9 July 2024

VELOCITY COMPOSITES PLC

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

Unaudited Half Year Results for the six months ended 30 April 2024

On track to achieve profitability and be cash generative in H2 FY24

Velocity Composites plc (AIM: VEL), the leading supplier of composite material kits to aerospace, is pleased to announce the Company's unaudited results for the six months ended 30 April 2024.

Financial Highlights:

Operating Highlights:

Outlook:

Andy Beaden, Chairman, Velocity, said: "The successful onboarding process of our first US customer, and increasing global production rates in the aerospace industry mean that we are on track to be profitable and cash generative in the second half. The Board is confident that it will meet market expectations for the full year. The first US project is delivering the expected efficiency gains to the customer which acts as a show case for future large-scale projects.  The industry trends of increasing use of composites to meet net zero targets, and greater outsourcing as manufacturers look to reduce costs means Velocity is primed for a successful future. We have a large, qualified pipeline of potential contracts in the US and Europe of £200m, which makes us excited about the Company's long-term prospects."

Enquiries:

About Velocity Composites plc

Based in Burnley, UK, Velocity is the leading supplier of composite material kits to aerospace, 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 Statement

Overview

The first six months has been one of further operational and financial progress. Group guidance for FY24 remains unchanged, with H2 revenue growing through increasing production rates on the US Contract, where we have substantially completed the extensive onboarding and approval processes of new business at our new facility in Alabama.  H2 revenue has also benefited from price rises for existing contracts to recover the impact of cost inflation.

I am pleased to report that we are on track to be profitable and cash generative in the next six months underpinned by our contracted revenues for FY24 of £27m (FY23: £16.4m) growing to £33m in FY25.

Across the global aerospace industry, production rates continue to recover. Airbus has announced a doubling of A350 production rates through to 2027. The Company is continuing to work on securing additional contracts and has live bids in with customers in the US and in Europe.  Although progress has slowed in some cases in the US due to the well-publicised issues with Boeing, these issues have no impact on the Company's contracted revenues for FY24 or FY25. The industry's biggest challenge is to now increase production rates in civil and military aircraft, to meet longer term demand.  Back-logs on order books have grown and our services can support the need for sustainable and efficient production expansion at Tier 1 and OEM level. There is clear long-term demand for the productivity gains our services provide.

Velocity has a balanced pipeline of current and prospective contracts, civil and defence sectors, and is focusing on non-Boeing customer engagement in the short term in the US and winning additional business with existing European customers.

Financial Performance

Revenue during the period increased 53.9% to £10.7m (2023: £7.0m) as production rates have increased on the Company's initial major US contract. Price increases have been agreed with key customers and will provide greater benefit in the second half.

Gross Margin rose to 22.5% (2023: 21.8%). Investments in the new US facility in Alabama began to bear fruit. Margins will continue to improve in H2 with the benefit of inflationary price increases, to recover inflationary cost increases and the US volumes increasing further, which gives better recovery against fixed costs.

As planned, administrative expenses of £3.3m were 18% higher (£0.5m) than FY23 with all of the increase in cost relating to the higher US overheads and depreciation following the investment.

EBITDA loss was £0.2m (2023: loss of £0.9m), with the expectation that the Company will have positive EBITDA and Profit before tax in H2. The operating loss reduced, as the US production increased. In H1 there was still some impact of the lag in cost inflation versus price increases, we expect this to reverse in the remainder of the year.

The loss before tax reduced to £1.1m (2023: loss of £1.4m). This was reduced to £0.7m after recovery of the R&D tax credits.  We remain on track to achieve an operating profit in H2.

Cash at bank as at 30 April 2024 was £1.8m (30 April 2023: £1.2m), with net cash of £0.6m (H1 FY23: net debt of £1.7m). US working capital has been supported by supply chain finance lines provided by our lead US customer, helping to provide the additional working capital required until profit from the US contract can fund working capital in the long term. In H2 we start the transition which will continue on a phased basis into FY25 to take on the direct purchase of raw material from suppliers in the US. The Company continues to have access to its invoice discounting facility in the UK of up to £3m which was undrawn at the half year and also holds debt relating to Coronavirus Business Interruption Loans of £1.2m (2023: £1.8m), which are being repaid by instalments with final amounts due in 2026.

US Contract

Velocity signed a five-year contract with expected revenue of £79 million ($100 million) in December 2022 (the "Contract") with a leading US manufacturer ("The Customer"). The Company was selected to improve efficiency and support increased production rates, building on Velocity's long-standing relationship with the Customer, which it also services across existing UK sites.

To deliver the Contract, the Company developed its first advanced manufacturing facility outside of the United Kingdom, a 40,000 sq. ft facility in Alabama. Velocity invested £3 million to develop the facility which has capacity to deliver $40 million revenue per annum.

Since completing the construction of the facility in Alabama in 2023, Velocity has been on-boarding the new business for the Contract. This is a complex and lengthy process, including a detailed qualification procedure known as First Article Inspection ("FAI").  The total project is split into a number of individual aircraft programme blocks, to be delivered sequentially within a 12-month transfer plan. The project involves close co-operation between Velocity and the Customer to verify that the kit engineering data for each block had been transferred accurately, followed by the manufacture of the first kit for each component manufactured for evaluation by the Customer. Once transferred, Velocity becomes the sole approved supplier of the kits. Only once each block completes the FAI process is Velocity then able to build towards full volume production.

Following a key OEM approval in March 2024, Velocity expects the FAI process to be fully complete for all the programme blocks by the end of FY2024. To date, Velocity has completed FAIs which enable the Company to satisfy 91% of FY24 US revenue and 85%% of FY25 US revenue.

It is encouraging to see that our UK sites have seen production rates start to rise, particularly around the newer programmes such as A350. With Kevin Hickey re-joining Velocity as Chief Operating Officer ("COO") last year, he has reviewed the operations structure needed for the future growth of the Company and made structural changes to deliver this. Each site now has a standard management structure focused on the Site Operations Manager role, leading teams with clearer, real-time performance management of safety, quality, cost, delivery and people to ensure each customer programme is operating in line with targeted levels. This not only brings stability and efficiency to existing customer programmes but provides the sound basis for expected growth.

Investment in Growth & Customer Proposition

Velocity continues to maintain the required investment to support its growth and R&D activities. The Company has been able to self-fund this through the pandemic, which suppressed short-term demand in the aerospace manufacturing sector, with the UK civil aerospace sector particularly hard hit.

This includes further development of the Company's TCO (total cost of ownership) Business Case process, which allows Velocity business development staff to accurately map the current, internal costs of customers in-house processes. This includes detailed breakdown of the key areas - raw material, labour resources, packaging and logistics, overheads and supply chain finance costs, and for them to be compared to Velocity's proposal forming a very thorough and proven business case document for review by senior stakeholders.

In addition, work has been done to develop the Company's customer proposition through investment in R&D. A new "Digital Manufacturing Cell" that enables further standardisation and automation of production is expected to be deployed in the second half of the year. It is likely to improve future gross margin through material and labour efficiencies. The Digital Cell combines with our composite tailored material planning technology, Velocity Resource Planning, or VRP. These technology hardware and software systems enable the efficiencies in our services to existing customers, in labour, materials and inventory levels, and feed back into future TCO business cases for new customers. 

Board Changes

On 3 June 2024, we were delighted to welcome Robert (Rob) Smith to the Board as Group Chief Financial Officer (CFO) and Company Secretary.  Rob is a chartered management accountant with significant experience in leadership roles in a number of AIM quoted technology companies, where he has been instrumental in leading growth strategies and improving operational efficiencies.

Rob has a proven track record in advanced manufacturing at both CFO and CEO level, including manufacturing systems implementation and international commercial leadership. Most recently Rob served as Group CFO at Biome Technologies plc and prior to that, in the CFO and CEO roles at Filtronic plc between 2014 and 2020, an electronics designer and manufacturer of advanced filters, antennas and transceivers.  Rob was Finance Director of APC Technology Group, a specialist distributor and manufacturer of electronic components and semiconductor products with a focus on green technology industries between 2010 and 2014.

The Board would like to thank Andrew Hebb for his significant contribution as the Company's Interim Chief Financial Officer since August 2023. 

Outlook

Velocity is benefiting from the long-term trend of increasing use of lightweight composite materials within modern aircraft to meet environmental targets. This trend is contributing to forecasts for the use of lighter-weight aircraft to grow by ten times over the next two decades. At the same time, OEMs are focusing on outsourcing to reduce costs.  Velocity has first mover advantage on its turn-key package of services and is the only company to provide an end-to-end solution for manufacturers, offering them significant savings on material and time costs, as well as improving sustainability.

The Company has a healthy short-term pipeline of new business opportunities in Europe and North America. The Company has contracted revenues for FY24 of £27m (FY23: £16.4m) growing to £33m in FY25. The current UK and US manufacturing facilities are being better utilised to meet this increase in the order book. The new US facility could be doubled again in capacity, to meet further new business and contracted volumed growth, and the Company has the capacity to deliver up to circa £70m with only minimal additional investment. We have a highly qualified pipeline of new business of c.£200m. The Board have set a five-year target of achieving a contracted revenue of £100m and 10% EBITDA margin.

We are looking forward to the future with confidence.

Andy Beaden

Non-Executive Chairman

9 July 2024