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 26 July 2023

VELOCITY COMPOSITES PLC

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

Trading Update 

Velocity Composites plc (AIM: VEL), the leading supplier of composite material kits to aerospace and other high-performance manufacturers, provides the following trading update.

As previously announced, Velocity is progressing the first article inspection ("FAI") process and production ramp up of the US$100 million, five-year Work Package Agreement ("the Agreement") announced in December 2022. The development of the Company's Advanced Manufacturing Facility in Alabama, US (the "Site") continues with further manufacturing cells being installed, and additional workers being recruited and trained.

The first two launch programmes for the Customer at the Site, which account for 49% of expected revenues for the year ending 31 October 2024 ("FY2024"), have successfully completed the FAI process. The first programme is at volume production and the second, the largest, is expected to be up to the full rate of production by August 2023, once the Customer has signed off on the final FAI kits as they are built into finished parts.

Further to the announcement dated 18 April 2023, an updated FAI timeline for the remaining programmes has now been agreed with the Customer, with the FAI process for the third group of programmes (12% of FY24 revenue) expected to commence in September 2023, the fourth group (26% of FY24 revenue) in October 2023, and the fifth group (8% of FY24 revenue) in March 2024.

The FAI process is extremely complicated and has required extensive time and work on both sides. The Customer and Velocity are in discussions for the five-year term of the Agreement announced in December 2022, with the term initially expected to commence in March 2023, to now start on 1 January 2024, when all the critical kits have been outsourced. All other contractual terms, including the full-term revenue under the Agreement of US$100m, are expected to remain unchanged, at the underlying base of US$20m per annum based on current programme production rates. Using current exchange rates of GBP1:US$1.30, this is worth approximately £15.4m of revenue to Velocity for each year of the Agreement.

As a result of the updated FAI timeline, revenue that was expected to be realised in the ramp up stage of production in the US for the year ending 31 October 2023 ("FY2023") has been reduced to £2.2m from £5.0m. However, any FY2023 revenue achieved under the Agreement is in addition to the US$20m per annum for the five-year period of the Agreement and therefore has no commercial impact on the value of that contract long term. Once the programme transfer from the Customer to Velocity is completed, revenues under the Agreement will be more predictable, as they will follow the platform run rates required by the Customer.

For FY2023, with the adjustment to FAI process sales estimates and changes in exchange rates, the Group is now expecting to report revenue of between £15m to £17m, and an EBITDA loss of between £1.2m to £1.6m (subject to finalising the capitalisation of certain costs in the US).

In FY2024, once the contract extension is in place, the Agreement term is expected to commence at volume rates in January 2024, with a renewal due by the end of calendar year 2028, though the contract can be subject to further annual extensions. As a result, FY2024 revenue is expected to be between £30m and £36m, and EBITDA profit of between £1.7m to £2.5m, including additional investment to fund further growth opportunities as they emerge.

The Board is pleased to announce that it is in advanced discussions with a large, global Tier 1 composites manufacturer with multiple sites in the US on another agreement. Further announcements will be made, as appropriate.

In the UK, demand is growing. In FY2023, growth of at least 15% is expected compared to FY2022. In FY2024, Velocity is planning for extra work from a UK manufacturer seeking to expand its capacity to meet growing demand. With expected UK growth and the start of the full rate production under the Agreement in the US, the Company can deliver profitability in FY2024.

To accommodate the planned growth in the US and the UK, the Company is pleased to announce the appointment of Kevin Hickey as Group Chief Operating Officer (a non-Board position). Kevin previously worked at the Company 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.   

Andy Beaden, Chairman, Velocity, said: 

"Velocity is focused on successfully completing the FAI with the Customer, enabling it to achieve operational success in its projects. Collaboration with the Customer has been close knit, working together on what is one of the largest composite kit supply FAI processes ever conducted in the industry.

The last year has been one of transition and investment. The investments we have made will be repaid many times through the new contracted business we have already won and the new business we can now target.  In the next financial year, we will see a transformational upturn in annual revenue at Velocity. We have built a significant asset in the US in terms of production capability and engineering resource, which with organic growth in the UK, will make the Company profitable.

We will continue to invest in skills and technical engineering abilities to drive business development and project implementation. The appointment of Kevin Hickey as COO will help the team in our next exciting growth phase. We remain confident that more contracts can be won as the use of composites grows as part of the next generation of aircraft, and as other industries look to use composites to deliver their net zero goals. We expect our investment in people and technology to be fully rewarded in the coming years as we expand at scale."

Enquiries: 

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.