1,134 - - -
Accruals 457 - - -
Other
payables 174 - - -
Invoice
discounting
facility 175 - - -
As at 31 October 2021
One to Two to Over
Within two five five
1 year years years years
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Loan 514 536 1,462 -
Obligations
under lease
liabilities 309 225 1,015 -
Trade
payables 639 - - -
Accruals 137 - - -
Other
payables 14 - - -
Invoice
discounting
facility - - - -
The lease liability is shown exclusive of interest payments (the
comparative information for FY21 has been updated to correctly
exclude 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. 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
Year ended ended
31 October 31 October
2022 2021
GBP'000 GBP'000
------------------------- ----------------------
Revenue
United Kingdom 11,906 9,702
Europe 10 26
Rest of the World 43 39
11,959 9,767
========================= ======================
During the year four customers accounted for 92.7% (2021:
95.06%) of the Group's total revenue for the year ended 31 October
2022. This was split as follows; Customer A - 43.10% (2021: 44.7%),
Customer B - 33.4% (2021: 28.5%), Customer C - 11.44% (2021: 13.4%)
and Customer D - 4.70% (2021: 8.51%).
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 current and previous year, the Group operated in
Asia. No revenue was generated in Asia during the year ended 31
October 2022 and year ended 31 October 2021 as the site operates as
an Engineering Support Office for the Group. The US subsidiary is
currently dormant, and no revenue has been generated since the US
subsidiary was incorporated.
5. Operating loss
The operating loss is stated after charging / (crediting):
Year ended Year ended
31 October 31 October
2022 2021
GBP'000 GBP'000
------------------------- -------------------------
Staff costs (see note 6) 3,090 2,854
Cost of inventories 8,079 6,335
Foreign exchange (gain)/loss (259) 156
Amortisation of development costs 53 76
Depreciation:
Owned assets 210 229
Property, plant and equipment under right-of-use
assets 432 421
Profit on disposal of assets (38) (13)
Auditor's remuneration:
Audit of the accounts of the Group 59 62
Other audit related services (relating to
interim review) 14 12
6. Staff costs
Year
Year ended ended
31 October 31 October
2022 2021
GBP'000 GBP'000
------------------------- ----------------------
Wages, salaries and bonuses 2,575 2,435
Social security costs 261 240
Defined contribution pension costs 84 89
Share-based payments 170 90
------------------------- ----------------------
3,090 2,854
========================= ======================
During the previous year the company took advantage of the
government furlough scheme. In the year to 31 October 2021, GBP152k
was claimed in relation to this scheme and this benefit is not
included in the above totals. Staff costs net of furlough claims as
at 31 October 2021 amounted to GBP2.7m during the financial year.
The government ended the furlough scheme ended in September 2021
therefore GBPnil has been claimed in this financial year.
The average monthly number of employees including directors,
during the year was as follows:
Year ended Year ended
31 October 31 October
2022 2021
Head count Head count
------------------------- -------------------------
Manufacturing 40 45
Administration 39 30
79 75
========================= =========================
7. Directors' costs
Year
Year ended ended
31 October 31 October
2022 2021
GBP'000 GBP'000
------------------------- ----------------------
Directors' remuneration included in staff
costs:
Wages, salaries and bonuses 344 333
Defined contribution pension costs 22 21
366 354
========================= ======================
Remuneration of the highest paid director(s):
Wages, salaries and bonuses or fees 121 120
Defined contribution pension costs 12 11
------------------------- ----------------------
133 131
========================= ======================
8. Finance income and expenses
Year ended Year ended
31 October 31 October
2022 2021
GBP'000 GBP'000
------------------------- -------------------------
Finance expense
Finance charge from lease liabilities 81 112
Other interest and invoice discounting charges 106 70
------------------------- -------------------------
187 182
========================= =========================
9. Income tax
Year ended Year ended
31 October 31 October
2022 2021
GBP'000 GBP'000
------------------------- -------------------------
Current tax income
UK corporation tax on income for the year - -
UK corporation tax adjustment in respect
of prior years - R&D (167) (340)
Total tax income (167) (340)
========================= =========================
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 the loss for the year are as follows:
Tax rate 19.00% 19.00%
Loss for the year before tax (1,504) (1,546)
Expected tax credit based on corporation
tax rate (286) (294)
Expenses not deductible for tax purposes 112 (12)
Adjustment in respect of prior year - R&D (167) (340)
Adjustment in respect of prior year - tax
losses (51) -
Tax losses not recognised 225 306
Total tax income (167) (340)
====================== ======================
On 3 March 2021, the Chancellor of the Exchequer announced that
the corporation tax rate would increase to a maximum of 25% from 1
April 2023. It was substantively enacted on 24 May 2021. Deferred
tax is calculated at the tax rates that are expected to apply in
the period when the liability is settled, or the asset is realised,
based on tax law and the corporation tax rates that have been
enacted, or substantively enacted, at the Statement of Financial
Position date. As such, the deferred tax rate applicable at 31
October 2022 is 25% and deferred tax had been re-measured at this
date.
10. Loss per share
Year
Year ended ended
31 October 31 October
2022 2021
GBP GBP
-------------------------- --------------------------
Loss for the year (1,337,000) (1,206,000)
Shares Shares
-------------------------- --------------------------
Weighted average number of shares in issue 36,371,065 36,270,917
Weighted average number of share options 2,110,897 1,856,366
-------------------------- --------------------------
Weighted average number of shares (diluted) 38,481,962 38,127,283
Loss per share (GBP) (basic) (GBP0.04) (GBP0.03)
========================== ==========================
Loss per share (GBP) (diluted) (GBP0.04) (GBP0.03)
========================== ==========================
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
costs Total
GBP'000 GBP'000
-------------------------- ----------------------
Cost
At 31 October 2020 and 31 October 2021 638 638
Additions 136 136
Disposal (199) (199)
-------------------------- ----------------------
At 31 October 2022 575 575
-------------------------- ----------------------
Amortisation
At 31 October 2020 472 472
Charge for the year 76 76
At 31 October 2021 548 548
Charge for the year 53 53
Disposal (199) (199)
At 31 October 2022 402 402
-------------------------- ----------------------
Net book value
-------------------------- ----------------------
At 31 October 2020 166 166
-------------------------- ----------------------
At 31 October 2021 90 90
-------------------------- ----------------------
At 31 October 2022 173 173
========================== ======================
Impairment
The Group reviews the Development costs at each reporting year
for indicators of impairment. An indication of impairment can be
generated from the loss of a customer, or contracted sales. No
impairment was judged to be required for either year.
12. Property, plant and equipment
Plant Fixtures
Group and Leasehold & Motor &
Company improve-ments machinery vehicles fittings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------------------------ ----------------------- ----------------------- ----------------------
Cost
At 31 October
2020 491 1,844 71 400 2,806
Additions - 47 - 17 64
Disposal - - (48) - (48)
At 31 October
2021 491 1,891 23 417 2,822
Additions 137 87 - 38 262
Disposal - (123) - - (123)
At 31 October
2022 628 1,855 23 455 2,961
---------------------------- ------------------------ ----------------------- ----------------------- ----------------------
Depreciation
At 31 October
2020 49 1,249 71 221 1,590
Charge for
the year 50 136 - 43 229
Disposal - - (48) - (48)
Balance at 31
October
2021 99 1,385 23 264 1,771
Charge for
the year 50 116 - 44 210
Disposal - (119) - - (119)
At 31 October
2022 149 1,382 23 308 1,862
---------------------------- ------------------------ ----------------------- ----------------------- ----------------------
Net book
value
At 31 October
2020 442 595 - 179 1,216
---------------------------- ------------------------ ----------------------- ----------------------- ----------------------
At 31 October
2021 392 506 - 153 1,051
---------------------------- ------------------------ ----------------------- ----------------------- ----------------------
At 31 October
2022 479 473 - 147 1,099
============================ ======================== ======================= ======================= ======================
13. Investment in subsidiaries
Group Group Company Company
---------------------- ---------------------- ---------------------- ----------------------
31 31 31 31
October October October October
2022 2021 2022 2021
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 of Proportion Nature
company office of shares of of business
registration shareholding
and voting
rights held
------------------------- -------------------------- --------------------------- ----------------------- --------------------------- ---------------------------
Directly
owned
Velocity Pentagon Malaysia Ordinary 100% Manufacturer
Composites Suite, of composite
SDN. BHD ES-04, material
Level 3, products
Wisma for the
Suria, aerospace
Jalan sector non
Teknokrat trading
6, Cyber
5, 63000,
Cyberjaya,
Selangor
Velocity Corporation United Ordinary 100% Manufacturer
Composites Trust States of composite
Aerospace, Center, of America material
Inc. 1209 N. products
Orange St, for the
Wilmington, aerospace
Delaware sector
19801
------------------------- -------------------------- --------------------------- ----------------------- --------------------------- ---------------------------
14. Inventories
Group Group Company Company
---------------------- ---------------------- ---------------------- ----------------------
31 31 31 31
October October October October
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Raw
materials &
consumables 1,114 541 1,114 541
Finished
goods 293 336 293 336
---------------------- ---------------------- ---------------------- ----------------------
1,407 877 1,407 877
====================== ====================== ====================== ======================
Inventories totalling GBP1,407,000 (2021: GBP877,000) 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 release of
inventories provision during the previous year amounted to
GBP593,000, in 2022 the release was GBP56,000.
The inventory at 31 October 2022 is after a stock provision of
GBP208,000 (2021: GBP264,000). The provision reflects the aged
stock profile consistent with FY21, as well as specific provisions
related to slow moving stock as a result of reduced demand.
Inventories recognised as an expense during the year ended 31
October 2022 amounted to GBP8,079,000 (2021: GBP6,335,000), 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
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Trade
receivables 2,227 1,883 2,227 1,883
Prepayments 283 260 281 259
Other
receivables 11 19 11 19
Amounts due
from
subsidiary
undertakings - - 50 34
2,521 2,162 2,569 2,195
====================== ====================== ====================== ======================
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 68 days (2021: 76 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 (Group and Company) overdue
by:
31 October 31 October
2022 2021
GBP'000 GBP'000
------------------------- -------------------------
Not more than 3 months - 13
More than 3 months but not more than 6 months - -
More than 6 months but not more than 1 year - -
More than 1 year - -
- 13
========================= =========================
The overall expected credit loss is trivial (2021: trivial).
There is no movement in allowance of impairment of trade
receivables during each year.
Trade receivables (Group and Company) held in currencies other
than sterling are as follows:
31 October 31 October
2022 2021
GBP'000 GBP'000
------------------------- -------------------------
Euro 165 194
US Dollar 1,742 1,651
1,907 1,845
========================= =========================
16. Cash and cash equivalents
Group Group Company Company
---------------------- ---------------------- ---------------------- ----------------------
31 31 31 31
October October October October
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Cash at
bank 2,344 3,476 2,337 3,470
2,344 3,476 2,337 3,470
====================== ====================== ====================== ======================
17. Trade and other payables
Group Group Company Company
---------------------- ---------------------- ---------------------- ----------------------
31 31 31 31
October October October October
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Trade
payables 1,134 639 1,134 639
Accruals and
deferred
income 457 137 457 137
Other taxes
and social
security 267 268 267 268
Other
payables 174 14 174 14
Invoice
discounting
facility 175 - 175 -
2,207 1,058 2,207 1,058
====================== ====================== ====================== ======================
Book values approximate to fair values.
18. Bank loans
Group Group Company Company
---------------------- ---------------------- ---------------------- ----------------------
31 31 31 31
October October October October
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Not
later
than
one
year 503 514 503 514
One to
two
years 503 536 503 536
Two to
five
years 1,003 1,462 1,003 1,462
2,009 2,512 2,009 2,512
====================== ====================== ====================== ======================
In FY20 the Company took out a Coronavirus Business Interruption
Loan for GBP2.0m and on 19 January 2021 the term of this loan was
extended to 6 years. Repayment by instalment commenced in August
2021, with the final instalment due in August 2026. The loan was
interest free for the initial 12 months, followed by an interest
rate of 3.96% above the Bank of England base rate which was 2.25%
at 31 October 2022. This has since increased to 3.5% and therefore
the rate payable at 23 January 2023 is 7.46%.
During FY21, the Company took out a further Coronavirus Business
Interruption Loan for GBP0.45m secured against owned non-current
assets. This is being repaid over 5 years with the first payment
made in July 2021 and the final instalment due in June 2026. The
loan was interest free for the initial 12 months, followed by an
interest rate of 7.75% per annum.
19. Leases
Right-of-use-assets
Plant
Land & & Motor
Group buildings machinery vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------------------------ ----------------------- ----------------------
Cost
Balance at 31
October 2020 1,364 561 58 1,983
Additions 414 - 61 475
Disposal (137) - (9) (146)
Balance at 31
October 2021 1,641 561 110 2,312
Additions 1,013 - - 1,013
Disposal (221) - - (221)
------------------------ ------------------------ ----------------------- ----------------------
Balance at 31
October 2022 2,433 561 110 3,104
------------------------ ------------------------ ----------------------- ----------------------
Depreciation
Balance at 31
October 2020 238 86 25 349
Depreciation
charge for
the
year 298 104 19 421
Disposal (137) - (9) (146)
------------------------ ------------------------ ----------------------- ----------------------
Balance at 31
October 2021 399 190 35 624
Depreciation
charge for
the
year 300 104 28 432
Disposal (221) - - (221)
------------------------ ------------------------ ----------------------- ----------------------
Balance at 31
October 2022 478 294 63 835
------------------------ ------------------------ ----------------------- ----------------------
NBV
------------------------ ------------------------ ----------------------- ----------------------
At 31 October
2020 1,126 475 33 1,634
------------------------ ------------------------ ----------------------- ----------------------
At 31 October
2021 1,242 371 75 1,688
------------------------ ------------------------ ----------------------- ----------------------
At 31 October
2022 1,955 267 47 2,269
======================== ======================== ======================= ======================
The associated right-of-use assets for property leases and other
assets were measured at the amount equal to the lease liability,
adjusted by the amount of any prepaid or accrued lease payments
relating to that lease recognised in the statement of financial
position as at 31 October 2022.
Plant
Land & & Motor
Company buildings machinery vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------------------------ ----------------------- ----------------------
Cost
Balance at 31
October 2020 1,364 561 58 1,983
Additions 414 - 61 475
Disposal (137) - (9) (146)
Balance at 31
October 2021 1,641 561 110 2,312
Additions 556 - - 556
Disposal (221) - - (221)
------------------------ ------------------------ ----------------------- ----------------------
Balance at 31
October 2022 1,976 561 110 2,647
------------------------ ------------------------ ----------------------- ----------------------
Depreciation
Balance at 31
October 2020 238 86 25 349
Depreciation
charge for
the
year 298 104 19 421
Disposal (137) - (9) (146)
------------------------ ------------------------ ----------------------- ----------------------
Balance at 31
October 2021 399 190 35 624
Depreciation
charge for
the
year 300 104 28 432
Disposal (221) - - (221)
------------------------ ------------------------ ----------------------- ----------------------
Balance at 31
October 2022 478 294 63 835
------------------------ ------------------------ ----------------------- ----------------------
NBV
------------------------ ------------------------ ----------------------- ----------------------
At 31 October
2020 1,126 475 33 1,634
------------------------ ------------------------ ----------------------- ----------------------
At 31 October
2021 1,242 371 75 1,688
------------------------ ------------------------ ----------------------- ----------------------
At 31 October
2022 1,498 267 47 1,812
======================== ======================== ======================= ======================
The associated right-of-use assets for property leases and other
assets were measured at the amount equal to the lease liability,
adjusted by the amount of any prepaid or accrued lease payments
relating to that lease recognised in the statement of financial
position as at 31 October 2022.
Right-of-use lease liabilities
Group Company
GBP'000 GBP'000
-------- --------
At 30 October 2021 1,549 1,549
Repayment (457) (442)
Additions to right-of-use assets in exchange
for increased lease liabilities 1,013 556
Other lease movements 92 92
-------- --------
At 31 October 2022 2,197 1,755
======== ========
Analysis by length of liability
Plant
Land & & Motor
Group buildings equipment vehicles Total
GBP'000 GBP,000 GBP'000 GBP'000
------------------------ ------------------------ ----------------------- ----------------------
Current 353 42 10 405
Non-current 1,612 155 25 1,792
------------------------ ------------------------ ----------------------- ----------------------
1,965 197 35 2,197
======================== ======================== ======================= ======================
Number of
right-to-use
assets
leased 6 5 2
Range of
remaining
term 1-10 years 1-10 years 1-4 years
Plant
Land & & Motor
Company buildings equipment vehicles Total
GBP'000 GBP,000 GBP'000 GBP'000
------------------------ ------------------------ ----------------------- ----------------------
Current 261 42 10 313
Non-current 1,262 155 25 1,442
------------------------ ------------------------ ----------------------- ----------------------
1,523 197 35 1,755
======================== ======================== ======================= ======================
Number of
right-to-use
assets
leased 5 5 2
Range of
remaining
term 1-10 years 1-10 years 1-4 years
Reconciliation of minimum lease payments to present value
Minimum
lease Present
Group payments Interest value
GBP'000 GBP'000 GBP'000
------------------------ ----------------------- ----------------------
31 October 2022
Not later than one year 505 100 405
Later than one year and not
later
than two years 505 86 419
Later than two years and not
later
than five years 1,545 172 1,373
------------------------ ----------------------- ----------------------
2,555 358 2,197
======================== ======================= ======================
31 October 2021
Not later than one year 378 69 309
Later than one year and not
later
than two years 292 67 225
Later than two years and not
later
than five years 1,181 166 1,015
1,851 302 1,549
======================== ======================= ======================
Minimum
lease Present
Company payments Interest value
GBP'000 GBP'000 GBP'000
------------------------ ----------------------- ----------------------
31 October 2022 400 87 313
Not later than one year 400 72 328
Later than one year and not
later
than two years 1,248 134 1,114
Later than two years and not
later
than five years
------------------------ ----------------------- ----------------------
2,048 293 1,755
======================== ======================= ======================
31 October 2021 378 69 309
Not later than one year 292 67 225
Later than one year and not
later
than two years 1,181 166 1,015
Later than two years and not
later
than five years
1,851 302 1,549
======================== ======================= ======================
Low value leases
The Group leases comprise both office and assembly space, under
low value leases. The total value of the minimum lease payments due
is payable as follows:
Group and Company 31 October 31 October
2022 2021
GBP'000 GBP'000
Property, plant and equipment
Not later than one year - 4
Later than one year and not later than two
years - -
Later than two years and not later than five
years - -
Later than five years - -
---------------------- ----------------------
- 4
====================== ======================
Low value leases not classed as right-of-use assets due to the
minimal value of the lease, relate to a building security contract,
all other prior year operating leases have been classed as
right-to-use asset on transition to IFRS 16. Payments made under
such leases are expensed on a straight-line basis.
20. Deferred tax
Deferred tax is calculated in full on temporary differences
under the liability method using tax rates appropriate for the
year. The movement on the deferred tax account is as shown
below:
The movement on the deferred tax (asset)/liability is shown
below:
Group and Company 31 October 31 October
2022 2021
GBP'000 GBP'000
------------------------- -------------------------
Unrecognised deferred tax in respect of losses
at 31 October 2021 (840) (534)
Corporation tax loss adjustments in respect of
prior year (51) -
Corporation tax losses arising during the year (174) (306)
Adjustment for movement in corporation tax rate (336) -
------------------------- -------------------------
Unrecognised deferred tax in respect of losses
at 31 October 2022 (1,401) (840)
========================= =========================
The Group has unused tax losses which were incurred by the
holding company. A deferred tax asset of GBP1,401,000 (2021:
GBP840,000) 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
Lease Lease
liabilities Other liabilities Other
< short-term > long-term
Group one year borrowings one year borrowings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ------------------------- -------------------------- ------------------------- ----------------------
At 31
October
2020 411 500 1,060 1,500 3,471
Cash flows
Repayment - - (400) (119) (519)
Proceeds - - - 634 634
Non-cash
Increase to
lease
liabilities - - 475 - 475
Transfer
from
long-term
to
short- term
borrowings (102) 14 105 (17) -
-------------------------- ------------------------- -------------------------- ------------------------- ----------------------
At 31
October
2021 309 514 1,240 1,998 4,061
Cash flows
Repayment (457) (503) - - (960)
Proceeds - - - - -
Non-cash
Other
differences - - 92 - 92
Increase to
lease
liabilities - - 1,013 - 1,013
Transfer
from
long-term
to
short-term
borrowings 553 492 (553) (492) -
--------------------------
As at 31
October
2022 405 503 1,792 1,506 4,206
========================== ========================= ========================== ========================= ======================
Lease Lease
liabilities Other liabilities Other
< short-term > long-term
Company one year borrowings one year borrowings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ------------------------- -------------------------- ------------------------- ----------------------
At 31
October
2020 411 500 1,060 1,500 3,471
Cash flows
Repayment - - (400) (119) (519)
Proceeds - - - 634 634
Non-cash
Lease
liability
proceeds - - 475 - 475
Transfer
from
long-term
to
short-term
borrowings (102) 14 105 (17) -
-------------------------- ------------------------- -------------------------- ------------------------- ----------------------
At 31
October
2021 309 514 1,240 1,998 4,061
Cash flows
Repayment (442) (503) - - (945)
Proceeds - - - - -
Non-cash
Other
differences - - 92 - 92
Lease
liability
proceeds - - 556 - 556
Transfer
from
long-term
to
short-term
borrowings 446 492 (446) (492) -
--------------------------
As at 31
October
2022 313 503 1,442 1,506 3,764
========================== ========================= ========================== ========================= ======================
22. Share capital
31 October 31 October
2022 2021
GBP GBP
------------------------- -------------------------
Share capital issued and fully paid
36,458,997 (2021: 36,303,064) Ordinary shares of
GBP0.0025 each 91,147 90,758
========================= =========================
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.
Number
Nominal of
Movements in share capital value shares
GBP
Ordinary shares of GBP0.0025 each
At the beginning of the year 90,758 36,303,064
Exercising of share options 389 155,933
---------------------- -------------------------
Closing share capital at 31 October 2022 91,147 36,458,997
====================== =========================
On 29 March 2022, the Company issued 108,475 new ordinary shares
of GBP0.0025 each to satisfy the exercise of options granted under
the Group's 2020 Share Option Scheme.
On 5 October 2022, the company issued a further 47,458 new
ordinary shares of GBP0.0025 each to satisfy the exercise of
options granted under the Group's 2020 Share Option Scheme.
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 year, is set out in note 23.
23. Share-based payments
The Group's employees are granted option awards under the
Velocity Composites Limited Enterprise Management Incentive and
Unapproved Scheme.
The share options dated 13 March & 17 October 2017 have no
attached performance conditions and have vested as a resulted of
continued employment. The options may be exercised at any point up
to the tenth anniversary of the grant date.
The 100,000 share options dated 29 October 2019 have no attached
performance conditions and vest subject only to continued
employment. They vest after 3 years, or earlier if a vesting event
occurs as defined in the rules of the Scheme. They were awarded in
relation to joining senior management, providing an equity
incentive around the performance of the business.
The 667,680 share options dated 29 October 2019 have attached
performance conditions linked to adjusted EBITDA. They vest after
two years, or earlier if a vesting event occurs in the rules of the
Scheme. The options may be exercised at any point up to the tenth
anniversary grant date. There were 1,480,000 originally issued and
as of the year ended 31 October 2022, 812,320 of these share
options had lapsed due to people leaving the business.
The 459,132 shares options dated 30 October 2020 have no
attached performance conditions and have been issued in exchange
for qualifying staff agreeing to accept 20% of their basic salary
in equity alternatives.
The 28,805 shares options dated 1 April 2021 have no attached
performance conditions and have been issued in exchange for
qualifying staff agreeing to accept 20% of their basic salary in
equity alternatives.
The 250,000 shares options dated 1 April 2021 have no attached
performance conditions and vest subject only to continued
employment. They vest after 3 years, or earlier if a vesting event
occurs as defined in the rules of the Scheme. They were awarded in
relation to joining senior management, providing an equity
incentive around the performance of the business.
During the year ended 31 October 2022, further share options
were granted as follows:
479,999 shares options dated 26 January 2022. These options have
no attached performance conditions and have been issued in exchange
for qualifying staff agreeing to accept 20% of their basic salary
in equity alternatives.
20,940 shares options dated 29 March 2022. These options have no
attached performance conditions and have been issued in exchange
for qualifying staff agreeing to accept 20% of their basic salary
in equity alternatives.
Vesting events are defined within the rules of the Scheme as a
reorganisation, takeover, sale, listing (except on AIM), asset sale
or death of the Option holder.
There were no cancellations or modifications to the awards in
the year.
The following options were outstanding as at 31 October
2022:
Exercise
Scheme and price Vesting Expiry
grant date (GBP) date date Vested Not vested Total
------------- --------- -------- ------- -------- ----------- ----------
13 March 13 Mar 13 Mar
2017 0.0025 2019 2027 95,676 - 95,676
17 October 17 Oct 17 Oct
2017 0.6926 2019 2027 30,000 - 30,000
29 October 29 Oct 29 Oct
2019 0.2065 2022 2031 - 100,000 100,000
29 October 29 Oct 29 Oct
2019 0.2065 2021 2031 - 667,680 667,680
30 October 01 Nov 01 Nov
2020 0.2065 2021 2026 459,132 - 459,132
01 April 01 Apr 01 Apr
2021 0.0025 2021 2026 28,805 - 28,805
01 April 01 Apr 01 Apr
2021 0.1300 2021 2026 - 125,000 125,000
01 April 01 Apr 01 Apr
2021 0.1580 2021 2026 - 125,000 125,000
26 January 26 Jan 01 Nov
2022 0.0025 2023 2027 - 479,999 479,999
29 March 29 Mar 01 Nov
2022 0.0025 2023 2027 - 20,940 20,940
613,613 1,518,619 2,132,232
======== =========== ==========
The Group recognised a cost of GBP170,000 (2021: GBP90,000)
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.
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. The
table below sets out the movement to the share-based payment
reserves in the year.
Movement in share options
As at
Scheme and As at 30 Oct
grant date 1 Nov 2021 Issued Expired Exercised Vested 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ------------ -------- -------- ---------- -------- --------
1 January
2017 264 - - - - 264
13 March
2017 55 - - - - 55
17 October
2017 22 - - - - 22
29 October
2019 80 27 - - - 107
30 October
2020 97 - - - (25) 72
01 April
2021 7 - - - - 7
01 April
2021 7 7 - - - 14
01 April
2021 7 7 - - - 14
26 January
2022 - 94 - - - 94
26 January
2022 - 31 - - - 31
29 March
2022 - 4 - - - 4
539 170 - - (25) 684
============ ======== ======== ========== ======== ========
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:
The Group has previously engaged IN4.0 Access Limited, which
provides consulting services. One of the directors of IN4.0 Talent
Recruitment Limited is a director of Velocity Composites plc. The
Group paid GBP37,270 (2021: GBPNil) to IN4.0 Access Limited during
the year and had GBPNil outstanding at the year end (2021:
GBPNil).
During the year the Group engaged Northwest Aerospace Alliance,
which provides membership and subscription services for the
Aerospace Industry. One of the directors of Northwest Aerospace
Alliance Limited is a director of Velocity Composites plc. The
Group paid GBP5,775 (2021: GBPNil) to Northwest Aerospace Alliance
during the year and had GBP1,000 outstanding at the year end (2021:
GBPNil).
The following balances existed at year end with related parties
(payable)/receivable:
31 October 31 October
2022 2021
GBP'000 GBP'000
------------------------- -------------------------
Related parties (1) -
========================= =========================
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 2022 the Group had GBP582,000 (2021: GBPNil) of
capital commitments relating to the purchase of leasehold
improvements, plant and machinery and fixture and fittings.
27. Pension commitments
The Group makes contributions to defined contribution
stakeholder pension schemes. The contributions for the year of
GBP84,488 (2021: GBP89,337) were charged to the Consolidated Income
statement. Contributions outstanding at 31 October 2021 were
GBP14,107 (2021: GBP13,557).
28. Contingent liabilities
At 31 October 2022 the Group had in place bank guarantees of
GBPNil (2021: GBPNil) in respect of supplier trade accounts.
As at 31 October 2022, the providers of the Invoice Discounting
Facility hold a debenture that provides a fixed and floating charge
on the assets of the Company.
29. Adjusted EBITDA
EBITDA is considered by the Board to be a useful alternative
performance measure reflecting the operational profitability of the
business. Adjusted EBITDA is defined as earnings before finance
charges, taxation, depreciation, amortisation and adjusted for
share-based payments. Share-based payments are added back to make
the share-based payment charge clear to stakeholders.
Year ended Year ended
31 October 31 October
2022 2021
Reconciliation from operating loss GBP'000 GBP'000
---------------------- ----------------------
Operating loss (1,317) (1,364)
Add back:
Share-based payments 170 90
Depreciation of property, plant and equipment 210 229
Amortisation 53 76
Depreciation of right-of-use assets under IFRS
16 432 421
---------------------- ----------------------
Adjusted EBITDA (452) (548)
====================== ======================
[*] [*] ([*]) Earnings before interest, tax, depreciation,
amortisation and adjusted for share-based payments. The business
uses this Alternative Performance Measure to appropriately measure
the underlying business performance, as such it excludes costs
associated with non-core activity. Share-based payments are added
back to make the share-based payment charge clear to
stakeholders.
[2] Earnings before interest, tax, depreciation, amortisation
and adjusted for share-based payments. The business uses this
Alternative Performance Measure to appropriately measure the
underlying business performance, as such it excludes costs
associated with non-core activity. Share-based payments are added
back to make the share-based payment charge clear to
stakeholders.
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END
FR NKQBBBBKKBDB
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January 24, 2023 02:00 ET (07:00 GMT)
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