TIDMVEL
RNS Number : 4205A
Velocity Composites PLC
24 May 2023
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24 May 2023
VELOCITY COMPOSITES PLC
("Velocity or the "Company")
Trading Update & Notice of Results
Trading in line with expectations as US facility begins
manufacturing kits
Velocity Composites plc (AIM: VEL), the leading supplier of
composite material kits to aerospace and other high-performance
manufacturers, provides the following trading update for the six
months ended 30 April 2023 ("H1 FY23"). The Company expects to
publish its H1 FY23 results on 11 July 2023.
The Board is pleased to confirm that trading has been in line
with expectations for the six months ended 30 April 2023. Sales are
expected to be GBP7.0 million, up 15% compared to H1 FY22. Demand
is steadily returning to pre-pandemic levels, building on the
momentum reported in recent results as the global aerospace
industry recovers and OEM forecast production rates grow. The UK
sales growth was stronger than initially expected, accelerating in
the latter few months of the period.
Growth will increasingly come from Velocity's new advanced
manufacturing facility in Tallassee, Alabama, which is now complete
with AS9100 quality approvals granted (the "US Facility"). In April
2023, the US Facility manufactured the first production kits at the
site to support the five-year Work Package Agreement announced in
December 2022 with GKN Aerospace (the "Customer"). The agreement
with the Customer is expected to be worth in excess of US$100
million in revenue over five years, with the Customer confirming
strong end-user demand for its parts into 2024.
Significant operational progress has been made in the US to
qualify the new programmes being onboarded in the GKN Aerospace
contract, although sales only started at the end of H1 FY23 with
GBP0.1m of revenue recognised in the period. This was due to the
rigorous nature of the First Article Inspection process. The
ramp-up of US sales remains on track to achieve the Company's FY23
objectives, with all the new programmes expected to be at the
contracted production levels by year-end.
There has been significant investment in developing the US
Facility, and approximately GBP0.4m of short-term overheads,
including travel, operational management, and engineering support
have been incurred. As a result, reported EBITDA is expected to be
a loss of GBP0.9m for H1 FY23 (H1 FY22: GBP0.2m loss), These costs
should be recovered in H2 FY23 as the US Facility increases
production towards the contracted full rates.
The challenging macroeconomic conditions in H1 FY23 has put
pressure on margins. However, by the latter part of the reporting
period, price increases had been successfully agreed with key
customers, and this will provide a larger benefit for the next half
year. With much of the Company's revenue secured through
pass-through mechanisms on any raw material price increases,
inflation risk impacts added value areas only, hence the need for
the additional price increases. Furthermore, Velocity's new Digital
Manufacturing Cell increased automation and helped secure the
longer-term global margin objectives.
The Group's cash position, as at 30 April 2023, was GBP1.2m and
its net debt was GBP1.8m. The GKN Aerospace contract's working
capital is supported by supply chain finance lines provided by the
Customer, helping to provide a self-funding mechanism until the
profit from the contract can then fund the work under the contract
in the long-term.
Outlook
As well as delivering the GKN Aerospace contract, there has been
a focus on using the US Facility to target the US composite
materials market, which is significantly larger than the market in
Europe. The US Facility has been constructed so it can double again
in capacity.
Outside the US, there also remain significant opportunities for
European growth through current UK customers and increased usage of
our established European manufacturing capability.
The Company has already contracted UK and US business which,
when in full production (at current OEM run rates), will
significantly increase revenue from current levels. The commercial
value of contracted business is currently estimated to be worth
between GBP30m to GBP36m per annum at OEM planned production rates.
On some programmes, these rates are still below pre-pandemic
production levels and include a growing amount from military
programmes, with additional growth forecasted as NATO countries
increase investment in their defence capabilities. The current UK
and US manufacturing facilities are being expanded to meet this
rapid increase in order book and with the new US facility setup,
can be doubled again in capacity, to meet further new business and
contracted volumed growth, of up to GBP70m. The US facility build
also demonstrates the Company's proven ability to then add further
facilities in other locations, if or when required in the future.
Independent market analysis shows the potential size for Velocity's
services in Europe and US is significantly larger than current
contracted business and facility capacities.
The Company has a healthy short-term pipeline of new business
opportunities in Europe and North America. Longer-term, carbon
fibre composite material usage is expected to grow significantly in
civil aircraft and other transportation modes. The benefits of its
relative lightweight will play an important role in reducing the
use of fossil fuels through greater fuel efficiency in conventional
jet engine technology. Wider adoption of composite material
technologies will also continue, with lightweighting and composite
strength being critical to all electrification, hydrogen fuel
developments and urban vertical mobility transportation. Velocity's
strategy is to be a key advanced manufacturing solutions provider
to these important growth markets and already has some business in
the development stages of these new initiatives.
As a result, there are high levels of global interest in
Velocity's services and development of its own Velocity Resource
Planning ("VRP") digitalised supply chain services, which form an
important part of our IP. Velocity engineering staff, along with
our VRP solution, help eliminate most material production wastage,
speed up customer production cycles and increase inventory turns,
and enable better production planning and ordering of expensive
materials, which have long lead times from material
manufacturers.
Andy Beaden, Chairman, Velocity, said : "The recent start of
manufacturing at our new facility in Alabama was a major milestone
and demonstrated the significant progress we have made over the
last 12 months. We have trebled the value of commercial business
under contract compared to this time last year. The global
aerospace industry continues to recover, and alongside our new US
base, we anticipate significant revenue growth in the coming years,
particularly in North America.
"Furthermore, the global focus on Net Zero brings the need for
more and more industries to make greater use of composite material
technologies. This creates more opportunities for the business and
we are excited about the Company's long-term prospects."
Enquiries:
Velocity
Andy Beaden, Chairman
Jon Bridges, Chief Executive Officer
Adam Holden, Chief Financial Officer +44 (0) 1282 577577
Cenkos (Nominated Adviser and Broker)
Katy Birkin
Ben Jeynes
George Lawson +44 (0)20 7397 8900
SEC Newgate (Financial PR) +44 (0)7540 106 366
Robin Tozer velocitycomposites@secnewgate.co.uk
George Esmond
Harry Handyside
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