TIDMVEL
RNS Number : 5227A
Velocity Composites PLC
23 January 2024
The information contained within this announcement is deemed to
constitute inside information as stipulated under the UK Market
Abuse Regulation (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
23 January 2024
VELOCITY COMPOSITES PLC
("Velocity or the "Company")
Final Results for the twelve months to 31 October 2023
Revenue increased 37% with operating profit expected in H2
FY24
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 2023 ("FY23").
Financial Highlights:
-- Total revenue increased 37% to GBP16.4m (FY22: GBP12.0m), in line with market expectations.
-- Maiden revenue of GBP2.0m during the period was derived from
the Company's new US facility built to support the five-year Work
Package Agreement ("the Agreement") announced in December 2022 with
a global Tier 1 launch customer.
-- Agreement term commenced on planned start date of 1 January
2024, with the full-term revenue of US$100m remaining unchanged at
the underlying base of US$20m per annum based on current programme
production rates.
-- Gross margin decreased from 23.0% to 18.8% reflecting the
significant startup costs associated with the new US site.
-- Full year adjusted EBITDA* loss of GBP1.6m (FY22: loss of
GBP0.5m) due primarily to lower margins and additional costs
associated with onboarding key roles to support the US
operation.
-- Net cash position (cash less debt) of GBP1.6m at 31 October
2023 (FY22: GBP0.2m). The net proceeds of GBP6.1m from the
successful fundraise in August 2023 have been used to fund the
investment in the new US facility, including plant and equipment,
and for working capital support.
-- The Group also repaid debt of GBP1.0m (FY22: GBP0.9m), being
CBILs Loan and lease liabilities.
Operational Highlights:
-- Successful site opening and production ramp up in Alabama to serve the Agreement.
-- Agreement is expected to rollover to a much longer period,
with the opportunity to add more contracts from other US
manufacturers - currently there is one live bid with a large Tier 1
customer under a Memorandum of Understanding, and a third business
development plan with another large Tier 1 customer.
-- UK production has scaled to meet increased customer demand.
-- In July 2023, the Company appointed Kevin Hickey as Group
Chief Operating Officer. Kevin previously worked at Velocity
between 2017 and 2020, where he was responsible for the
establishment, ramp up and management of the Company's production
facility in Fareham, UK.
Outlook
-- Guidance given by the Company on 26 July 2023, stated that
the Board expected revenues for FY23 of between GBP15.0m and
GBP17.0m and an EBITDA loss of between GBP1.2m and GBP1.6m. The
Company has today reported FY23 revenues in line with that guidance
at GBP16.4m with an EBITDA loss of GBP1.6m.
-- At the same time the Company announced that revenues for FY24
were expected to be between GBP30m and GBP36m, with an EBITDA
profit of between GBP1.7m to GBP2.5m. With a more detailed
understanding of the progress of the transfer of business in the
US, the Board remains confident that, based solely on the existing
contracted revenues, FY24 EBITDA guidance remains in line with
previous guidance, with additional engineering income and lower
costs offsetting a revenue shift into FY25. .
-- While existing contracts will show significant growth on
FY23, the Board now expects revenues for FY24 will be between
GBP27m and GBP30m.
-- This guidance assumes no revenue is recognised in FY24 from
the current pipeline of new business opportunities, with the main
risk variances relating to FX and OEM regulatory sign off on
individual US programmes now being onboarded
-- Current contracted business, without any new customer wins,
is expected to double in size once all contracts reach full
production to at least GBP33m.
-- Expected near-term growth supports the Board's objective of a
25% plus gross margin, 10% EBITDA margin and a 25% return on
capital.
Change of Nominated Adviser and Broker
Following the completion of the all share merger between
Cavendish Securities plc (previously named Cenkos Securities plc)
and Cavendish Financial plc (previously named finnCap Group plc),
as a consequence of internal reorganisation within the Cavendish
Group, the Company has changed its Nominated Adviser and Broker
from Cavendish Securities plc to Cavendish Capital Markets
Limited.
Andy Beaden, Chairman, Velocity Composites, said: "There is now
a clear drive to deliver more sustainable air travel through the
greater use of carbon fibre in aerospace manufacture. This means
that the global industry needs what we do. Greater lightweighting
of aircraft is required to achieve aerospace industry
sustainability targets. In FY23 we achieved 37% organic growth,
based solely on our current business, revenues are expected to
increase another 100%. This will propel us into a solid level of
profitability, and well positioned for significant future
growth."
Jon Bridges, CEO. Velocity Composites added: "2023 was the year
when customers started to plan for aircraft production rate
increases. Across the global industry, aircraft order books are
strengthening as air travel recovers from lockdowns. For the first
time, we are expecting simultaneous production rate increases
across most aircraft platforms over the next three years albeit
from the historically low numbers caused by the pandemic.
Manufacturers are now approaching us for our solutions, leading to
a current transformational pipeline of opportunities of GBP200m per
annum.
"Looking forward into FY24, the business is fully committed and
resourced to deliver on its existing projects, both in Europe and
the US, whilst developing the next opportunities within a
sustainable capital and profitability structure for the benefit of
all customers and stakeholders."
Enquiries:
Velocity Tel: + 44 (0) 1282 577577
Andy Beaden, Chairman
Jon Bridges, Chief Executive Officer
Andrew Hebb, Interim Chief Financial Officer
Cavendish Capital Markets Limited Tel: +44 (0)20 7220 0500
(Nominated Adviser and Broker)
Katy Birkin
Ben Jeynes
George Lawson
SEC Newgate (Financial Communications) Tel: +44 (0)7540 106 366
Email: velocity@secnewgate.co.uk
Robin Tozer
George Esmond
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, 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
Overview
In the financial year ended 31 October 2023, Velocity Composites
has grown significantly, with revenue up 37% to GBP16.4m (FY22:
GBP12.0m) of which GBP2.0m was derived from the Group's maiden
revenues from the US (FY22: nil). We provide critical carbon fibre
kitting and supply chain management services to large Tier One
aerospace part manufacturers. Our technology, which has been
developed over many years, is proven to improve material efficiency
and speed up production times. This technology is in increasing
demand as the aerospace manufacturing sector recovers from the
pandemic.
GKN Aerospace
At the start of the financial year, we were excited to announce
our first US-contract with GKN Aerospace. The US is the global
centre for aircraft manufacturing. To support the contract, which
is worth $20m per annum in revenue over at least the next five
years starting from 1 January 2024, we established a facility in
Tallassee, Alabama.
Much of the management team's focus over the last year has been
on commissioning the new facility in the US and starting to
on-board the new business. As expected in the aerospace industry,
this is a complex and lengthy process, including a detailed
qualification procedure known as First Article Inspection ("FAI").
The new facility has been a significant financial investment
however it will provide solid long-term contracted revenues for the
Group. We expect the initial five-year GKN contract to rollover to
a much longer period, with the opportunity to add more contracts
from other US manufacturers. The costs associated with such an
expansion are the primary driver, the operating loss was GBP2.8m
during the year as this included the hiring and training of a
completely new team in the US, as well as the FAI work and the
additional central resources required to support this expansion in
services. Once the US facility is fully operational, with the key
programmes transferred over from GKN, then it is expected to be
profitable and to have justified these upfront costs. In doing so
it will provide a solid return on investment even prior to securing
additional contracts for which the facility has capacity.
The complexity of the onboarding and qualification processes
required provide a high barrier to entry for any potential
competitors, protecting our long-term revenues. We have learnt a
lot from the onboarding process, which we will be able to utilise
when we win future US business to drive greater efficiencies and
returns. The new team we have built and trained in the US will be
an important resource and revenue driver for the Group in the
future.
Industry Developments
It is pleasing to report that the prior headwinds of Covid-19
have been replaced with the structural tailwind of a drive to
deliver more sustainable air travel through the greater use of
carbon fibre in aerospace manufacture. This means that the global
industry needs what we do. They can either try and reinvent our
solutions for themselves or simply utilise our Velocity Resource
Planning services, and we firmly believe that many will choose the
latter.
Greater lightweighting of aircraft is required to achieve
aerospace industry sustainability targets and the need for improved
fuel performance. This need is driving the increased usage of
high-end carbon fibre materials in critical structural aircraft
parts. Leading manufacturers like Boeing and Airbus are planning
for a huge upturn in composite rich aircraft production. They will
need to increase the capability of their supply chains to deliver
this. This means that our main contracts in the UK and USA should
grow organically, and any new business beyond this could have a
significant financial upside. Airbus and Boeing global market
forecasts that there will be ten times as many carbon fibre
intensive new generation civil aircraft in service by the early
2040s.
Fundraising and Balance Sheet
Given the scale of the opportunities available to us, we sought
new investment from shareholders in August 2023, raising GBP6.1m
net of costs. To effectively grow the Company, and take on new
contracts like GKN, requires upfront investment in new people,
engineering skills training, as well as advanced technology and
machinery. These funds will support our growth and have
strengthened our balance sheet. As at 31 October 2023, our Cash at
Bank was GBP3.2m, after paying down the Invoice Discounting
Facility in the UK which is still available to use.
As reported above, the investment needed to deliver the GKN
contract means our results show an operating loss of GBP2.8m. This
year, however, we have established significant commercial assets,
through a new US site, with trained staff, advanced the FAI
processes, developed and rolled-out new digital manufacturing
technologies now being used to deliver the contract, and ensured
that we have the engineering resources that can support a much
larger business than we are currently. While we will continue to
invest as needed, we have enough contracted business that, at full
production rates, will mean in 2024 we should move from operating
losses to profitability. The Board expects that the second half of
FY24 will report an operating profit and is expected to roll into a
more significant full year profit in 2025. The Board and Executive
Management of Velocity Composites understand that only a profitable
business can grow and be successful in the long-term. Our expected
near-term growth supports the corporate objectives of a 25% plus
gross margin, 10% EBITDA margin and a 25% return on capital. It
should be noted that FY23 gross margin was heavily impacted by
charges for staff and some materials in relation to the US
facility. Whilst it is not at an optimal level of production, along
with a lag in pass-through of non-material costs in the UK, we
should start to see these dynamics change in 2024, enabling a
higher gross margin to be achieved.
Management Changes
In preparation for this exciting future, we have ensured that
the Board and management team have the required aerospace and
composite manufacturing expertise to accommodate the planned growth
in the US and the UK. In July 2023, we appointed Kevin Hickey as
Group Chief Operating Officer (a non-Board position). Kevin
previously worked at Velocity between early 2017 and late 2020,
where he was responsible for the establishment, ramp up and ongoing
management of the Company's production facility in Fareham, UK.
Prior to this, Kevin held a range of senior operational management
roles both in the UK and internationally at GE Aviation and brings
a wealth of experience in the industry and the Company's processes
as Velocity's existing facilities grow, and new facilities are
established.
In August 2023, we also welcomed back Andrew Hebb as non-Board
Interim Chief Financial Officer and Company Secretary to replace
Adam Holden while we recruit a full time CFO. Andrew was Velocity's
non-Board Interim Chief Financial Officer and Company Secretary
between November 2018, and August 2020 so has a detailed
understanding of the business.
Outlook
Looking ahead, we have engaged key customers in the US and
Europe that will enable us to grow Velocity Composites into a very
sizeable, profitable business, from 2024. Our current contracted
business is worth at least GBP30m ($36m - $43m) annually. Our
existing facilities could support up to GBP70m annually, with a
current qualified pipeline of approximately GBP200m ($250m)
annually.
As the first movers in the industry, we are the only company
proven to provide a complete outsourced solution to composite
aerostructure manufacturers, meaning we are well placed for the
future. We have a strong industry reputation and all the global
approvals to deliver the service which provide strong barriers to
entry for others.
I would like to thank colleagues for their continued dedication
and customers, suppliers and investors for their support. We look
forward to a successful 2024.
Andrew Beaden
Chairman
22 January 2024
CEO Report
Overview
2023 was the year when our customers started to plan for
aircraft production rate increases. Across the global industry,
aircraft order books are strengthening as air travel recovers from
lockdowns. For the first time, we are expecting simultaneous
production rate increases across most aircraft platforms over the
next three years albeit from the historically low numbers caused by
the pandemic.
This welcome increase in production is happening after customers
have seen their manufacturing base, internal know-how and capacity
reduced since 2020 and creates challenges for which Velocity's
services provide a proven solution. Working with us allows them to
focus their resources on aerostructure part manufacture and
expanding their internal operational capacity. Velocity's customers
need to do more-for-less to meet the production rate increases of
aircraft and outsourcing is easier when aircraft production rates
are increasing.
US expansion
In this financial year, a significant portion of our resources
were focused on the successful site opening and production ramp up
in Alabama to serve our new GKN contract. This included not only
the local site team being recruited and trained, but also support
from the central UK teams, specifically New Business Engineering,
Operations, Supply Chain, Quality, Information Systems, Finance and
Human Resources. Everyone within the Company has had a part to play
in the critical expansion of the business and myself and the wider
executive team are immensely proud and grateful for their hard
work. It is especially pleasing to see a whole new team develop in
Alabama and they have quickly grasped Velocity's processes and
values in order to support the GKN contract. We operate in a highly
regulated industry, and it was important that the new site in
Alabama mirrored the proven way of the working of the two UK sites.
It has been inspiring to see how the UK teams have trained their
new colleagues, and how the US team has adopted the Velocity
culture.
As we have documented in our investor communications throughout
the year, the GKN contract award in December 2022 was the
culmination of more than 12 months of detailed business
development, bid creation and contract negotiation with the
customer. This required not only a detailed understanding of the
customer's "current state", but also the onboarding into the
Velocity system of around 1,300 individual kits to allow for the
detailed costing and creation of the Velocity "future state" so we
could complete the business case submission. At the same time the
team was also busy setting up the production facility in Alabama
under a separate Authority to Proceed agreement which underwrote
the costs and meant that that the transfer project could begin
immediately rather than having to wait until the full contract was
signed.
After the contract award, our focus shifted to the project
delivery stage, particularly the detailed and highly regulated FAI
process which is a key enabler on the route to volume production
and sales. The total project was split into individual aircraft
programme blocks and a 12-month plan agreed on a sequential basis
and involved close co-operation between us and GKN to verify that
the kit engineering data for each block had been transferred
accurately, and that the first kit produced by Velocity was
identical to the kits that had been produced by the customer. To
verify this, Velocity produced a detailed report per kit which was
subject to a desktop verification, followed by one of each kit
which was manufactured and then assessed and used by the customer
against the current standard.
The scale, complexity and resource-intense nature of this
process for both parties means that the actual sequence and timing
of each block can change during the transfer, hence the trading
update that was issued in July 2023. Once transferred however,
Velocity becomes the sole approved supplier of the kits and an
integral long-term partner to our customer, hence the extension of
the contract with the customer to ensure the initial term did not
commence until the FAI process was completed. Only once each block
completes the FAI process does Velocity then begin to ramp it up
into volume production, which in itself can take weeks or months
depending on the size and number of kits in the block.
As we worked through the total project with our first customer
in Alabama, we ended FY23 with the first two blocks fully completed
and ramped up, which accounts for over 50% of the total project,
and the third block in FAI and the fourth block ready to begin FAI.
The period also saw the focus change from site stand up to volume
production.
Future Contracts
We have continued our business development activities in the US
to utilise the capacity in our new business engineering and
operations created as the GKN contract moves to sustained
production. We have a live bid with a large Tier 1 customer under a
Memorandum of Understanding, and a third business development plan
with another large tier one customer.
In Europe, our stated focus is around managing the rate
increases with our existing customers, along with targeted business
development with existing customers at other sites they have within
mainland Europe. This is expected to accelerate in FY24 as rate
recovery drives make/buy decisions as customer plants become more
capacity constrained.
As our contractual agreements with customers are typically
repeatedly extended we will also refine the contract terms to
account for material and labour cost inflation, interest rates and
energy inflation so as to protect both parties from any global
economic factors.
With the completion of the equity fundraise we were able to
resource our plans around people and technology to support the
continued expansion of our services at our three sites. We
recognise that continued investment in our key technology areas
(real time digitisation of supply chain management, material
efficiency and operational performance) along with our new business
engineering teams gives us both a clear differentiator from our
customers (who are also our competitors when it comes to make/buy
decisions) along with the continued refinement of our bid
development, business case creation and new business implementation
through FAI, to support and deliver the continued flow of new
business opportunity as our customers look to build back
better.
This also further strengthens the barriers to entry for any
competition as our global approvals, industry reputation, digital
toolbox, new business engineering capacity, proven cost saving
delivery and geographic footprint allow us to create and deliver
business cases which support both our own and our customers growth
plans. Our entry into the US market also presents an opportunity
for the business to further position our orderbook across both
civil aerospace and defence projects, both of which are equally
applicable to Velocity's services but have different global growth
drivers for risk mitigation.
Outlook
Velocity Composites has put into effect a clear strategy to
capitalise on the significant growth in the use of composites
within aerospace. Manufacturers need to outsource non-core
processes and reduce costs to meet demand. Manufacturers are now
approaching us for our solutions, leading to a current qualified
pipeline of opportunities of GBP200m ($250m) annually.
Looking forward into FY24, the business is fully committed and
resourced to deliver on its existing projects, both in Europe and
the US, whilst developing the next opportunities within a
sustainable capital and profitability structure for the benefit of
all customers and stakeholders.
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 2023, 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 19 onwards in the Statement on Corporate
Governance.
Jonathan Bridges
Chief Executive Officer
22 January 2024
Financial Review
Statement of Comprehensive Income
Revenue for FY23 of GBP16.4m (FY22: GBP12.0m) represents an
increase of 37% and is driven by a combination of a 20% increase in
UK sales as the market continues to recover to pre-pandemic levels,
and also first-year sales from the new US site which contributed
GBP2.0m.
The increased volume has generated a gross profit of GBP3.1m,
GBP0.4m ahead of FY22. There was a reduction in the reported gross
margin percentage to 18.8% (FY22: 23.0%), however this is expected
to be temporary as the reduction results from the start-up of the
US site where volumes were lower than needed to recover labour
costs at normal margins and a lag in some increased cost pressures,
when compared to revising contracted pricing with customers.
Administrative expenses (excluding exceptional) have increased
GBP1.7m from GBP4.1m in FY22 to GBP5.8m in FY23.The US costs were
GBP1.2m (FY22: GBP0.0m) with the onboarding of key roles to
directly support operations in the US. The remaining support is
directly provided by the UK. The increase in volume has therefore
been offset by the investment in overheads to support the future
growth, resulting in an adjusted EBITDA [1] loss of GBP1.6m (FY22:
loss of GBP0.5m).
31 October 31 October
2023 2022
Reconciliation from operating loss GBP'000 GBP'000
----------- -----------
Operating loss (2,817) (1,317)
Add back:
Share-based payments 206 170
Depreciation and amortisation 413 263
Depreciation on right of use assets under
IFRS 16 472 432
Exceptional administrative costs 120 -
Adjusted EBITDA (1,606) (452)
=========== ===========
The continued investment in a new US facility, business
development, technology and staff during FY23 means the Group is
well placed for contracted volume growth in the forthcoming year.
US growth will be delivered through the Work Package Agreement with
GKN with the remaining projects completing First Article Inspection
(FAI) during the first half of FY24 and full volumes being achieved
in the second half. In addition, we expect to start onboarding a
second customer once contracts are signed. Growth in the UK will be
through a small increase to existing contract volumes and also new
opportunities with existing customers.
Therefore, Velocity is in an excellent position to deliver this
growth, without a linear increase to its overhead base and will
also benefit in FY24 from the technological investments that have
driven efficiencies in the operational process as volumes grow.
Fundraise and Capital Reduction
The Group completed a fundraise in October 2023 raising GBP6.1m
net of transaction costs. The funds are being used to support
capital expenditure in particular for the US facility, technology
development, recruiting additional personnel in the US, and working
capital. In the short term we will reduce usage of the UK Invoice
Financing facility.
As part of the fundraise to enable participation of EIS/VCT
funds, the Group took the opportunity with Shareholder support and
Court approval to undertake a capital reduction, reducing the share
premium by GBP10,920k and adjusting retained earnings creating
positive retained earnings which at the year-end for the Group were
GBP1,087k. This will help support the Group to pay dividends at the
appropriate time.
Cashflow and Capital Investment
The increase in the year-end cash and cash equivalents position
of GBP0.9m to GBP3.2m (FY22: GBP2.3m) reflects the Company
receiving net proceeds of GBP6.1m following completion of a
fundraise by way of a firm placing, EIS/VCT placing and retail
offer. This has been partially offset by the investment from
Velocity Composites PLC to the US subsidiary of GBP3.1m to help
finance US operations in order to win and start fulfilling the
contract won in the US.
Losses after tax for the year for the Group amounted to GBP3.1m
(FY22: GBP1.3m). Of these losses, GBP1.6m related to the US
subsidiary.
There was an operating cash outflow before working capital
movements of GBP1.7m (FY22: GBP0.5m outflow), this being
attributable to the US start-up costs. The movements in working
capital netted to a GBP0.1m outflow in FY23 (FY22: GBP0.3m inflow),
and after other adjustments for taxation, the final cash outflow
from operations was GBP1.8m (FY22: GBP0.3m inflow, including tax
credits of GBP0.5m).
Working capital movements can be further analysed as follows:
There was a positive working capital movement through a GBP2.4m
increase in trade and other payables from suppliers (FY22: increase
of GBP1.1m). However, this has been offset by a GBP1.3m increase in
inventory (FY22: increase of GBP0.5m), largely due to the inventory
required to meet demand in the US and a GBP1.1m increase in trade
and other receivables due from customers (FY22: increase of
GBP0.4m), GBP1m of the increase relates to the US outstanding trade
debtors at the year end. Overall trade receivable days were 71
days, compared to 68 days at the end of FY22.
A cash outflow from investment activities of GBP2.1m is a
combination of the purchase of property, plant and equipment mainly
in the US of GBP1.3m (FY22: GBP0.3m) and an increase in intangible
assets to support the development of the production facility in the
US of GBP0.8m (FY22: GBP0.1m).
In financing facilities GBP1.3m (2022: GBP1.1m) represents the
repayment of the CBILS loan, the capital element of the Group's
lease liabilities and associated financing costs. The remaining
amount represents the fundraise net of the transaction costs in
issuing the ordinary shares.
The Company was in a Net Cash position at the end of the year,
of GBP1.6m (FY22: GBP0.2m). This includes Cash at Bank, offset by
the outstanding CBILS balance and invoice discounting facility.
31 October 31 October
2023 2022
GBP'000 GBP'000
----------- -----------
Cash 3,178 2,344
CBILS loan (1,473) (2,009)
Invoice discounting facility (68) (175)
----------- -----------
Net cash 1,637 160
=========== ===========
Going Concern
Management continues to undertake a significant level of cash
flow forecasting and detailed financial projections for the
following 24-month period to 31 October 2025 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 2025 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 level through the Audit
Committee's quarterly risk register review.
In preparing the latest two-year forecasts, Management has
included revenue projections based on current contracted demand,
the Work Package Agreement with GKN in the US,. The cost base
included in the projections is reflective of the significant cost
reductions that took place during Covid to right size the Group,
but also realistic about the investment required to implement the
growth.
It is the investment in growth and technological advancements
throughout FY23, which is anticipated to continue in FY24, 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. 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.
Having due regard for these recent deliverables and latest
projections, with available cash at 31 October 2023 of GBP3.2m, 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.
Andrew Hebb
Interim Chief Financial Officer
22 January 2024
Consolidated Statement of Total Comprehensive Year ended Year ended
Income
31 October 31 October
2023 2022
Note GBP'000 GBP'000
-------------------- --------------------
Revenue 4 16,411 11,959
Cost of sales (13,325) (9,213)
-------------------- --------------------
Gross profit 3,086 2,746
Administrative expenses (5,783) (4,063)
Exceptional administrative expenses 8 (120) -
Operating loss 5 (2,817) (1,317)
------------------------------------------------ ----- -------------------- --------------------
Operating loss analysed as:
Adjusted EBITDA loss 31 (1,606) (452)
Depreciation of property, plant and equipment (297) (210)
Amortisation (116) (53)
Depreciation of right-of-use assets under
IFRS 16 (472) (432)
Share-based payments (206) (170)
Exceptional administrative expenses 8 (120) -
Finance income and expense 9 (326) (187)
-------------------- --------------------
Loss before tax from continuing operations (3,143) (1,504)
Corporation tax recoverable 10 - 167
Loss for the year and total comprehensive
loss (3,143) (1,337)
==================== ====================
Loss per share - basic (GBP) from continuing 11 (GBP0.08) (GBP0.04)
operations
==================== ====================
Loss per share - diluted (GBP) from continuing 11 (GBP0.08) (GBP0.04)
operations
==================== ====================
There is no other comprehensive income in the current or prior
year.
Consolidated and Company Group Group Company Company
Statement of Financial
Position
----------- -------------- ----------- -------------
31 October 31 October 31 October 31 October
2023 2022 2023 2022
Note GBP'000 GBP'000 GBP'000 GBP'000
Non-current assets
Intangible assets 12 890 173 232 173
Property, plant and equipment 13 2,095 1,099 734 1,099
Right-of-use assets 20 2,129 2,269 1,521 1,812
----------- -------------- ----------- -------------
Total non-current assets 5,114 3,541 2,487 3,084
Current assets
Inventories 15 2,743 1,407 1,493 1,407
Trade and other receivables 16 3,667 2,521 5,913 2,569
Cash and cash equivalents 17 3,178 2,344 3,131 2,337
----------- -------------- ----------- -------------
Total current assets 9,588 6,272 10,537 6,313
----------- -------------- ----------- -------------
Total assets 14,702 9,813 13,024 9,397
Current liabilities
Loans 19 503 503 503 503
Trade and other payables 18 4,587 2,207 1,921 2,207
Obligations under lease
liabilities 20 487 405 344 313
----------- -------------- ----------- -------------
Total current liabilities 5,577 3,115 2,768 3,023
Non-current liabilities
Loans 19 970 1,506 970 1,506
Obligations under lease
liabilities 20 1,587 1,792 1,196 1,442
Total non-current liabilities 2,557 3,298 2,166 2,948
----------- -------------- ----------- -------------
Total liabilities 8,134 6,413 4,934 5,971
Net assets 6,568 3,400 8,090 3,426
Equity attributable to equity holders of the
company
Share capital 23 133 91 133 91
Share premium account 24 4,870 9,727 4,870 9,727
Share-based payments
reserve 25 478 684 478 684
Retained earnings 1,087 (7,102) 2,609 (7,076)
Total equity 6,568 3,400 8,090 3,426
=========== ============== =========== =============
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 GBP1,647,000. The financial statements were
approved and authorised for issue by the Board of Directors on 22
January 2024 and were signed on its behalf by:
Jonathan Bridges
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 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
25) - - - 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
======== ========== ========= ========== ========
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 2022 91 9,727 (7,102) 684 3,400
Loss for the year - - (3,143) - (3,143)
-------- ---------- --------- ---------- --------
91 9,727 (10,245) 684 257
-------- ---------- --------- ---------- --------
Transactions with shareholders:
Share-based payments (note
25) - - - 206 206
Transfer of share option
reserve on vesting of
options and issue of equity - - 412 (412) -
Issue of new shares net
of transaction costs 42 6,063 - - 6,105
Reduction of Share Premium
Account (10,920) 10,920 -
As at 31 October 2023 133 4,870 1,087 478 6,568
======== ========== ========= ========== ========
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 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
25) - - - 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
======== ========= ========= ========== ========
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 2022 91 9,727 (7,076) 684 3,426
Loss for the year - - (1,647) - (1,647)
91 9,727 (8,723) 684 1,779
-------- --------- --------- ---------- --------
Transactions with shareholders:
Share-based payments (note
25) - - - 206 206
Transfer of share option
reserve on vesting of
options and issue of equity - - 412 (412) -
Issue of new shares net
of transaction costs 42 6,063 - - 6,105
Reduction of Share Premium
Account (10,920) 10,920 -
As at 31 October 2023 133 4,870 2,609 478 8,090
======== ========= ========= ========== ========
Consolidated and Company Statement
of Cash Flows Group Group Company Company
----------- ----------- ----------- -----------
Year Year Year Year
ended ended ended ended
31 October 31 October 31 October 31 October
2023 2022 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000
----------- ----------- ----------- -----------
Operating activities
Loss for the year (3,143) (1,337) (1,647) (1,338)
Taxation - (167) - (167)
Profit on sale of assets (4) (38) (4) (38)
Finance costs 326 187 299 187
Amortisation of intangible assets 116 53 53 53
Depreciation of property, plant
and equipment 297 210 210 210
Depreciation of right-of-use
assets 472 432 391 432
Share-based payments 206 170 206 170
Operating cash flows before
movements in working capital (1,730) (490) (492) (491)
Increase in trade and other
receivables (1,146) (359) (3,344) (374)
Increase in inventories (1,336) (530) (86) (530)
Increase/(Decrease) in trade
and other payables 2,380 1,149 (286) 1,149
----------- -----------
Cash (outflow)/inflow from
operations (1,832) (230) (4,208) (246)
Tax received - 510 - 510
Net cash (outflow)/inflow from
operating activities (1,832) 280 (4,208) 264
Investing activities
Purchase of property, plant
and equipment net of intercompany
transfers (1,293) (262) 155 (262)
Purchase of development expenditure (833) (136) (112) (136)
Proceeds from the sale of property,
plant and equipment 4 42 4 42
Net cash used in investing
activities (2,122) (356) 47 (356)
Financing activities
Proceeds from issue of ordinary
shares 6,590 - 6,590 -
Share issue transaction costs (485) - (485) -
Finance costs paid (326) (187) (294) (187)
Loan repayment (536) (503) (536) (503)
Repayment of lease liabilities
capital (455) (366) (320) (351)
Net cash generate in financing
activities 4,788 (1,056) 4,955 (1,041)
----------- ----------- ----------- -----------
Net Increase/(Decrease) in
cash and cash equivalents 834 (1,132) 794 (1,133)
Cash and cash equivalents at
01 November 2,344 3,476 2,337 3,470
----------- ----------- ----------- -----------
Cash and cash equivalents at
31 October 3,178 2,344 3,131 2,337
=========== =========== =========== ===========
Notes to 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) interpretations.
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 "FY23" refer to the year ended 31 October
2023, whilst references to "FY22" are in respect of the year ended
31 October 2022.
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 2023. 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 2025 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 2025 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 contracted demand,
the newly signed Work Package Agreement with GKN in the US. 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 FY23, and which is anticipated to continue in FY24, 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 during periods of FY24.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 2023 of GBP3.2m, 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 are 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 and services 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 translation (continued)
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.
Financial assets (continued)
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.
Leased assets (continued)
Measurement and recognition (continued)
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 October 31 October 31 October 31 October
2023 2022 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000
----------- ----------- ----------- -----------
Current assets
Trade and other receivables 3,282 2,238 2,532 2,238
Trade and other receivables
- prepayments 385 283 291 281
Amounts due from subsidiary
undertakings - - 3,090 50
----------- ----------- ----------- -----------
3,667 2,521 5,913 2,569
Cash and cash equivalents
- loans and receivables 3,178 2,344 3,131 2,337
----------- ----------- ----------- -----------
Total loans and receivables 6,845 4,865 9,044 4,906
=========== =========== =========== ===========
Current liabilities
Trade and other payables 4,053 1,750 1,587 1,750
Trade and other payables
- accruals 534 457 334 457
----------- ----------- ----------- -----------
4,587 2,207 1,921 2,207
Loans 503 503 503 503
Obligations under lease
liabilities 487 405 344 313
----------- ----------- ----------- -----------
Total current liabilities 5,577 3,115 2,768 3,023
=========== =========== =========== ===========
For non-current liabilities please see notes 18 and 19.
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 a large element of the transactional currency risk to pass
through the Group.
The Group is also exposed to translation foreign exchange risk
on consolidation of US operations, which are translated into
Sterling from US dollars. This can impact the consolidated income
statement and also create a movement in reserves from movements in
the US balance sheet items.
The carrying value of the Group's foreign currency denominated
assets and liabilities comprise the trade receivables in note 16,
cash in note 17 and trade payables in note 18.
Foreign exchange risk (continued)
The Group's financial assets are held in both Sterling and US
dollars, the assets are converted to the presentation currency
Sterling assets held in US dollars are in relation to the US
subsidiary, 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 Euro are held in those currencies for normal trading
activity in order to recover funds from customers or to pay funds
to suppliers.
The Group's exposure to foreign currency risk is as follows.
This is based on the carrying amount of monetary financial
instruments.
As at 31 October 2023 US Dollar Euro Total
GBP'000 GBP'000 GBP'000
Trade debtors 2,685 75 2,760
Cash and cash equivalents 204 118 322
Trade payables (3,328) (31) (3,359)
---------- -------- --------
Balance sheet exposure (439) 162 (277)
========== ======== ========
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
========== ======== ========
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
2023 2022
GBP'000 GBP'000
US dollar 28 117
Euro (8) 19
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. Included in the US dollar value is GBP78k relating to
the US Subsidiary (2022: GBPNil).
Interest rate risk
The Group carries borrowings from leases and CBILS loans. Lease
borrowings are at a fixed rate of interest whilst the interest on
the CBILS 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 5.25%.
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 2023
Within One to Two to Over five
1 year two years five years years
GBP'000 GBP'000 GBP'000 GBP'000
-------- ----------- ------------ ----------
Loan 503 503 467 -
Obligations under lease liabilities 487 508 1,079 -
Trade payables 3,786 - - -
Accruals 534 - - -
Other payables 15 - - -
Invoice discounting facility 68 - - -
As at 31 October 2022
Within One to Two to Over five
1 year two years five 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 - - -
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 ended Year ended
31 October 31 October
2023 2022
GBP'000 GBP'000
------------- -------------
Revenue
United Kingdom 14,350 11,906
Europe 41 10
US 1,967 -
Rest of the World 53 43
16,411 11,959
============= =============
During the year four customers accounted for 91.9% (2022: 92.7%)
of the Group's total revenue for the year ended 31 October 2023.
This was split as follows; Customer A - 34.5% (2022: 43.10%),
Customer B - 34.9% (2022: 33.4%), Customer C - 10.49% (2022:
11.44%) and the fourth customer a customer of Velocity Composite
Aerospace Inc 11.99%, previously Customer D - 3.58% (2022:
4.70%).
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 2023 and year ended 31 October 2022 as the site operates as
an Engineering Support Office for the Group. The US subsidiary
started to trade in April 2023, revenue of GBP1,967k 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
2023 2022
GBP'000 GBP'000
------------- -------------
Staff costs (see note 6) 3,700 3,090
Cost of inventories 11,687 8,079
Foreign exchange (gain)/loss 57 (259)
Amortisation of development costs 116 53
Depreciation:
Owned assets 297 210
Property, plant and equipment under right-of-use
assets 472 432
Profit on disposal of assets (5) (38)
Auditor's remuneration:
Audit of the accounts of the Group 75 59
Other audit related services (relating to
interim review) 12 14
6. Staff costs
Year ended Year ended
31 October 31 October
2023 2022
GBP'000 GBP'000
------------- -------------
Wages, salaries and bonuses 3,049 2,575
Social security costs 348 261
Defined contribution pension costs 97 84
Share-based payments 206 170
------------- -------------
3,700 3,090
============= =============
The average monthly number of employees including directors,
during the year was as follows:
Year ended Year ended
31 October 31 October
2023 2022
Head count Head count
------------- -------------
Manufacturing 55 40
Administration 47 39
102 79
============= =============
7. Directors' costs
Year ended Year ended
31 October 31 October
2023 2022
GBP'000 GBP'000
------------- -------------
Directors' remuneration included in staff
costs:
Wages, salaries and bonuses 505 343
Defined contribution pension costs 21 22
526 365
============= =============
Remuneration of the highest paid director(s):
Wages, salaries and bonuses or fees 190 121
Defined contribution pension costs 12 12
------------- -------------
202 133
============= =============
8. Exceptional administrative expenses
Year ended Year ended
31 October 31 October
2023 2022
GBP'000 GBP'000
------------- -------------
Fees associated with newly issued shares 120 -
------------- -------------
120 -
============= =============
Exceptional expenses incurred during the year are in relation to
the costs associated with the cash fundraise through the placing
and subscription of the New Ordinary Shares. Total costs incurred
were GBP120,000 and GBP485,000 charged to the share premium as
being directly related to newly issued shares.
No exceptional costs were recognised in the previous year.
9. Finance income and expenses
Year ended Year ended
31 October 31 October
2023 2022
GBP'000 GBP'000
------------- -------------
Finance expense
Finance charge from lease liabilities 120 81
Other interest and invoice discounting charges 206 106
------------- -------------
326 187
============= =============
10. Income tax
Company Year ended Year ended
31 October 31 October
2023 2022
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)
Total tax income - (167)
============= =============
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 22.00% 19.00%
Loss for the year before tax (3,143) (1,504)
Expected tax credit based on corporation
tax rate (691) (286)
Expenses not deductible for tax purposes (17) 112
Adjustment in respect of prior year - R&D - (167)
Different tax rates in other countries 232 -
Adjustment in respect of prior year - tax
losses - (51)
Tax losses not recognised 476 225
Total tax income - (167)
======== ========
On 3 March 2021, the Chancellor of the Exchequer announced that
the corporation tax rate would increase to 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 2023 is 25% and deferred tax had been re-measured at
this date.
11. Loss per share
Year ended Year ended
31 October 31 October
2023 2022
GBP GBP
------------- -------------
Loss for the year (3,143,000) (1,337,000)
Shares Shares
------------- -------------
Weighted average number of shares in issue 38,410,094 36,371,065
Weighted average number of share options 1,348,066 2,110,897
------------- -------------
Weighted average number of shares (diluted) 39,758,160 38,481,962
Loss per share (GBP) (basic) (GBP0.08) (GBP0.04)
============= =============
Loss per share (GBP) (diluted) (GBP0.08) (GBP0.04)
============= =============
Share options have not been included in the diluted calculation
as they would be anti-dilutive with a loss being recognised.
12. Intangible assets
Group Development
costs Total
GBP'000 GBP'000
------------ --------
Cost
At 31 October 2021 638 638
Additions 136 136
Disposals (199) (199)
------------ --------
At 31 October 2022 575 575
Additions 833 833
At 31 October 2023 1,408 1,408
------------ --------
Amortisation
At 31 October 2021 548 548
Charge for the year 53 53
Disposals (199) (199)
At 31 October 2022 402 402
Charge for the year 116 116
At 31 October 2023 518 518
------------ --------
Net book value
------------ --------
At 31 October 2021 90 90
------------ --------
At 31 October 2022 173 173
------------ --------
At 31 October 2023 890 890
============ ========
Development
Company costs Total
GBP'000 GBP'000
------------ --------
Cost
At 31 October 2021 638 638
Additions 136 136
Disposals (199) (199)
------------ --------
At 31 October 2022 575 575
Additions 112 112
At 31 October 2023 687 687
------------ --------
Amortisation
At 31 October 2021 548 548
Charge for the year 53 53
Disposals (199) (199)
At 31 October 2022 402 402
Charge for the year 53 53
At 31 October 2023 455 455
------------ --------
Net book value
------------ --------
At 31 October 2021 90 90
------------ --------
At 31 October 2022 173 173
------------ --------
At 31 October 2023 232 232
============ ========
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.
13. Property, plant and equipment
Plant
Leasehold & Motor Fixtures
Group improve-ments machinery vehicles & fittings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- ----------- ---------- ------------ --------
Cost
At 31 October 2021 491 1,891 23 417 2,822
Additions 137 87 - 38 262
Disposals - (123) - - (123)
--------------- ----------- ---------- ------------ --------
At 31 October 2022 628 1,855 23 455 2,961
Additions 367 528 - 398 1,293
At 31 October 2023 995 2,383 23 853 4,254
--------------- ----------- ---------- ------------ --------
Depreciation
At 31 October 2021 99 1,385 23 264 1,771
Charge for the year 50 116 - 44 210
Disposals - (119) - - (119)
At 31 October 2022 149 1,382 23 308 1,862
Charge for the year 73 150 - 74 297
At 31 October 2023 222 1,532 23 382 2,159
--------------- ----------- ---------- ------------ --------
Net book value
At 31 October 2021 392 506 - 153 1,051
--------------- ----------- ---------- ------------ --------
At 31 October 2022 479 473 - 147 1,099
--------------- ----------- ---------- ------------ --------
At 31 October 2023 773 851 - 471 2,095
=============== =========== ========== ============ ========
Plant
Leasehold & Motor Fixtures
Company improve-ments machinery vehicles & fittings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- ----------- ---------- ------------ --------
Cost
At 31 October 2021 491 1,891 23 417 2,822
Additions 137 87 - 38 262
Disposals - (123) - - (123)
--------------- ----------- ---------- ------------ --------
At 31 October 2022 628 1,855 23 455 2,961
Transferred to subsidiary (132) (57) - (37) (226)
Additions 14 57 - - 71
Disposals - - - - -
At 31 October 2023 510 1,855 23 418 2,806
--------------- ----------- ---------- ------------ --------
Depreciation
At 31 October 2021 99 1,385 23 264 1,771
Charge for the year 50 116 - 44 210
Disposals - (119) - - (119)
At 31 October 2022 149 1,382 23 308 1,862
Charge for the year 50 118 - 42 210
Disposals - - - - -
At 31 October 2023 199 1,500 23 350 2,072
--------------- ----------- ---------- ------------ --------
Net book value
At 31 October 2021 392 506 - 153 1,051
--------------- ----------- ---------- ------------ --------
At 31 October 2022 479 473 - 147 1,099
--------------- ----------- ---------- ------------ --------
At 31 October 2023 311 355 - 68 734
=============== =========== ========== ============ ========
14. Investment in subsidiaries
Group Group Company Company
----------- ----------- ----------- -----------
31 October 31 October 31 October 31 October
2023 2022 2023 2022
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 registration shares of shareholding of business
and voting
rights held
------------ ----------------- ----------------- --------- ----------------- ----------------
Directly
owned
Velocity Pentagon Malaysia Ordinary 100% Provider
Composites Suite, ES-04, of engineering
SDN. BHD Level 3, composite
Wisma Suria, services
Jalan Teknokrat for the
6, Cyber aerospace
5, 63000, sector non
Cyberjaya, trading
Selangor
Velocity Corporation United States Ordinary 100% Manufacturer
Composites Trust Center, of America of composite
Aerospace, 1209 N. material
Inc. Orange St, products
Wilmington, for the
Delaware aerospace
19801 sector
------------ ----------------- ----------------- --------- ----------------- ----------------
15. Inventories
Group Group Company Company
----------- ----------- ----------- -----------
31 October 31 October 31 October 31 October
2023 2022 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000
----------- ----------- ----------- -----------
Raw materials & consumables 1,830 1,114 1,023 1,114
Finished goods 913 293 470 293
----------- ----------- ----------- -----------
2,743 1,407 1,493 1,407
=========== =========== =========== ===========
Inventories totalling GBP2,743,000 (2022: GBP1,407,000) 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 increase of
inventories provision during the previous year amounted to
GBP53,000 Velocity Composites PLC and GBP113,000 for Velocity
Composites Aerospace Inc, in 2022 the release was GBP56,000 for
Velocity Composites PLC.
The inventory at 31 October 2023 is after a stock provision of
GBP374,000 (2022: GBP208,000). The provision reflects the aged
stock profile consistent with FY22, 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 2023 amounted to GBP11,687,000 (2022: GBP8,079,000), and
these were included in cost of sales.
16. Trade and other receivables
Group Group Company Company
----------- ----------- ----------- -----------
31 October 31 October 31 October 31 October
2023 2022 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000
----------- ----------- ----------- -----------
Trade receivables 3,187 2,227 2,489 2,227
Prepayments 385 283 291 281
Other receivables 95 11 43 11
Amounts due from subsidiary
undertakings - - 3,090 50
3,667 2,521 5,913 2,569
=========== =========== =========== ===========
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 an average of 71 days (2022: 68
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. No Trade receivables (Group and Company)
were overdue over three months at the year end (2022: GBPNil).
The overall expected credit loss is trivial (2022: 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
2023 2022
GBP'000 GBP'000
----------- -----------
Euro 75 165
US Dollar 2,685 1,742
2,760 1,907
=========== ===========
17. Cash and cash equivalents
Group Group Company Company
----------- ----------- ----------- -----------
31 October 31 October 31 October 31 October
2023 2022 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000
----------- ----------- ----------- -----------
Cash at bank 3,178 2,344 3,131 2,337
3,178 2,344 3,131 2,337
=========== =========== =========== ===========
18. Trade and other payables
Group Group Company Company
----------- ----------- ----------- -----------
31 October 31 October 31 October 31 October
2023 2022 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000
----------- ----------- ----------- -----------
Trade payables 3,786 1,134 1,322 1,134
Accruals and deferred income 534 457 334 457
Other taxes and social security 184 267 183 267
Other payables 15 174 14 174
Invoice discounting facility 68 175 68 175
4,587 2,207 1,921 2,207
=========== =========== =========== ===========
Book values approximate to fair values.
19. Bank loans
Group Group Company Company
----------- ----------- ----------- -----------
31 October 31 October 31 October 31 October
2023 2022 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000
----------- ----------- ----------- -----------
Not later than one year 503 503 503 503
One to two years 503 503 503 503
Two to five years 467 1,003 467 1,003
1,473 2,009 1,473 2,009
=========== =========== =========== ===========
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 5.25%
as at 31 October 2023. Therefore the rate payable at 22 January
2024 is 9.21%.
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.
20. 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 2021 1,641 561 110 2,312
Additions 1,013 - - 1,013
Disposals (221) - - (221)
----------- ----------- ---------- --------
Balance at 31 October 2022 2,433 561 110 3,104
Additions 232 - 100 332
Disposals - - (5) (5)
----------- ----------- ---------- --------
Balance at 31 October 2023 2,665 561 205 3,431
----------- ----------- ---------- --------
Depreciation
Balance at 31 October 2021 399 190 35 624
Depreciation charge for the
year 300 104 28 432
Disposals (221) - - (221)
----------- ----------- ---------- --------
Balance at 31 October 2022 478 294 63 835
Depreciation charge for the
year 363 81 28 472
Disposals - - (5) (5)
----------- ----------- ---------- --------
Balance at 31 October 2023 841 375 86 1,302
----------- ----------- ---------- --------
NBV
----------- ----------- ---------- --------
At 31 October 2021 1,242 371 75 1,688
----------- ----------- ---------- --------
At 31 October 2022 1,955 267 47 2,269
----------- ----------- ---------- --------
At 31 October 2023 1,824 186 119 2,129
=========== =========== ========== ========
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 2023.
Plant
Land & & Motor
Company buildings machinery vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000
----------- ----------- ---------- --------
Cost
Balance at 31 October 2021 1,641 561 110 2,312
Additions 556 - - 556
Disposals (221) - - (221)
----------- ----------- ---------- --------
Balance at 31 October 2022 1,976 561 110 2,647
Additions - - 100 100
Disposals - - (5) (5)
----------- ----------- ---------- --------
Balance at 31 October 2023 1,976 561 205 2,742
----------- ----------- ---------- --------
Depreciation
Balance at 31 October 2021 399 190 35 624
Depreciation charge for the
year 300 104 28 432
Disposals (221) - - (221)
----------- ----------- ---------- --------
Balance at 31 October 2022 478 294 63 835
Depreciation charge for the
year 282 81 28 391
Disposals - - (5) (5)
----------- ----------- ---------- --------
Balance at 31 October 2023 760 375 86 1,221
----------- ----------- ---------- --------
NBV
----------- ----------- ---------- --------
At 31 October 2021 1,242 371 75 1,688
----------- ----------- ---------- --------
At 31 October 2022 1,498 267 47 1,812
----------- ----------- ---------- --------
At 31 October 2023 1,216 186 119 1,521
=========== =========== ========== ========
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 2023.
Right-of-use lease liabilities
Group Company
GBP'000 GBP'000
-------- --------
At 31 October 2022 2,197 1,755
Repayment (506) (372)
Additions to right-of-use assets in exchange
for increased lease liabilities 332 105
Interest and other movements 51 52
-------- --------
At 31 October 2023 2,074 1,540
======== ========
Analysis by length of liability
Plant
Land & & Motor
Group buildings equipment vehicles Total
GBP'000 GBP,000 GBP'000 GBP'000
------------ ------------ ------------- --------
Current 420 42 25 487
Non-current 1,375 113 99 1,587
------------ ------------ ------------- --------
1,795 155 124 2,074
============ ============ ============= ========
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 277 42 25 344
Non-current 984 113 99 1,196
------------ ------------ ------------- --------
1,261 155 124 1,540
============ ============ ============= ========
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 2023
Not later than one year 585 98 487
Later than one year and not later
than two years 589 81 508
Later than two years and not later
than five years 1,209 130 1,079
---------- --------- --------
2,383 309 2,074
========== ========= ========
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
========== ========= ========
Reconciliation of minimum lease payments to present value
(continued)
Minimum
lease Present
Company payments Interest value
GBP'000 GBP'000 GBP'000
---------- --------- --------
31 October 2023
Not later than one year 424 80 344
Later than one year and not later
than two years 430 64 366
Later than two years and not later
than five years 927 97 830
---------- --------- --------
1,781 241 1,540
========== ========= ========
31 October 2022
Not later than one year 400 87 313
Later than one year and not later
than two years 400 72 328
Later than two years and not later
than five years 1,248 134 1,114
---------- --------- --------
2,048 293 1,755
========== ========= ========
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 is GBPNil (2022: GBPNil).
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.
21. 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:
Company 31 October 31 October
2023 2022
GBP'000 GBP'000
----------- -----------
Unrecognised deferred tax in respect of losses
brought forward (1,401) (840)
Corporation tax loss adjustments in respect
of prior year - (51)
Corporation tax losses arising during the year (229) (174)
Adjustment for movement in corporation tax
rate - (336)
----------- -----------
Unrecognised deferred tax in respect of losses
carried forward (1,630) (1,401)
=========== ===========
The Group has unused tax losses which were incurred by the
holding company. A deferred tax asset of GBP1,774,000 (2022:
GBP1,401,000) 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.
22. 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 2021 309 514 1,240 1,998 4,061
Cash flows
Repayment (457) (503) - - (960)
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) -
------------- ------------ -------------
At 31 October 2022 405 503 1,792 1,506 4,206
Cash flows
Repayment (506) (536) - - (1,042)
Non-cash
Other differences - - 332 - 332
Increase to lease
liabilities - - 51 - 51
Transfer from long-term
to short term borrowings 588 536 (588) (536) -
------------- ------------ -------------
As at 31 October
2023 487 503 1,587 970 3,547
============= ============ ============= ============ ========
22. Reconciliation of liabilities arising from financing activities (continued)
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 2021 309 514 1,240 1,998 4,061
Cash flows
Repayment (442) (503) - - (945)
Non-cash
Other differences - - 92 - 92
Increase to lease
liabilities - - 556 - 556
Transfer from long-term
to short term borrowings 446 492 (446) (492) -
------------- ------------ -------------
At 31 October 2022 313 503 1,442 1,506 3,764
Cash flows
Repayment (372) (536) - - (908)
Non-cash
Other differences - - 52 - 52
Increase to lease
liabilities - - 105 - 105
Transfer from long-term
to short term borrowings 403 536 (403) (536) -
------------- ------------ -------------
As at 31 October
2023 344 503 1,196 970 3,013
============= ============ ============= ============ ========
23. Share capital
31 October 31 October
2023 2022
GBP GBP
----------- -----------
Share capital issued and fully paid
53,393,368 (2022: 36,458,997) Ordinary shares
of GBP0.0025 each 133,483 91,147
=========== ===========
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 91,147 36,458,997
Exercising of share options 1,154 461,788
Allotted, issued and fully paid in the year 41,182 16,472,583
-------- -----------
Closing share capital at 31 October 2023 133,483 53,393,368
======== ===========
On 17 March 2023, the Company issued 305,856 new ordinary shares
of GBP0.0025 each to satisfy the exercise of options granted under
the Group's 2022 Share Option Scheme.
On 27 March 2023, the company issued a further 155,932 new
ordinary shares of GBP0.0025 each to satisfy the exercise of
options granted under the Group's 2022 Share Option Scheme.
During the year ended 31 October 2023, 16,472,583 new ordinary
shares were issued. The shares issued had a nominal value of
GBP0.0025 each and were issued at GBP0.40 each.
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 25.
24. Share premium
31 October 31 October
2023 2022
GBP'000 GBP'000
At the beginning of the year 9,727 9,727
Shares issued net of transaction costs 6,063 -
Reduction of Share Premium Account (10,920) -
At the end of the year 4,870 9,727
=========== ===========
25. 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 225,000 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. 125,000 of these
share options had lapsed due to people leaving the business.
Share options dated 29 October 2019 in the year have lapsed, the
options 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, 1,480,000 of these share options had lapsed due to people
leaving the business.
The 155,932 remaining 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.
The 479,999 shares options dated 26 January 2022 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 20,940 shares options dated 29 March 2022 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.
During the year ended 31 October 2023, further share options
were granted as follows:
807,200 shares options dated 28 March 2023. 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
2023:
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 25,000 - 25,000
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 - -
30 October 01 Nov 01 Nov
2020 0.2065 2021 2026 155,932 - 155,932
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 - - -
26 January 26 Jan 01 Nov
2022 0.0025 2023 2027 321,411 - 321,411
29 March 29 Mar 01 Nov
2022 0.0025 2023 2027 20,940 - 20,940
28 March 28 Mar 01 Nov
2023 0.0025 2023 2023 75,000 549,467 624,467
822,764 674,467 1,497,231
======== =========== ==========
The Group recognised a cost of GBP206,000 (2022: GBP170,000)
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 31 Oct
grant date 1 Nov 2022 Issued Expired Exercised Vested 2023
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 - (10) - (2) 10
29 October
2019 107 - (27) - (64) 16
30 October
2020 72 - - - (48) 24
01 April
2021 7 - (7) - - -
01 April
2021 14 - - - - 14
01 April
2021 14 - (6) - - 8
26 January
2022 94 - (14) - (33) 47
26 January
2022 31 - (7) - - 24
29 March
2022 4 - - - - 4
28 March
2023 - 276 - - - 276
684 276 (70) - (412) 478
============ ======== ======== ========== ======== ========
26. 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 GBPNil (2022: GBP37,270) to IN4.0 Talent Recruitment
Limited during the year and had GBPNil outstanding at the year end
(2022: GBPNil). The services related to a specialist software
engineer and were at arm's length market rates for such expertise,
with the fees being passed directly on to the consultant, less an
administration fee.
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 GBP2,009 (2022: GBP5,775) to Northwest Aerospace
Alliance during the year and had GBPNil outstanding at the year end
(2022: GBP1,000).
The following balances existed at year end with related parties
(payable)/receivable:
31 October 31 October
2023 2022
GBP'000 GBP'000
----------- -----------
Related parties - (1)
=========== ===========
27. 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.
28. Capital commitments
At 31 October 2023 the Group had GBPNil (2022: GBP582,000) of
capital commitments relating to the purchase of leasehold
improvements, plant and machinery and fixture and fittings.
29. Pension commitments
The Group makes contributions to defined contribution
stakeholder pension schemes. The contributions for the year of
GBP97,191 (2022: GBP84,488) were charged to the Consolidated Income
statement. Contributions outstanding as at 31 October 2023 were
GBP13,595 (2022: GBP14,107).
30. Contingent liabilities
As at 31 October 2023 the Group had in place bank guarantees of
GBPNil (2022: GBPNil) in respect of supplier trade accounts.
As at 31 October 2023, National Westminster Bank plc hold a
debenture that provides a fixed and floating charge on the assets
of the Company.
31. 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
2023 2022
Reconciliation from operating loss GBP'000 GBP'000
------------- -------------
Operating loss (2,817) (1,317)
Add back:
Share-based payments 206 170
Depreciation of property, plant and equipment 297 210
Amortisation 116 53
Depreciation of right-of-use assets under
IFRS 16 472 432
Exceptional Administration expenses 120 -
------------- -------------
Adjusted EBITDA (1,606) (452)
============= =============
[1] Earnings before interest, tax, depreciation, amortisation,
exceptional 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 KZGZMNZGGDZM
(END) Dow Jones Newswires
January 23, 2024 02:00 ET (07:00 GMT)
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