Final Results for the year ended 31 October 2019

28 January 2020

 

VELOCITY COMPOSITES PLC

("Velocity", the "Company" or the "Group")

 

AUDITED FINAL RESULTS FOR THE YEAR ENDED 31 OCTOBER 2019

 

Velocity Composites plc (AIM: VEL.L), the leading supplier of advanced composite material kits to the aerospace market, is pleased to report its audited results for the year ended 31 October 2019 ("FY19").

 

Highlights

 

·	Revenue stable at £24.3m (FY18: £24.5m)
·	Gross margin improved significantly to 21.7% for FY19 (FY18: 18.3%) through continued operational focus
·	Operating loss for FY19 of £0.6m (FY18: Loss £1.1m), after charging £0.7m of exceptional administrative expenses
·	Adjusted EBITDA* for FY19 of £0.6m (FY18: Loss £0.2m) achieved through improvement in gross margin combined with cost management
·	Loss per ordinary share (Basic) of 1.77p (FY18: Loss 2.78p)
·	Cash at Bank at 31 October 2019 of £3.4m (FY18: £4.7m and £4.1m after invoice discounting) including £1.6m of EIS funds earmarked for investment in new production facilities in the USA and Europe and the Group's new R&D centre
·	Long Term Agreement extension agreed with largest customer to provide composite material kits across the Airbus range of aircraft and regional business jets
·	Boeing approval to produce structural composite kits for its single aisle narrow body jet platform and extension to Long Term Agreement
·	Appointment of Andy Beaden as Chairman and Rob Soen as an Independent Non-Executive Director
·	Reappointment of Jon Bridges, founder and Chief Executive Officer, to the Velocity Board

 

*Adjusted Earnings before Interest, Tax, Depreciation and Amortisation ("EBITDA") adjusted for exceptional administrative costs and share based payment charges.

 

Andy Beaden, Chairman of Velocity, said:

 

"I am pleased to report our results for the year ended 31 October 2019 with stable revenues at £24.3m, a significant improvement in operational performance, and a cash at Bank balance of £3.4m. My first months at Velocity have more than confirmed this is an exciting and ambitious business with talented staff who are focused on creating shareholder value through revenue growth and lean manufacturing-based operational excellence."

 

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

 

Enquiries:

 

Velocity Composites plc Andy Beaden, Chairman Jon Bridges, Chief Executive Officer	+44 (0) 1282 577577
Cenkos Securities (Nominated Adviser and Broker) Russell Cook / Ben Jeynes (Corporate Finance)	+44 (0) 20 7397 4000
Belvedere Communications (Financial PR) Cat Valentine Keeley Clarke Llew Angus	[email protected] +44 (0) 7715 769 078 +44 (0) 7967 816 525 +44 (0) 7407 023 147

 

About Us

 

Velocity Composites is a manufacturer of composite material kits for the aerospace industry, delivering engineered kits for its customers to build component parts. The Company's clients include multi-national manufacturers of composite parts and assemblies, who in turn deliver to the world's leading civil and military aircraft manufacturers. The Airbus A330, A350, A380, Eurofighter Typhoon, F35 Joint Strike Fighter and Bell Boeing V22 Osprey are all constructed using parts manufactured from Velocity's kits. The Company's business model reduces the operating costs of preparing composite materials ahead of their usage in the construction of an aircraft part and as such, its offering is disposed to being self-financing for aircraft parts' manufacturers. Velocity Composites also exports to Denmark, France, and Belgium.

 

CHAIRMAN'S REPORT

 

Introduction

 

This is my first report to shareholders since taking over as the Chairman of the Board of Directors of Velocity Composites plc.  I am pleased to report that my first months at Velocity have more than confirmed that this is an exciting and ambitious business with talented staff who are focused on creating shareholder value through revenue growth and lean manufacturing-based operational excellence. 

 

Revenue for the 12 months ended 31 October 2019 was broadly in line with the previous year at £24.3m (FY18: £24.5m), however, gross margin improved significantly to 21.7% (FY18: 18.3%) through a continued focus on operational excellence. The improvement on gross margins, combined with careful cost management, enabled the Group to achieve Adjusted EBITDA of £0.6m (FY18: loss £0.2m). The reported operating loss of £0.6m (FY18: loss £1.1m) includes an exceptional administrative charge of £0.7m, without which the Group would have achieved breakeven.

 

Board and Management

 

Rob Soen and I were appointed directors of the Company in July, following a period of significant disruption at board level.  Mark Mills, Brian Tenner, Meera Parma and Alan Kershaw, all resigned as directors during the last year, along with Alan Kershaw, resigning as Company Secretary. We also saw the departure of two of Velocity's founders, Gerry Johnson and Chris Banks, from their roles as executive managers.  Both Gerry and Chris are deeply respected in the business for what they achieved establishing the business from scratch alongside Jon Bridges and other early stage employees.  The Board thanks everyone who has left the Company during the year and wishes them well.

 

Since joining the Board, Rob and I have set out to stabilise the leadership of Velocity, re-establish good corporate governance, evaluate the strategy with the input of key management and assess the health and status of the business.  Jon Bridges, who was acting CEO in a non-board capacity, was immediately reappointed to the Board.  We believe it is vital that senior management are represented directly at board level.  Rob and I have now formed a close working relationship with the senior management team, with whom we have regular direct consultation and open communication.  This has helped restore and build confidence within the business and empower all staff to achieve the future growth and operational targets our stakeholders have been supporting for some time.

 

Equally important is strengthening the new Board further.  We have begun the search for a new suitably experienced independent Non-Executive Director. This process is underway, and we look forward to updating shareholders in due course.  This year, we have benefited from a very experienced interim CFO, Andrew Hebb. It is our intention to hire a new permanent Chief Financial Officer in 2020 to continue his good work developing our financial systems and people. 

 

Strategy

 

The strategy has been re-aligned with a new business development plan focused on key larger customer opportunities, deeper development of partnering within the supply chain and exploiting multiple opportunities available through penetration into the US and mainland European aerospace markets.  Asia remains a longer-term target for growth.  Europe remains our home base, however, it is entering the US market where Velocity's best in class value-engineered kitting services can immediately add value in the composite aerospace sector. This is a very large market and our entry strategy is to work with our world class partner, Wesco, and leverage our own blue-chip customer base, established over many years within Europe. 

 

Our year end cash balance of £3.4m, combined with our Invoice Discounting facility of up to £5.5m, gives us the financial resources necessary to make the next stage investments in facilities, people and working capital.

 

Growth requires investment in both facilities and, critically, business development and operations people and the potential for high returns on those investments is tangible.  New satellite facilities run on a lean-manufacturing basis and, when filled with new business, will generate a significant return on capital employed.  We are also developing a number of approaches for deploying our services on a flexible basis, which will include customer onsite kitting, as well as from separate facilities nearby. The strategic driver for this approach is to help the customer ensure maximum waste reduction, inventory optimisation and labour efficiency, but it will be implemented with an eye of driving return on capital too. 

 

Our sales cycle is often an extended one. A detailed professional approach is required to pitch and agree the gains customers can achieve through our services, followed by the onboarding process and regulatory approval maintenance.  The benefits of this approach are longer term contracts, visibility on demand and barriers to entry for a competitor. 

 

As part of our refreshed strategy, technology will play a central role in advancing operational excellence and, critically, in improving customer service.  We continue to invest in the software platform we use for our nesting calculations, which in turn enables us to reduce wastage in materials.  We also need to develop systems which support our international expansion and multi-site approach.  We are investing in our research and development capabilities to improve further our offering to customers and support their growth ambitions.

 

Summary and Outlook

 

The new financial year has started well, and the team has made good progress strategically with milestones being achieved around contract renewals and new aerospace qualifications.  We are carrying additional inventory to protect our customers from any Brexit disruption, but hopefully, we will be able to reduce inventory stocks as the UK's exit plan from the EU becomes clearer later in the year.

 

Our focus in 2020 is firmly on the development of new sales opportunities, which will benefit the top line in future years and establishing a strong foothold in the US civil aerospace market, as well as growing our sales in Europe. We aim to maintain a strong profile and presence in the geographic homes of the two major OEMs of Europe and the North America in seeking to secure further orders in what is anticipated to be a period of exceptional growth for the industry. We have already announced extended terms to our largest, long-term supply agreement with a UK customer and expanded another supply agreement to include Boeing higher value structural composite kits.  The Group now has approvals in both the Airbus and Boeing supply chains, along with a number of other key aerospace approvals, for both civil and military aircraft platforms.  We are particularly pleased with our growing relationship with Airbus directly.  Though we know the 737 Max programme has some current issues around production levels, being qualified for Boeing is of immense strategic significance for Velocity. 

 

To further align staff to shareholder values, we are changing the way we reward staff.  All our people will be part of a new annual cash reward plan linked to our internal budget targets on profitable growth. In 2020 all staff will be able to participate in a new HMRC Velocity Share Investment Plan; management rewards for profitable growth will be through both cash and equity. We want all staff to be aligned and rewarded in growing shareholder value.

 

As a new Board, we would like to thank all our staff, investors, customers, advisers and suppliers for their support during this year of change. By working together, we believe the best years for Velocity lie ahead.

 

Andy Beaden

Chairman

28 January 2020

 

CHIEF EXECUTIVE OFFICER'S REPORT

 

Having returned to the Board in July 2019, I am pleased to report that full year revenue and Adjusted EBITDA are in line with market expectations. This has been achieved despite a period of significant change at the board level and product churn, associated with our customers' A320 and A330 programmes changing from the CEO (current engine option) to NEO (new engine option) variants. This resilient performance is testament to the hard work of all the great people within Velocity and their commitment to the vision and values of the company.

 

Board and People

 

I would like to welcome Andy Beaden and Rob Soen to the Board. They bring a broad and unique mix of experience, and their full profiles can be read later in this report. In the final three months of the financial year, following their appointment, the new Board and executive team worked to develop and reshape the business in order to meet the significant opportunities and challenges of the global aerospace composites industry. These changes have been focused on two key areas: new business growth and operational excellence. These are now embedded in a new Integrated Business Plan (IBP), developed and embraced by the executive and management teams, who are working together to deliver the budgeted strategic objectives.

 

During the year, we made a number of senior hires, including a new Quality Manager, Programme Manager and HR Manager. We are in the process of recruiting a third Non-Executive Director and seeking hires to our business development and customer programmes management team. Andrew Hebb has provided excellent support as interim Chief Financial Officer during the last 12 months but the Board is now seeking a permanent CFO to join the Board in 2020. 

 

With the new team in place the Company is well placed to enter the next phase of growth with the strong aerospace focused executive and experienced non-executive leadership needed.

 

Trading

 

Revenues in the financial year were broadly unchanged on the previous year at £24.3m (FY18: £24.5m). The majority of revenue during the financial year was delivered from current contracts that were in place at the start of the year, which included a significant amount of programme churn due to changes in customer demand and new, lower cost materials being introduced by customers, rather than volume changes. Much of which related to the Airbus transition from CEO to NEO variants as mentioned earlier.

 

Critically, we have a strong pipeline of new business opportunities and have now prioritised around new business growth concentrated on a smaller number of larger opportunities, leveraging established global partners where there is a benefit to capitalise on existing relationships, existing infrastructure and addressing any perceived risk around the Company's relative size. This also allows our internal teams to focus on these opportunities and bring customers through the sales cycle on a more focused and controlled basis. The addressable market is sizeable and is growing, with Velocity playing a key role in helping its blue-chip customers become more efficient as the aerospace composites industry drives to meet the affordability targets of the two global OEM's on both current and future platforms. The Board believes that this can be achieved with a strong return on capital, as we develop our operating model with our partners and scale up and fill existing production areas.

 

Operationally, we improved our performance during the year, leading to improved gross margin of 21.7% (FY18: 18.3%) and therefore achieving an adjusted EBITDA of £0.6 compared to a loss in the previous financial year (FY18: loss £0.2m). This was mainly achieved through continuing focus on gross margin, which showed consistent improvement during the year. Administrative expenses, excluding non-recurring restructuring costs, were 3% lower at £5.2m (FY18: £5.3m). Improving the Company's internal efficiency through operational excellence is a key pillar of the new integrated business plan. This has involved improvements to the real time data analysis of manufacturing operations, not only to ensure internal compliance to efficiency targets, but also to measure the effects of continuous improvement activities and drive improvements through all aspects of our operations. To achieve this we have invested further in our proprietary software to allow us to utilise real time data extracted from our freezer storage, cutting machines and inspection areas, coupled with real time analysis and reporting on manufacturing. Further improvements are planned, as we build and integrate our data analysis, whilst incorporating it with the wider ERP/MRP system across all sites, based on industry 4.0 technologies. All these initiatives are aimed at maintaining and improving customer service, which in turn provides the platform for growth through new business wins.

 

Regulatory

 

This year has also contained sobering reminders within our industry as to why the focus on quality, traceability, process adherence and a relentless push for product excellence are linked to the safety of airline passengers. Velocity's operations are entirely focused upon the aerospace market and, therefore, our processes and systems have been designed from the ground up to meet the most stringent industry standards.  I am pleased to report that we have maintained all of our industry approvals with highly complementary feedback from every third-party audit team tasked with reporting on all aspects of our operations. In pursuing new business opportunities, we will be required to obtain further approvals and are confident that the processes we have developed, and continue to develop, will ensure that Velocity and our customers remain fully aligned with global industry standards.  After the year end we were very proud to achieve key new Boeing approvals which then opened up the opportunity of new business starting in 2020. 

 

Research and Development

 

The construction of our new Technical Centre is nearing completion and when open will allow the business to enhance its current service offerings and develop the next generation of products and processes, with all trials and new business activities being performed separately from the day-to-day operations. As Velocity continues to exploit key Industry 4.0 technologies and bring benefits to the composites supply chain, our focus will be around enhanced data analytics, automated optical verification, advanced real-time nesting, 3D rapid prototyping and paperless traceability. As we develop and integrate these technologies into our systems, it will allow us to remove further waste and non-value-added activity from our processes, allowing us to create even more compelling business cases for our customers. In addition, several new products and processes have already been identified which allow Velocity to integrate further vertically within our customers process and we are working together with our customers and technology partners to work collaboratively to deliver these products and service offerings, both existing and new, as we invest to become the long term supplier of choice for our customers.

 

Governance and Risk

The principal risks and uncertainties are detailed in the Governance section of this report. With regards to Brexit the Group has undertaken various risk mitigation activities which include maintaining higher than usual stock levels over the past nine months of the financial year. This remains the position, but we do intend to reduce these to more normal levels over the coming financial year.

 

The production issues around the 737 Max have not impacted us in the year under review to any significant degree, but as we have explained earlier, this high volume programme is strategically important to us as we win new business in the Boeing supply chain.

 

The Board has reaffirmed its previously decision to adhere to the Quoted Companies Alliance (QCA) Corporate Governance Code for small and mid-size quoted companies, and further details can be found on the Group's website at www.velocity-composites.com.

 

The Health and Safety of all our staff is a priority item for the Board and management team and is reviewed on a monthly basis at both Board meetings and the Operational review meeting. In the year under review, we had only one reportable accident, which resulted from a slip by a member of staff. We actively encourage staff to report near misses so that we can ensure appropriate remedial action is taken.

 

Outlook

 

Following the substantial changes made to the Group and its management over the last six months, I have great confidence in the direction and prospects of the Company. With improving margins, profitable operations, good capital reserves and the VCT/EIS spending committed and approved, coupled with the re-energised executive management team and a clear strategic plan embedded through the whole organisation, we believe that Velocity has a solid platform from which to exploit the substantial growth forecast in the civil aerospace industry. We are well placed to deliver extensive, long term, stable commercial propositions to our customers and growth for all stakeholders.

 

We look forward to the remainder of FY20 and beyond with renewed confidence and energy.

 

Jonathan Bridges

Chief Executive Officer

28 January 2020

 

FINANCIAL REVIEW

 

Statement of Comprehensive Income

 

We achieved a similar level of revenue to last financial year without the beneficial impact of any significant new contracts. Our current customers saw a considerable change to a number of their programmes, which we were required to accommodate through change requests, including the move to better priced material types in some cases. Overall revenue was slightly down by 0.7% during the year ended 31 October 2019 to £24.3m (FY18: £24.5m), but this can be explained by the change in value of composite materials.  The Company benefited from both the dollar and euro strength, particularly in the last quarter of FY19, with a positive impact of £0.1m (FY18: £0.1m). International sales increased to £2.5m (2018: £0.5m) through work contracted with a customer in continental Europe. We expect sales from customers in regions outside the UK and Europe to increase significantly over the next few years, as we target new business in the USA and eventually Asia.

 

The key financial success in this last year was in the stabilisation of operating margins, with great work from our operations team. This meant gross profit at £5.3m was an increase of 17% over 2018 at £4.5m. Gross margin was much more stable throughout the year improving further in the 2H to 22.4% compared to 20.9% in H1, with an overall margin of 21.7%.  We have worked hard to reset contractual positions so we can minimise both material price risk and FX risks to protect our margins. This means some 70% of revenues and direct costs relating to material purchases are naturally hedged which helps to minimise the effects of exchange rate fluctuation.

 

Administrative expenses excluding exceptional items decreased during the year by £0.2m due to a focus on a general reduction in other costs. We have continued to invest in our people though, including training and development, as we seek to build an international growth-oriented business.

 

The Company presents certain items as Exceptional that are non-recurring and significant. These relate to items which, in the Board's judgement, need to be disclosed by virtue of their size and incidence in order to obtain a meaningful understanding of the underlying trading position. The exceptional items reported in 2019 of £0.7m (FY18: £0.3m) consist of costs in relation to the resignations of the previous chairman and non-executive directors, settlement of a dispute with the founder shareholders, and various other associated costs relating to the restructuring of the Board.

 

Before exceptional items, the Company produced a profit before tax of £0.1m compared to a loss of £0.7m in FY18.

 

The statutory disclosed Operating Loss was £0.6m (2018: Loss £1.1m) for the full year.  From the Adjusted EBITDA of £0.6m costs of restructuring of £(0.7)m, Amortisation and Depreciation of £(0.4) m and Finance charges £(0.1)m leave Operating Loss at £0.6m

 

Historically the Company has used Adjusted profit before tax as an alternate performance measure to reflect adjustment for expenditure on growth opportunities in the UK and Overseas and exceptional restructuring costs. Growth is at the heart of our strategic plan so we will continue to invest every year in achieving this ambition. Going forward we will focus upon Adjusted EBITDA as a better key performance measure to reflect the operational performance of the business. In addition, we propose to comment on specific large investments in production facilities that in year could have a material impact on Adjusted EBITDA.

 

Adjusted EBITDA amounted to £0.6m, an increase of £0.9m over the prior year due to improved gross margins and a reduction in overheads. EBITDA margin improved to 2.5% (FY18: loss 1.0%).

 

Adjusted EBITDA	31 October	31 October
	2019	2018
Reconciliation from Operating Profit	£'000	£'000
Operating Loss	(594)	(1,072)
Add back:
Share-based payments	66	169
Depreciation & Amortisation	449	413
Exceptional Administrative costs	692	252
	613	(238)

 

Adjusted EBITDA defined as earnings before finance charges, tax, amortisation, depreciation, share based payments, exceptional restructuring costs

 

Cashflow and Capital Investment

 

The year-end cash and cash equivalents reduced by £1.3m to £3.4m (2018: £4.7m). Cash utilised from operations of £0.3m (2018: generated from operations £0.5m) in particular due to an improvement in cash collection and a significant reduction in overdue debts, offset by an increase in inventories and a reduction in trade creditors. Cash used in Investing activities of £ (0.2) m (2018: £(0.4) m) primarily related to property, plant and equipment and development expenditure capitalised. Financing activities utilised £0.8m including a decrease in the use of our Invoice Discounting facility by £0.6m. The Invoice Discounting facility was not utilised at 31 October 2019 (2018: £0.6m), reflecting the reduced use during the financial year, thanks mainly to tighter credit control systems now implemented.

 

The cash balance at 31 October 2019 of £3.4m included £1.6m being the balance remaining from the money raised to be invested in EIS activities.  The Company has to date spent the EIS funds on its research and development activities and on its exploration of new territories in Europe, USA and Asia. The board intends that the remaining EIS funds will be deployed on establishing a production facility in the USA, due to open in 2020; buying equipment for the new R&D centre due to open in H1 2020; and to investment further in developing further our Central European activities.

 

Working Capital

 

Inventory levels increased at the year-end by £0.5m to £3.2m reflecting additional stock levels in relation to the Company's Brexit strategy.

 

Trade and other receivables reduced significantly during the year by £1.7m to £4.2m as a result of improved monthly routines to manage the collection of debts. Debtor days have therefore also decreased significantly to 52 days (2018: 72 days), with less than £0.1m beyond terms.

 

Trade and other payables also reduced during the year by £2.0m to £3.2m due to reduction in Trade Creditors of £1.4m and the reduction in the invoice discounting facility £0.6m which was undrawn at the year end.

 

Financial Key Performance Indicators (KPI's)

 

The board have monitored the performance of the Company with particular reference to the relevant key performance indicators (KPI's) which are set out below. During the year several of our key performance indicators showed improvements which was encouraging including the improvement in gross margins and the positive EBITDA.

 

	Year ended	Year ended
	31 October	31 October
	2019	2018
Revenue growth Revenue growth International markets	(0.7%) 400.0%	14.5% 2.0%
Gross Margin	21.7%	18.3%
Adjusted EBITDA	2.5%	(1.0) %
Operating Margin	(2.4) %	(4.1) %

 

The Board use the above KPI's to represent the strategic targets it has set to grow the business to a sustainably higher level of revenue and profits arising from the replication of its UK business model into the USA and continental Europe.  The board will review both the financial and non-financial KPI's to ensure that the Company is focused upon and properly targets measurement of the key drivers for the business. Longer term the Company intends to also monitor return on capital and earnings per share.

 

Going concern

 

The Group has prepared financial projections for the following two years, year one reflecting the budget. The forecasts include revenue projections based on current demand plus a weighting of opportunities in the pipeline. Capital expenditure has been included to reflect the establishment of a site in the USA in 2020 and Europe in 2021. This expenditure can be flexed if required along with operational spend if revenue was to fall short of forecast. Having due regard to these projections and available cash at 31 October 2019 of £3.4m, and an invoice discounting facility where we can borrow up to £5.5m dependent on debtor levels, it is the opinion of the Board that the Group has adequate resources to continue to trade as a going concern.

 

The Strategic Report as set out in the Chairman's Report, CEO Report, Business Strategy and the Financial Review has been approved by the Board.

 

Andrew Hebb

Interim Chief Financial Officer

28 January 2020

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME

 

		Year ended 31 October	Year ended 31 October
		2019	2018
	Note	£'000	£'000
Revenue	3	24,316	24,478
Cost of sales		(19,047)	(19,991)
Gross profit		5,269	4,487
Administrative expenses excluding exceptional costs		(5,177)	(5,322)
Exceptional administrative expenses		(692)	(252)
Other operating income		6	15
Operating loss		(594)	(1,072)
Operating loss analysed as:
Adjusted EBITDA	4	613	(238)
Depreciation & Amortisation		(449)	(413)
Share based payments		(66)	(169)
Exceptional administrative expenses	5	(692)	(252)
Finance income and expense		(58)	(135)
Loss before tax from continuing operations		(652)	(1,207)
Income tax income/(expense)		16	213
Loss for the period and total comprehensive loss		(636)	(994)
Loss per share - Basic (£) from continuing operations	6	(£0.02)	(£0.03)
Loss per share - Diluted (£) from continuing operations	6	(£0.02)	(£0.03)

 

There were no discontinued operations in the current or prior period.

 

CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION

 

	Group	Group	Company	Company
	31 October	31 October	31 October	31 October
	2019	2018	2019	2018
	£'000	£'000	£'000	£'000
Non-current assets
Intangible assets	318	362	318	362
Property, plant and equipment	1,061	1,080	1,061	1,080
Investment in subsidiaries	-	-		-
Total non-current assets	1,379	1,442	1,379	1,442
Current assets
Inventories	3,177	2,744	3,177	2,744
Trade and other receivables	4,149	5,727	4,178	5,758
Corporation tax	75	113	75	113
Cash and cash equivalents	3,424	4,726	3,416	4,718
Total current assets	10,825	13,310	10,846	13,333
Total assets	12,204	14,752	12,225	14,775
Current liabilities
Trade and other payables	3,223	5,197	3,223	5,191
Grant income deferred	-	7	-	7
Net obligations under finance leases	121	116	121	116
Total current liabilities	3,344	5,320	3,344	5,314
Non-current liabilities
Deferred tax liabilities	-	-	-	-
Net obligations under finance leases	169	171	169	171
Total non-current liabilities	169	171	169	171
Total liabilities	3,513	5,491	3,513	5,485
Net assets	8,691	9,261	8,712	9,290
Equity attributable to equity holders of the company
Share capital	90	89	90	89
Share premium account	9,727	9,727	9,727	9,727
Share-based payments reserve	537	536	537	536
Retained earnings	(1,663)	(1,091)	(1,642)	(1,062)
Total equity	8,691	9,261	8,712	9,290

 

The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and not presented its own statement of profit and loss in these financial statements. The loss for the year was (£645,000). The financial statements were approved and authorised for issue by the Board of Directors on 28 January 2020 and were signed on its behalf by

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

		Share		Share-based
	Share	premium	Retained	payments	Total
	capital	account	earnings	reserve	equity
	£'000	£'000	£'000	£'000	£'000
As at 31 October 2017	89	9,727	(97)	367	10,086
Loss for the year	-	-	(994)	-	(994)
	89	9,727	(1,091)	367	9,092
Transactions with shareholders:
Share-based payments	-	-	-	169	169
As at 31 October 2018	89	9,727	(1,091)	536	9,261
	Share	Share premium	Retained	Share-based payments	Total
	capital	account	earnings	reserve	equity
	£'000	£'000	£'000	£'000	£'000
As at 31 October 2018	89	9,727	(1,091)	536	9,261
Loss for the year	-	-	(636)	-	(636)
	89	9,727	(1,728)	536	8,624
Transactions with shareholders:
Share-based payments	-	-	-	66	66
Transfer of share option reserve on vesting of options	1	-	65	(65)	1
As at 31 October 2019	90	9,727	(1,663)	537	8,691

 

COMPANY STATEMENT OF CHANGES IN EQUITY

 

	Share	Share premium	Retained	Share-based payments	Total
	capital	account	earnings	reserve	equity
	£'000	£'000	£'000	£'000	£'000
As at 31 October 2017	89	9,727	(97)	367	10,086
Loss for the year	-	-	(965)	-	(965)
	89	9,727	(1,062)	367	9,121
Transactions with shareholders:
Share-based payments	-	-	-	169	169
As at 31 October 2018	89	9,727	(1,062)	536	9,290
	Share	Share premium	Retained	Share-based payments	Total
	capital	account	earnings	reserve	equity
	£'000	£'000	£'000	£'000	£'000
As at 31 October 2018	89	9,727	(1,062)	536	9,290
Loss for the year	-	-	(645)	-	(645)
	89	9,727	(1,707)	536	8,645
Transactions with shareholders:
Share-based payments	-	-	-	66	66
Transfer of share option reserve on vesting of options	1	-	65	(65)	1
As at 31 October 2019	90	9,727	(1,642)	537	8,712

 

CONSOLIDATED AND COMPANY STATEMENT OF CASH FLOWS

 

	Group	Group	Company	Company
	Year ended	Year ended	Year ended	Year ended
	31 October	31 October	31 October	31 October
	2019	2018	2019	2018
	£'000	£'000	£'000	£'000
Operating activities
Loss for the year	(636)	(994)	(645)	(965)
Taxation	(16)	(213)	(16)	(213)
(Profit)/ loss on disposal of assets	(11)	7	(11)	7
Finance costs	58	135	58	135
Amortisation of intangible assets	134	107	134	107
Depreciation of property, plant and equipment	315	306	315	306
Share-based payments	65	169	65	169
Grant income amortisation	(6)	(15)	(6)	(15)
Operating cash flows before movements in working capital	(97)	(498)	(106)	(469)
Decrease in trade and other receivables	1,579	424	1,588	393
(Increase)/Decrease in inventories	(433)	522	(433)	522
(Decrease)/Increase in trade and other payables	(1,363)	98	(1,363)	92
Cash generated from operations	(314)	546	(314)	538
Income taxes received/(paid)	54	(40)	54	(40)
Net cash (outflow)/inflow from operating activities	(260)	506	(260)	498
Investing activities
Purchase of property, plant and equipment	(156)	(220)	(156)	(220)
Development expenditure capitalised	(89)	(152)	(89)	(152)
Proceeds from the sale of property, plant and equipment	15	-	15	-
Net cash used in investing activities	(230)	(372)	(230)	(372)
Financing activities
Proceeds from issue of shares	-	-	-	-
Payments of share issue costs	-	-	-	-
Finance costs paid	(58)	(135)	(58)	(135)
Decrease in invoice discounting	(612)	(528)	(612)	(528)
Repayment of finance lease capital	(142)	(159)	(142)	(159)
Net cash generated from financing activities	(812)	(822)	(812)	(822)
Net (decrease) in cash and cash equivalents	(1,302)	(688)	(1,302)	(696)
Cash and cash equivalents at 01 November	4,726	5,414	4,718	5,414
Cash and cash equivalents at 31 October	3,424	4,726	3,416	4,718

 

Notes

 

1.            General information

 

Velocity Composites Plc (the 'Company') is a public limited company incorporated and domiciled in England and Wales. The registered office of the Company is AMS Technology Park, Billington Road, Burnley, Lancashire, BB11 5UB, United Kingdom. The registered Company number is 06389233.

 

In order to prepare for future expansion in the Asia region, the Company established a wholly owned subsidiary company, Velocity Composites Sendirian Berhad, which is domiciled in Malaysia. The subsidiary company commenced trading on 18 April 2018. The Company also established a wholly owned subsidiary company, Velocity Composites Aerospace Inc. to prepare for future expansion in the United States of America. These subsidiaries together with Velocity Composites plc, now forms the Velocity Composites Group ('the Group').

 

The Group's principal activity is that of the sale of kits of composite material and related products to the aerospace industry.

 

2.            Accounting policies

 

Basis of preparation

The financial statements have been prepared in compliance with the measurement and recognition criteria of IFRS as adopted by the European Union.

 

These financial statements have been prepared on a going concern basis and using the historical cost convention, as modified by the revaluation of certain items, as stated in the accounting policies. These policies have been consistently applied to all periods presented, unless otherwise stated. The financial statements are presented in sterling and have been rounded to the nearest thousand (£'000).

 

The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and not presented its own statement of profit and loss in these financial statements.

 

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiary undertakings made up to 31 October 2019. Subsidiaries acquired during the year are consolidated from the date of acquisition, using the purchase method (see "Business combinations" below).

 

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. The Group's subsidiaries have prepared their statutory financial statements in accordance with Adopted IFRS, as from 1 May 2015.

 

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

 

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

 

Going concern

Having made reasonable enquiries, the Directors are of the opinion that the Group has sufficient resources to continue in operational existence for the foreseeable future and hence these financial

 

statements have been prepared on a going concern basis.  This assessment has been supported by the preparation and consideration of detailed forecasts for the two years to 31 October 2021 to project the future growth of the Group and flexing these forecasts through sensitivity analyses.

 

The forecasts include the revenue of the Group's existing contracts based on demand information provided by its customers, consideration of the cash position of the Group and the appropriate utilisation of the various facilities available for funding this growth.  We have also discussed with our bankers and other financial advisers the resultant trading performance and they have indicated a strong desire to continue to support the funding of these growth activities.

 

Changes in accounting policies

The Group has applied the following accounting standards and amendments for the first time for their annual reporting period commencing on the 1 November 2018:

 

·    IFRS 9 'Financial Instruments'. This standard applied from the 1 November 2018 and is reflected in the Group's financial reporting for the year ended 31 October 2019. The standard addresses the accounting principles for the financial reporting of financial assets and financial liabilities, including classification, measurement, impairment, derecognition and hedge accounting.  Financial assets will continue to be measured at amortised cost. The impairment model under IFRS 9 will reflect 'expected' credit losses, as opposed to 'incurred' credit losses under IAS 39. It is no longer necessary for a credit event to have occurred before credit losses are recognised. As the Group activity monitors the ageing profile of trade receivables, impairments are made where credit risk is apparent. There has been no material impact to the accounts.

·    IFRS 15 'Revenue from Contracts with Customers'. This standard applied from the 1 November 2018 and is reflected in the Group's financial reporting for the year ended 31 October 2019. The Group had to change its accounting policies following the adoption of IFRS 15. There was no material impact to the accounts from transition.

 

New standards, amendments and interpretations issued and not applied to these financial statements:

The International Accounting Standards Board (IASB) and the IFRS Interpretations Committee (IFRS IC) have issued the following standards which are yet to be applied by the Group:

 

·    IFRS 16 'Leases'. This standard was issued on 13 January 2016 and is effective for accounting periods beginning on or after 1 January 2019 and will first apply to the Group's financial reporting for the year ending 31 October 2020. The standard requires lessees to recognise assets and liabilities for all leases with lease terms of more than 12 months, unless the underlying asset is of low value. The most significant impact will be from the Group's operational sites, specifically Burnley, Fareham & Malaysia in relation to material rent agreements. The Group does have other non-property related operating leases, but these are not as significant as the property leases. A full assessment has been performed and approved by the board, with further details on the impact of transition in note 19.

 

There are no other IFRSs or IFRIC interpretations that are not yet fully effective that could be expected to have a material impact on the Group.

 

3.            Segmental analysis

 

The Group supplies a single type of product into a single industry and so has a single reportable segment. The Group's subsidiary company, Velocity Composites Sendirian Berhad, is located in Malaysia. Additional information is given regarding the revenue receivable based on geographical location of the customer.  An analysis of revenue by geographical market is given below:

 

	Year ended 31 October	Year ended 31 October
	2019	2018
	£'000	£'000
Revenue
United Kingdom	21,850	23,984
Europe	2,435	494
Rest of the World	31	-
	24,316	24,478

 

4.            Adjusted EBITDA

 

EBITDA is considered by the Board to be a useful alternative performance measure reflecting the operational profitability of the business. Adjusted EBITDA is defined as earnings before finance charges, taxation, depreciation, amortisation, share-based payments and exceptional restructuring costs.

 

Adjusted EBITDA	31 October	31 October
	2019	2018
Reconciliation from Operating Profit	£'000	£'000
Operating Loss	(594)	(1,072)
Add back:
Share-based payments	66	169
Depreciation & Amortisation	449	413
Exceptional Administrative costs	692	252
	613	(238)

 

Adjusted EBITDA defined as earnings before finance charges, tax, amortisation, depreciation, share based payments, exceptional restructuring costs

 

5.            Exceptional administrative expenses

 

	Year ended 31 October	Year ended 31 October
	2019	2018
	£'000	£'000
Restructuring costs	692	252
	692	252

 

The exceptional items reported in 2019 of £0.7m (FY18: £0.3m) consist of costs in relation to the resignations of the previous chairman and non-executive directors, settlement of a dispute with the founder shareholders, and various other associated costs relating to the restructuring of the board. The disputes has been fully resolved, all costs settled and there are no further liabilities in relation to these matters. 

 

6.            Loss per share

 

	Year ended 31 October	Year ended 31 October
	2019	2018
	£	£
Loss for the year	(636,000)	(994,000)
	Shares	Shares
Weighted average number of shares in issue	35,860,652	35,795,539
Weighted average number of share options	587,101	638,200
Weighted average number of shares (diluted)	36,447,753	36,433,739
Loss per share(£) (basic)	(£0.02)	(£0.03)
Loss per share (£) (diluted)	(£0.02)	(£0.03)

 

Share options have not been included in the Diluted calculation as they would be anti-dilutive with a loss being recognised.

 

7.            Share capital

 

	31 October	31 October
	2019	2018
	£	£
Share capital issued and fully paid
35,916,179 Ordinary shares of £0.0025 each	89,791	89,489

 

Ordinary shares have a par value of 0.25p. They entitle the holder to participate in dividends, and to share in the proceeds of winding up the Company in proportion to the number of and amounts paid on the shares held.

 

On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

 

The Company does not have a limited amount of authorised capital.

 

Options

Information relating to the Velocity Composites plc Employee Option Plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the reporting period, is set out in note 23.

 

Movements in share capital	Nominal value	Number of shares
	£
Ordinary shares of £0.0025 each
At the beginning of the year	89,489	35,795,539
Exercising of share options	302	120,640
Closing share capital at 31 October 2019	89,791	35,916,179

 

On 18 April 2019, the Company issued 120,640 new ordinary shares of £0.0025 each to satisfy the exercise of options granted under the Group's 2017 Share Option Scheme.

 

8.            Ultimate controlling party

 

The Directors do not consider there to be an ultimate controlling party due to no individual party owning a majority share in the Group.

 

9.            Capital commitments

 

At 31 October 2019 the Group had £445,369 (2018: £78,500) of capital commitments relating to the purchase of leasehold improvements, plant and machinery and fixture and fittings.

 

10.          Pension commitments

 

The Group makes contributions to defined contribution stakeholder pension schemes. The contributions for the year of £115,654 (2018: £107,573) were charged to the Consolidated Income statement. Contributions outstanding at 31 October 2019 were £24,374 (2018: £17,013).

 

11.          Contingent liabilities

 

At 31 October 2019 the Group had in place bank guarantees of £nil (2018: £250,000) in respect of supplier trade accounts.

 

This preliminary announcement, which has been agreed with the auditors, was approved by the Board of Directors on 27 January 2020.  It is not the Group's statutory accounts.  Copies of the Group's audited statutory accounts for the year ended 31 October 2019 will be available at the Company's website shortly and a printed version will be despatched to shareholders on the 28 January 2020.