Trading Update, Bank Facility & Notice of Results

20 May 2020

 

VELOCITY COMPOSITES PLC

("Velocity" or the "Company")

AIM: VEL.L

 

Trading Update, New Banking Facility and Notice of Results

 

Velocity Composites plc, the leading supplier of advanced composite material kits to the aerospace sector, provides the following trading update on its performance in the six months to 30 April 2020 ("H1") and details of its new £2.0 million banking facility in the form of a Coronavirus Business Interruption Loan ("CBIL").

 

The Board believes that, whilst there has been an inevitable reduction in near-term demand as aerospace industry production is curtailed by COVID-19, the Company's financial liquidity remains robust.  Velocity is in a strong position to support its composite aerospace customers with its unique efficiency-focused supply chain management solutions.       

 

Trading update

 

As announced in the Trading and COVID-19 Update on 30 March 2020, the financial year ending 31 October 2020 ("FY20") started well, with the Company achieving good strategic progress on new aerospace qualifications and winning long-term new business.  Trading to the end of February was in line the Board's expectations with order visibility showing an improving second-half performance.  The Company's sales demand was then impacted by the global disruption caused by the measures taken to combat the spread of COVID-19.

 

Production levels across all Velocity's customers have been significantly curtailed since early March 2020, as social distancing and lockdown measures were implemented.  Customers have had to reconfigure manufacturing practices to ensure the safety of their employees. Velocity also implemented a rigorous plan to protect employees, whilst maintaining its services to customers.  The Company is pleased to announce it has implemented its COVID-19 plans and is working on a daily basis with its customers and suppliers to enable production volumes to be increased.  Whilst there is a planned gradual re-opening of customer production facilities and subsequent rise in production levels, demand in the near-term remains substantially below pre-COVID-19 run-rates. 

 

The Company had agreed terms with one major customer on a multi-year extension of a long-term agreement, as announced in January 2020.  The COVID-19 disruption, however, has resulted in this new agreement being placed on hold.  This does not impact the business flow from this customer, as both parties have agreed to trade on the basis of the existing arrangements, including purchase order cover to mid-2021.  Discussions continue.

 

The Company's short-term revenue forecast has also been impacted by the continued freeze in Boeing's production of the 737 Max, for which the Company won a new structural contract in H1 20.  However, the potential for meaningful higher revenue remains once this programme restarts.  

 

H1 20 revenue and cash

 

As a result of this rapid change in demand, revenue in H1 20 is now expected to be circa £9.4 million (H1 19: £12.2 million).  Cash at bank was circa £2.8 million (£2.0m after use of Invoice Discounting  facility) at the 30 April 2020, compared with £3.4 million at 31 October 2019 when the Invoice Discounting facility was not utilised.  Earlier in the financial year, cash was invested in the Company's new R&D centre and along with the purchase of additional cutting machines to support long-term expansion opportunities in the US.  There were also some exceptional cash payments to settle exceptional costs charged in the prior year.  The Company continues to have access to its £5m Invoice Discounting Facility, which was drawn down £0.8m at 30 April with additional capacity of £1.4m as at the 30 April 2020, based on outstanding receivables.

 

COVID-19 mitigation activity

 

As detailed in the last trading update, the Company has taken the following actions to mitigate the impact of the COVID-19 pandemic on production:

 

·	Circa 60% of the workforce has now been furloughed with funding secured through the UK Government's employment retention scheme;
·	Certain areas of the Company's manufacturing facilities have been converted to the production of personal protective equipment ("PPE") for NHS workers, providing additional work for staff;
·	The Company has put in place a significant inventory reduction programme, utilising its supply chain management systems, which will also benefit its customers, through strict alignment of supply and demand schedules;
·	A series of other cash conservation measures have been undertaken, including the postponement of planned capital expenditure programmes until required and the use of UK Government-promoted measures such as VAT payment holidays and PAYE deferrals.

 

Banking facilities

 

Further to the actions outlined above, the Company has secured a CBIL from its bankers, National Westminster Bank ("NatWest"), which provides Velocity with an additional £2.0 million facility to support any short-term liquidity requirements.  The CBIL can be drawn down at any point in the next six-months with an interest-free period for 12 months following drawdown and interest of LIBOR +3% in the 12 months thereafter.  The funds are repayable in the second year of drawdown by equal instalments.

 

Combined with its existing £5 million Invoice Discounting Facility with NatWest, the Company now has access to £7.0m of debt facilities, of which £0.8m is currently drawn and a further £3.3m of liquidity is currently available

 

Outlook

 

There is much speculation on the challenges facing the civil aerospace industry.  The Board believes that there will be a material contraction in the worldwide demand for and manufacture of new civil aircraft over the medium term, then a slow recovery back to pre COVID-19 forecasts within three years.  This will place more pressure on manufacturers in our target markets to reduce costs and further streamline their operations.  This is the essence of Velocity's customer proposition: the Company has the resources, the advanced technology and the processes to assist and accelerate customer cost reductions, whilst improving the quality and efficiency of their production processes; along with a comprehensive supply chain management solution, which minimises inventory levels, the risk of raw material life expiry/obsolescence and, therefore, reduction in working capital.

 

Given the lack of short-term visibility on the longevity of UK and international lockdown restrictions, the Board continues to be unable to provide financial guidance on the Company's expected performance in FY20 and FY21.

 

Various scenarios on the lifting of these restrictions and the timing of increases in customer demand, both long and short, have been modelled by management, and, on review of these, the Board is confident that the Company has adequate cash and banking facilities to work through this disruption.  This includes the possible need for some restructuring of the Company's operations if required. 

 

Velocity remains engaged with customers on significant new business opportunities, with a pipeline of major new opportunities totalling circa £30m and has the flexibility to deploy its operations to adapt to new norms.  The Board, therefore, remains confident the investment proposition for investors remains compelling, with these industry challenges providing an even more meaningful commercial rationale for its technology and services.

 

Notice of Results

 

The Company expects to announce its half year results for the six months ending 30 April 2020 on 23 June 2020.

 

Jon Bridges, Chief Executive Officer of Velocity, said:

 

"Whilst we know the near-term effect of the COVID-19 pandemic on our business and that this can be managed, the wider effects on the industry become clearer in the coming months.  Our prudent planning and rapid actions have ensured that we have the financial resilience to weather the storm and the CBIL gives us headroom to capitalise on the opportunities which will arise as the industry recovers.  We continue to support our stakeholders in this unprecedented disruption, working closely with our customers and material suppliers to balance supply and demand in a transparent way."

 

Andy Beaden, Non-Executive Chairman of Velocity, added:

 

"The Velocity team is doing a great job, supporting customers, managing cash and reducing overheads to minimise the dramatic impact of this pandemic on our respective businesses.  We continue to work on new business opportunities and I believe that Velocity is well placed financially to help our customers save costs and cash, as we work through this crisis together."

 

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

 

Enquiries:

 

Velocity Jon Bridges, Chief Executive Officer Andy Beaden, Chairman	+44 (0) 1282 577577
Cenkos (Nominated Adviser and Broker) Russell Cook Ben Jeynes	+44 (0)20 7397 8900 +44 (0)20 7397 1977 +44 (0)20 7397 1974
Belvedere Communications (Financial PR) Cat Valentine Keeley Clarke	[email protected] +44 (0) 7715 769 078 +44 (0) 7967 816 525

 

 

About Velocity

 

Velocity Composites is a manufacturer of composite material kits for the aerospace industry, delivering engineered kits for its customers to build component parts. The Company's clients include multi-national manufacturers of composite parts and assemblies, who in turn deliver to the world's leading civil and military aircraft manufacturers. The Airbus A320, A330, A350, A380, Eurofighter Typhoon, F35 Joint Strike Fighter, Boeing 737 and V22 Osprey are all constructed using parts manufactured from Velocity's kits. The Company's business model reduces the operating costs of preparing composite materials ahead of their usage in the construction of an aircraft part and as such, its offering is disposed to being self-financing for aircraft parts' manufacturers. Velocity Composites also exports to Europe and North America.