VEL Velocity Composites Plc

18 September 2024

VELOCITY COMPOSITES PLC

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

Trading Update

Velocity Composites plc (AIM: VEL), the leading supplier of composite material kits to aerospace, provides the following trading update for the year ending 31 October 2024 ("FY24").

Overall, market demand for civil and military aircraft programmes is growing, including the previously announced doubling of production rates in both the A350 and B787 programmes through to 2028. 

The industry continues to work to recover aircraft delivery production rates to pre-pandemic levels, however, short-term delays in both the US regarding the sale of kits to the end customer, and planned production increases in two OEMs in the UK, FY24 revenue is now expected to be not less than £22.8m (year ended 31 October 2023 ("FY23"): £16.4m) with a positive EBITDA, the first since the Covid-19 pandemic. Although this is lower than previous guidance, it represents revenue growth of approximately 40% on FY23.  In addition, recent adverse exchange rate movements have been absorbed in our outlook above.

US

Velocity has been completing the final programme of onboarding of work from its previously announced US customer, as per the detailed First Article Inspection ("FAI") process. This final programme relates to composite material kits ("Kits") used in the production of aero engines, of which Velocity's customer manufactures components to the OEM of the aero engine.

While Velocity is pleased to report that the FAI Kits have been successfully completed and approved with its customer and in line with the agreed timetable, it is still awaiting confirmation for the approval process between the customer and the OEM to enable the purchasing of Kits for customer manufacturing.

This unexpected delay is due to temporary resource constraints between both the customer and the OEM relating to the review and sign off of the approval documentation. Velocity therefore now expects revenue to be generated from these Kits by or before the second quarter of FY25.

Velocity remains rate ready to start Kit manufacture when notification of OEM's approval to the customer is received.  It is worth noting that Velocity has already obtained all relevant industry approvals and accreditations at its US site. This includes the NADCAP accreditation - the globally recognised National Aerospace and Defence Contractors' Accreditation Programme. This accreditation is an endorsement that Velocity's robust processes and high product integrity meet or exceed the highest standards in the aerospace industry. The accreditation for the Tallassee site in Alabama is a major milestone for the facility, gaining approval within the first 12 months of first producing Kits.

UK

As part of a replan with two customers, the timing for the planned production rate increases of the A350 have shifted. As a result, production growth for the A350 for the remainder of the calendar year will be lower than previously anticipated as the programme ramp up is delayed by the OEM. Velocity has agreed to reduce the supply of composite material Kits from its Burnley and Fareham facilities to below the previously agreed levels so that customers' kit deliveries and inventory position remain aligned with the OEM demand to the end of calendar 2024.

This action will protect Velocity's projected UK revenue for FY25 and maintain the Group's strong relationships with the customers on the A350 programme, in respect of current and prospective new business. Looking ahead, the UK demand signals for FY25 and beyond remain strong with growth levels on the A350 expected to increase to the previously planned levels.

Contract Renewal

Notwithstanding the short-term reduction in production rates for the calendar year, Velocity is pleased to announce that one of its major UK customers on the A350 programme has signed a contract renewal that extends the existing contract with effect from 1 September 2024 through until at least 28 February 2026. The renewed contract contains updated provisions for annual inflation reviews to complement the existing raw material price pass through provisions. The contract has been serviced from Velocity's Fareham production facility since 2016 and produces components for both A350 aircraft variants and A400M.

Supplier Agreements

Senior executives of the Company attended the recent 2024 Farnborough International Airshow where they completed the signing of significant long-term agreements with two leading suppliers of composite raw materials, Syensqo SA (www.syensqo.com) and Hexcel Corporation (www.hexcel.com). These agreements ensure key raw material supplies and ongoing strategic industry collaboration, enabling the Company to continue to meet its existing sales contracts and position the Group for future growth in the US and the UK.

Outlook

Despite the delay to sale of kits on one programme in the US, and the slowed growth to the A350 programme in the UK, sales growth is still forecast to increase by approximately 40% year on year to a minimum of £22.8m (FY23: £16.4m). The Group is expecting adjusted EBITDA to be positive in the second half of FY24 and is forecasting adjusted EBITDA to be not less than approximately £0.3m for FY24 (FY23: loss of £1.6m) and expects to have a healthy cash position and unused invoice discounting facilities to support future growth. Given the short-term nature of these delays, the Board expects revenues for FY25 to show substantial growth over FY24.

Jon Bridges, CEO, Velocity, commented: "Whilst we are disappointed that short-term delays in production ramps have affected both our US customer onboarding and UK A350 growth, we are confident that we will see a return to the previously projected A350 growth rates and complete the transfer of Kits by the second quarter of FY25.

We continue to develop a pipeline of opportunities both in the US and Europe that, upon conversion, will enable us to accelerate our growth. Our decision to flex production levels in 2024 is, in part, to demonstrate to our customers that we are a long-term strategic partner, that works collaboratively to meet the short-term challenges within the growing aerospace industry.

As we look ahead, we are delighted to secure an important customer renewal, and also new supplier agreements with two global leaders in the industry that are important for our future growth."

Market abuse regulations

This announcement contains inside information for the purposes of article 7 of the Market Abuse Regulation (EU) 596/2014 as amended by regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310. With the publication of this announcement, this information is now considered to be in the public domain.

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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 BAE Systems. Hamble Aerostructures, Safran Nacelles and GKN, who supply to the major OEMs including Airbus, Boeing, GE, Rolls Royce and Lockheed Martin.

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.