TIDMVEL
RNS Number : 3034Z
Velocity Composites PLC
24 January 2022
24 January 2022
VELOCITY COMPOSITES PLC
("Velocity or the "Company")
FINAL RESULTS FOR YEARED 31 OCTOBER 2021
"Foundations laid for recovery and future growth"
Velocity Composites plc (AIM: VEL), the leading supplier of
composite material kits to aerospace and other high-performance
manufacturers, has today announced the Company's audited results
for the twelve months to 31 October 2021
Financial Highlights:
-- Revenue of GBP9.8m (2020: GBP13.6m) reflecting suppressed
civil aircraft OEM volume productions because of Covid
-- Gross margin improved 8.9% to 26.0% (2020: 17.1%) due to
proactive management of previously written down stock, and
investment in Velocity's nesting technology
-- Operating loss reduced to GBP1.4m (2020: loss of GBP3.1m)
-- Full-year adjusted(1) EBITDA loss reduced to GBP0.5m (2020:
loss of GBP1.9m) in-line with expectations. Difficult decision to
reduce workforce enabled break-even at an adjusted EBITDA level in
H2 2021
-- Gross cash balances of GBP3.5m and GBP0.7m of net cash as at 31 October 2021
(1) Earnings before Interest, Tax, Depreciation, Amortisation,
Impairment, adjusted for exceptional administrative costs and 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.
Operational Highlights:
-- All major customers renewed and extended long-term contracts
-- Focus on cost management and the integration of new
proprietary digital technology to aid the delivery of future
growth
-- Enhancement of nesting and traceability production system to
permit larger, multi raw material batch nests containing more kits
to improve material efficiency. This system provides benefits for
existing business, and future managed services
-- Developed production into a "digital cell" based structure
where the entire kit manufacturing software and hardware is
contained within identical modules. These can be deployed
internally at Velocity or remotely at a customer site
Andy Beaden, Chairman of Velocity, said: "In the global storm of
the pandemic, our innovative technology and engineering skills have
shone through. Over the last twelve months, the team has worked
tirelessly with all our major customers to renew and extend our
valuable long-term contracts, building deeper technical
relationships with new and existing clients. This has laid the
foundations for both our recovery and future growth.
"We believe it will take time for civil aircraft build rates to
recover fully, potentially three to four years before we return to,
or exceed, the long-term growth trends. However, new aircraft as
they are built (including those designed to be electrically
powered) will be more composite intensive. Velocity's growth will
come from new business and the recovery in our current contracted
business volumes. That recovery will start in 2022 and we expect it
to accelerate into 2023.
"The shift to electric power means the need to make lighter
vehicles and to maximise range is expected to increase the demand
for composites in other sectors. We are already in discussions with
a variety of new potential customers outside of aerospace, creating
long-term opportunities for the Company.
"Having been able to maintain investment in the Company's
technology and engineering capabilities in the last year, the Board
feel confident in Velocity's ability to capture future growth
opportunities, as we monitor the implications of the pandemic."
Enquiries:
Velocity
Andy Beaden, Chairman
Jon Bridges, Chief Executive Officer
Chris Williams, Finance Director +44 (0) 1282 577577
Cenkos (Nominated Adviser and Broker)
Ben Jeynes
Katy Birkin +44 (0)20 7397 8900
SEC Newgate (Financial PR) +44 (0)7540 106 366
Robin Tozer / Richard Bicknell velocitycomposites@secnewgate.co.uk
Investor Presentation
Velocity will provide a live investor presentation for the
Company's results for the twelve months to 31 October 2021 via the
Investor Meet Company (IMC) platform today at 10.00am.
The online presentation is open to all existing and potential
shareholders. Investors can sign up to Investor Meet Company for
free and add Velocity Composites plc via
http://www.investormeetcompany.com/velocity-composites-plc/register-investor
Chairman's Report
Overview
In the global storm of the pandemic, our innovative technology
and engineering skills have shone through and our competitive edge
remains solid. As a digitally enabled business, we have invested
throughout this period to develop what we believe are the most
advanced integrated solutions for front end composite material
preparation for manufacturing in the world.
Over the last twelve months, the team has worked tirelessly with
all our major customers to renew and extend our valuable long-term
contracts, building deeper technical relationships with new and
existing clients. This has laid the foundations for both our
recovery and future growth.
Financial Performance
While we have a positive view of the future because of the
team's hard work over the last twelve months, the challenging
environment has meant tough decisions had to be taken to protect
the Company's financial position.
Revenue for the year was GBP9.8m (2020: GBP13.6m), reflecting
the nadir of suppressed civil aircraft OEM volume productions.
Sadly, this meant we had to take the difficult decision to reduce
our workforce from approximately 122 to 75, enabling us to
break-even at an adjusted EBITDA level from the second half of
FY21. As a result, the full year adjusted EBITDA is in-line with
our expectations announced at H1 FY21, at GBP0.5m loss. This
represents an operating loss of GBP1.4m reflecting the very
difficult start to the year.
We have benefited from our supply chain management team's
ability to reduce our inventory levels, protecting our cash
position and that of our customers. This has not been easy given
the limited life of most materials we use due to expiration dates
of the material. We are grateful to our suppliers and customers for
their collaboration. Inventory levels reduced by GBP1.0m in the
financial year. As at 31 October 2021, the Company had gross cash
balances of GBP3.5m and GBP1.0m of net cash.
Improved customer proposition
Although sales volumes were lower during the period, we have
continued to invest in and develop our customer proposition. The
pandemic and the pressures it has placed on the end industries the
Company serves has reinforced the ability of the Company to add
value to our customers. Our technology and services have served us
well in navigating recent global supply chain issues. They offer
real benefits to our customers and their respective industries,
reducing material wastage to minimal levels, which reduces costs
and makes composite technology more commercially viable, as well as
having a major environmental benefit. Our systems reduce labour
time and provide greater efficiency and faster outputs, hence our
name Velocity Composites.
Over the last twelve months, we have integrated our services
into one key package, called Velocity Resource Planning ("VRP").
VRP can be provided via a traditional fully outsourced model of
manufacturing kits for the customer, onsite, or as a managed
serviced model adopted by the customer. We can tailor each solution
to the customers manufacturing facility needs. Through this
innovation, Velocity is better positioned to expand into new
markets and territories and maximise the return on capital for both
Velocity and the customer.
By adopting VRP, customers and suppliers can quickly transform a
relatively inefficient element of the front-end material management
process into a digitally enhanced modern process. Smart technology
reduces waste and provides the right data to manage the supply
chain effectively. This technology is transferable into other
sectors, especially as advanced material-based industries, like
automotive OEMs, are looking to find smarter ways to manufacture,
reduce waste, and digitise their production processes.
Market Recovery and Sustainability
As the effects of the pandemic have become clear, the core
aerospace industry has stabilised and pressures to retire older
environmentally unfriendly aircraft remain. The industry's recovery
will be marked by the ever-increasing use of lightweight carbon
fibre materials. This trend means the opportunities for Velocity
Composites are better than ever.
We believe it will take time for civil aircraft build rates to
recover fully, potentially three to four years, before we return
to, or exceed, the long-term growth trends. However, new aircraft
as they are built, (including those designed to be electrically
powered) will be more composite intensive. Velocity's growth will
come from new business and the recovery in our current contracted
business volumes. That recovery will start in 2022 and we expect it
to accelerate into 2023.
Furthermore, it is clear that governments and businesses
worldwide are becoming ever more focused on sustainability. The
recent COP26 conference has put in place different strategies and
targets to help limit the impact of climate change. The need to
improve fuel efficiency is one aspect that opens the door for even
greater use of composites as manufacturers look to reduce the
weight of various machines. Also, the shift to electric power means
the need to make lighter vehicles and to maximise range, is
expected to further increase the demand for composites in other
sectors. We are already in discussions with a variety of new
potential customers outside of aerospace, creating long-term
opportunities for the Company.
Board
On behalf of the Board, I would like to thank Dr Margaret Amos
for being our Audit Chair over the last twelve months and we wish
her well in her new endeavours. To replace Margaret in the coming
year, we will be seeking a new Non-Executive Director who has the
financial and governance experience to support the Company.
Outlook
We enter 2022 in positive spirits. Having been able to maintain
investment in the Company's technology and engineering capabilities
in the last year, the Board feel confident in Velocity's ability to
capture future growth opportunities, as we monitor the implications
of the pandemic.
I would like to thank all our staff from the shop floor to board
for their tireless work in the last twelve months, along with our
shareholders, customers, and suppliers for their support. Everyone
at Velocity Composites is focused on the exciting opportunities
ahead.
Andy Beaden
Chairman
23 January 2022
Outlook
Historically, the civil aerospace industry has been resilient to
global shocks and has seen the air travel market double every 10
years or so, with even the previous largest shock (the travel
reductions caused by the tragic events of 9/11) leading to a two
year flattening of growth before the upwards curve resumed.
With the impacts of COVID-19 however, the outcomes were more
severe in that air travel reduced by 90% almost overnight in early
2020 and only recovered to some 50% of pre-pandemic levels by the
end of 2021. With the high levels of airline and industry
uncertainty seen in early 2020, both Airbus and Boeing took the
action of reducing aircraft production levels to what, in effect
are the minimum levels to keep the complex and global supply chains
sustained. This in turn meant that the customers of Velocity had to
restructure their operations and staff levels and for Velocity,
that demand for our products and services reduced accordingly, by
over 50%, through 2020 and 2021.
Looking ahead, the data shows how both Boeing and Airbus see the
production rate recovery corridor and also the longer-term demand
for aircraft driven by some key industry dynamics, mainly the push
for the sustainability of airlines who have retired their older
aircraft and less efficient four engine fleet. As the recovery
takes hold, airlines will look to replace capacity with newer, more
efficient aircraft, each containing a high percentage of composites
in their structure than the previous generation to meet the global
sustainability agenda. As new technology looks to accelerate this,
the uses of alternative power sources (sustainable fuel, hydrogen
and electrification) requires a high performance, lightweight
structure for which composites are a critical part.
As Velocity's customers also look to replace lost capacity in
order to meet the increasing production rates, we are confident
that our technology-focused approach to long term, sustainable
composite raw material supply allows the wider industry to build
back better and be more efficient in delivering, both a financial
and environmental advantage to composites structures in transport.
Both Airbus and Boeing produce regular and detailed market forecast
documents which are available to download from their websites and
key data is sourced from;
www.boeing.com/commercial/market/commercial-market-outlook
and
www.airbus.com/en/products-services/commercial-aircraft/market/global-market-forecast
CEO Report
Overview
Looking back on another unprecedented year for our industry, it
is in many ways difficult to believe that in late 2021 and early
2022, we are still dealing with impacts of the global pandemic,
including travel restrictions and reduced aircraft production
rates. Thankfully, vaccines, new treatments and testing have begun
to show a way out of the situation.
However, despite civil aircraft production rates projected to
increase starting in 2022, market indications are that recovery to
pre-pandemic levels will take two to four years dependent on
whether the platform is twin-aisle or single-aisle. The pandemic
has accelerated industry acknowledgement of the utilisation of our
existing technology to drive internal efficiency and cost
improvement and the need for further process and technology
development to prepare the business for recovery and beyond. As a
result, we secured multi-year contractual renewals with all our
major customers and have a strong platform for stable growth as
recovery begins.
The impact of the pandemic is not just lower aircraft production
rates but also delays caused by customers reorganising staff and
operations as they adapt to lower volumes. While this might impede
new business discussions with aircraft manufacturers in the short
term, we expect to see a positive approach in the future as they
adapt to the new environment.
The Recovery
For this reason, we expect our recovery to include growth from
rising production rates and new business opportunities. These
opportunities will come as customers use Velocity's services to
restore capacity without growing their fixed costs. This is
particularly applicable around parts of their businesses they no
longer consider core, such as composite material management and
kitting.
Therefore, we have continued to invest in our digital technology
and customer service model as we improve the efficiency and detail
of our customer proposals. We now offer customers greater
flexibility in terms of how our services can be deployed to support
their global manufacturing programmes.
This, combined with our retained presence in the UK, North
America and Asia throughout the pandemic, offers us the flexibility
to offer two key customer service models. First, full outsourcing
of the process to a Velocity facility; or second, a Velocity
managed service with kit manufacture taking place on the customer's
site. Both models utilise our digital technology and hardware to
manage the end-to-end process, including demand management, raw
material procurement and management, material nesting, production
planning, kit manufacture, quality control and product
traceability. We see no detriment to the customer selecting either
option. As we enter the recovery in FY22 we will pilot the managed
service model with existing customers where new projects fall
outside the area of an existing Velocity facility. We will provide
an update at the half-year.
Operational Progress
The financial year has been focused on cost management to
support the adjusted EBITDA breakeven position in H2 FY21 and the
integration of new proprietary digital technology to aid the
delivery of future growth. Key highlights have been the
enhancements to our nesting and traceability production system to
permit larger, multi raw material batch nests containing more kits
to improve material efficiency. The system now incorporates an
optical inspection system to confirm individual piece level kit and
material batch traceability. This system provides benefits for
existing business, and future managed services.
To deliver this we have developed our production into a "digital
cell" based structure where the entire kit manufacturing software
and hardware is contained within identical modules. These can be
deployed internally at Velocity, or remotely at a customer site.
All this work has been developed at our Advanced Technology
Development Centre, at our site in Burnley, UK.
These digital manufacturing cells can be replicated in a
standardised format and brings a level of automation and central
control that allows customer employees to operate. The cells enable
remote deployment as our services are increasingly located further
afield at customer sites. The hardware and software are fully
integrated with our VRP system allowing real-time process
management, part level efficiency and traceability and real-time
analysis of planned versus actual performance to deliver continuous
improvement.
Employees
Despite the disruption and challenges faced by the team over the
period, I am pleased to report that staff turnover has remained
low. After necessary headcount reductions were made in response to
the pandemic and the anticipated ending of government support, our
focus was on training and provide developments to our core teams.
This enables us to deliver our customers' existing requirements,
provide improvements to our cost targets and maintain sufficient
capability to prepare for future recovery and growth.
Part of this focus was our participation in the ADS SC21
Competitiveness and Growth scheme. We utilised matched funding to
deliver over 2400 hours of external training focused on policy
deployment, leadership development and meeting a nationally
recognised training standard. We are proud of developing our
internal talent, giving our staff more career development while
maintaining skills within the business.
Outlook
Looking ahead, I can see that the developments in our digital
technology, service model, staff training, coupled with detailed
cost control and margin improvement activities, have prepared the
business well. Not only for the production rate recovery but also
the expected market opportunity as the wider customer base recovers
and returns to growth. As you can see from the 2021 market data
from Airbus and Boeing, there are over 40,000 aircraft deliveries
are expected in the next 20 years while the industry adapts and
develops to meet net zero targets, such as in the IATA "waypoint
2050" sustainability strategy.
Key to this is the adoption of new fuels, propulsion sources and
aerodynamic developments to allow aircraft to travel further and
more efficient. The need for stronger, lighter and more blended
airframes utilising the advantages of composite materials will be
critical. I look forward to updating all stakeholders on what we
believe will be a transformational year for our industry and
Velocity Composites PLC.
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 2021, they acted in good faith and have
upheld their 'duty to promote the success of the Group' to the
benefit of its Stakeholder Groups.
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 and is
crucial for achieving the long-term success of the Group. The main
mechanisms for wider stakeholder engagement and feedback can be
found in the corporate governance section in the 2021 annual
report.
Jonathan Bridges
Chief Executive Officer
23 January 2022
Financial Review
Statement of Comprehensive Income
Revenue for FY21 has seen the first full 12 months of COVID-19
impacted demand. Although we have been operational throughout the
period, with the occasional customer shutdown and the latest demand
from contracted programmes, we finished the period with sales 28%
lower year-on-year at GBP9.8m (FY20: GBP13.6m).
Whilst H2 FY21 has shown a reassuring stabilisation of
underlying sales, the market outlook is one of static aircraft
production rates until end FY22, early FY23. In addition, the
business continues to seek out new contracts to deliver some of the
identified pipeline opportunities and has seen increased activity
around these in recent months. The Company has made strong progress
in improving gross margin throughout the year, increasing by 8.9
ppts from 17.1% in FY20 to 26.0% in FY21. Although this was partly
driven by benefits related to proactive management of previously
written down stock, focused investment in Velocity's nesting
technology has supported an underlying margin improvement of 6.7
ppts to 23.8% in the period.
As reported last year, the full year effects of the Company's
right-sizing efforts have mostly been realised in FY21, with
administrative expenses including exceptional costs decreasing
GBP1.6m from GBP5.5m to GBP3.9m. There were no exceptional costs in
FY21. The lower overhead base, combined with a strong pipeline of
potential sales and Velocity's maintained technology and
engineering capabilities, will enable Velocity to positively
leverage its high operational gearing as growth is expected to
resume in FY22 and FY23.
The government continued to support the Company over the period
with income from furlough of GBP0.2m (FY20: GBP0.4m) and a
non-repayable Coronavirus support grant of GBP0.1m. Alongside the
existing GBP2.0m Coronavirus Business Interruption Loan ("CBIL"),
an additional asset-backed loan and further CBIL was obtained in
June 2021 through Close Brothers totalling GBP0.9m.
The successful reduction in overheads combined with gross margin
growth has driven the delivery of the previously stated goal of
achieving adjusted EBITDA breakeven in H2 FY21 adjusted EBITDA
(FY20: GBP(1.6)m), albeit supported by one-off benefits related to
COVID-19 support and utilisation of previously written down
inventory materials. On a consistent basis with last year, adjusted
EBITDA has improved year-on-year by GBP1.4m to a GBP(0.5)m adjusted
EBITDA loss for the year (FY20: GBP(1.9)m loss) excluding
share-based payments and exceptional administrative costs of GBPnil
in FY21 (FY20: GBP0.3m). Over the coming FY22 and FY23 periods, the
Company will continue to carefully balance cost reductions with
investment for growth to enable a full recovery and a sustainably
profitable position.
The Company continues to benefit from being 70% naturally hedged
from both US Dollar and Euro foreign exchange movements, with both
revenues and direct material purchases being aligned contractually
into the same currency where applicable.
Adjusted EBITDA(1) 31 October 31 October
2021 2020
Reconciliation from Operating Loss GBP'000 GBP'000
--------------------------- ---------------------------
Operating Loss (1,364) (3,149)
Add back:
Share-based payments 90 120
Depreciation & Amortisation* 305 341
Impairment of Intangible assets - 72
Depreciation on Right of Use assets under
IFRS
16* 421 350
Exceptional Administrative costs - 341
Adjusted EBITDA(1) (548) (1,925)
=========================== ===========================
Adjusted EBITDA(1) defined as earnings before finance charges,
tax, amortisation, depreciation, impairment, share based payments,
exceptional restructuring costs. Share-based payments are included
highlight the movement year on year. Share based payments are added
back to make the share based payment charge clear to
stakeholders.
* a prior year adjustment has been made between property, plant
and equipment and right-of-use asset please see note 30 for
details.
Cashflow and Capital Investment
The year end cash and cash equivalents increased by GBP0.2m to
GBP3.5m (FY20: GBP3.3m). Cash generated/(utilised) from operations
of GBP0.3m (FY20: GBP(0.8)m) in the year was driven by GBP0.9m cash
generated from working capital movements, as the business focused
on inventory reduction throughout the period, partly offset by the
GBP(0.5)m adjusted EBITDA trading loss.
Cash used in Investing Activities of GBP(0.1)m (FY20: GBP(0.8)m)
primarily related to the Purchase of Non-current assets. Financing
activities generated GBP(0.1)m over the period (FY20: GBP1.5m) as
the net proceeds of the additional CBILS and asset finance facility
with Close Brothers (GBP0.9m) was offset by the first few
repayments of the existing GBP2.0m, 5-year CBIL with NatWest,
starting July 2021. The Close Brothers borrowings of GBP0.9m is
made up of a GBP0.45m CBIL loan and a GBP0.45m loan to settle
remaining lease liabilities, of this GBP0.18m was received as cash
once the finance liability on the financed assets had been settled.
The Invoice Discounting facility was not being utilised at 31
October 2021.
The cash balance at 31 October 2021 of GBP3.5m includes GBP2.3m
CBIL proceeds and GBP0.7m of remaining EIS funds to be utilised in
international growth and establishing production facilities
abroad.
Despite the loss in the year, the business remains in a net cash
position at year end, with GBP1.0m net cash (FY20: GBP1.3m). This
includes Cash at bank, EIS cash balances and CBIL proceeds offset
by the outstanding CBIL balance and hire purchase liabilities.
Year ended Year ended
31 October 31 October
2021 2020
GBP'000 GBP'000
----------------------------------------------------- -------------------------- ----------------------
Cash 3,476 3,268
Cash Loans (excluding right to use
assets):
CBIL Loan (2,516) (2,000)
Invoice discounting facility 2 2
Net Cash/(Debt) (Note 1) 962 1,270
========================== ======================
Note 1: The net cash/(debt) calculation is designed to explain
the level of financial debt, net of cash at bank.
Working capital
Ongoing Inventory management efforts successfully decreased
Inventory to GBP0.9m (FY20: GBP1.9m) at year end, generating
GBP1.0m cash during the period and bringing the Company's Inventory
levels in-line with current levels of demand.
Trade and other receivables decreased during the year by GBP0.3m
to GBP2.2m as a result of the increased credit terms and continuing
robust controls around debt collection. Receivable days have
increased to 76 days (FY20: 44 days) due to revised credit period
terms with two major customers as part of renewal negotiations in
H1 FY21.
Trade and other payables also reduced during the year by GBP0.4m
to GBP1.1m (FY20: GBP1.5m) as utilisation of existing stock and
reduction in demand drove fewer material purchases.
Going concern
Management continues to undertake a significant level of cash
flow forecasting, in-line with prior year and best practice over
the pandemic period. This is now an ongoing process within the
Company through Integrated Business Planning (IBP) which regularly
stress-tests the forecasting assumptions against the continuously
evolving circumstances, such as the latest COVID variant or
government outlook. It was this work that also supported the
application for additional CBILS support and its associated
asset-financing with Close Brothers. Detailed financial projections
for the following 24 month rolling period to 31 October 2023 were
prepared and a number of sensitivities were run to stress test the
forecasts and understand the cash flow impact of various scenarios.
Even in the most severe down-side scenario modelled the business
had sufficient liquidity to continue trading as a going concern
Our forecasts indicate 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, the latest annual
review in December reflected the banks' support for Velocity's
growth strategy and extended the commitment of both parties to a
minimum 3 months' notice and as such we expect this facility will
remain available throughout the going concern period. Should
alternative financing be required the Group would preserve cash
through slowing investment in growth until longer-term funding
could be implemented, such as asset-based financing against new
capex or equity funding.
The cash flow forecasts are reviewed monthly through
Management's IBP process and the forecasting assumptions are
updated for any new knowledge to ensure there is no change in the
Company's liquidity outlook. This is linked in with the
Management's monthly risk review and should the outlook change
significantly with no mitigating actions the Company'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.
The aerospace sector lends itself to this kind of long-term
planning due to the nature and length of customer programmes,
typically a minimum of 3 years, but often 5 years or more. This has
enabled the business to fully model the period to 31 October 2023
and undertake more strategic, longer-term planning for growth and
full recovery emerging from the pandemic.
Although work is still needed to improve underlying performance,
recent H2 FY21 results has shown that adjusted EBITDA breakeven is
achievable for Velocity. Future recovery will be made possible
through a combination of existing contracts recovering to
pre-COVID-19 run rates over the 3-to-5-year period, as well as new
contracts being won from the significant pipeline of opportunities
and targeted investment being made to support this. Cost
improvement programmes and efficiency drives also continue on an
ongoing basis through the Budgeting process. Should the current
strategy prove ineffective or insufficient to recover the
performance of the business, Management have contingency plans
ready to implement should this become clear.
Alongside the forecasting and governance process, the Company
has demonstrated robust cash flow management over the FY21 period
through successfully reducing Inventory levels by GBP1m and
navigating through right-sizing efforts to deliver a GBP1.6m
reduction in administrative overheads.
Having due regard for these recent deliverables and latest
projections, with available cash at 31 October 2021 of GBP3.5m, an
undrawn invoice discount facility where we can borrow up to GBP3m
dependent on debtor levels, access to an invoice discounting
facility with one of our major customers, and continued confidence
from our banks and shareholders in our strategy, it is the opinion
of the Board that the Group has adequate resources to continue to
trade as a going concern.
Chris Williams
Chief Financial Officer
23 January 2022
Consolidated statement of total comprehensive income
Year ended Year ended
31 October 31 October
2021 2020
Note GBP'000 GBP'000
------------------------------ -----------------------------
Revenue 4 9,767 13,561
Cost of sales (7,228) (11,237)
------------------------------ -----------------------------
Gross profit 2,539 2,324
Administrative
expenses excluding
exceptional
costs (3,903) (5,132)
Exceptional
administrative
expenses 7 - (341)
Operating loss 5 (1,364) (3,149)
---------------------------------- ------------------- ------------------------------ -----------------------------
Operating loss
analysed as:
Adjusted EBITDA 29 (548) (1,925)
Depreciation of
Property, plant
and equipment* (229) (224)
Amortisation (76) (117)
Impairment of
Intangible assets - (72)
Depreciation of
Right to Use
assets under
IFRS 16 (421) (350)
Share based
payments (90) (120)
Exceptional
administrative
expenses - (341)
Finance income and
expense 8 (182) (98)
------------------------------ -----------------------------
Loss before tax
from continuing
operations (1,546) (3,247)
Income tax income 9 340 117
Loss for the period
and total
comprehensive
loss (1,206) (3,130)
============================== =============================
Loss per share - 10 (GBP0.03) (GBP0.08)
Basic (GBP) from
continuing
operations
============================== =============================
Loss per share - 10 (GBP0.03) (GBP0.08)
Diluted (GBP) from
continuing
operations
============================== =============================
The notes below form part of these financial statements.
There were no discontinued operations in the current or prior
period.
There is no other comprehensive income.
* a prior year adjustment has been made between property, plant
and equipment and right-of-use asset please see note 30 for
details.
Consolidated and Company statement of financial position
Group Group Company Company
---------------------- ---------------------- ---------------------- ----------------------
31 31 31 31
October October October October
2021 2020 2021 2020
Note GBP'000 GBP'000 GBP'000 GBP'000
Non-current
assets
Intangible
assets 11 91 167 91 167
Property,
plant and
equipment* 12 1,051 1,216 1,051 1,216
Right-of-use
assets* 19 1,688 1,634 1,688 1,634
---------------------- ---------------------- ---------------------- ----------------------
Total
non-current
assets 2,830 3,017 2,830 3,017
Current
assets
Inventories 14 877 1,908 877 1,908
Trade and
other
receivables 15 2,162 2,464 2,195 2,490
Corporation
tax 341 - 341 -
Cash and cash
equivalents 16 3,476 3,268 3,470 3,265
---------------------- ---------------------- ---------------------- ----------------------
Total current
assets 6,856 7,640 6,883 7,663
---------------------- ---------------------- ----------------------
Total assets 9,686 10,657 9,713 10,680
----------------------
Current
liabilities
Loans 17 514 500 514 500
Trade and
other
payables 17 1,058 1,504 1,058 1,499
Obligations
under lease
liabilities 19 309 411 309 411
---------------------- ---------------------- ---------------------- ----------------------
Total current
liabilities 1,881 2,415 1,881 2,410
----------------------
Non-current
liabilities
Loans 17 1,998 1,500 1,998 1,500
Obligations
under lease
liabilities 19 1,240 1,060 1,240 1,060
Total
non-current
liabilities 3,238 2,560 3,238 2,560
---------------------- ---------------------- ----------------------
Total
liabilities 5,119 4,975 5,119 4,970
Net assets 4,567 5,682 4,594 5,710
Equity
attributable
to equity
holders of
the company
Share capital 22 91 91 91 91
Share premium
account 22 9,727 9,727 9,727 9,727
Share-based
payments
reserve 539 490 539 490
Retained
earnings (5,790) (4,626) (5,763) (4,598)
----------------------
Total equity 4,567 5,682 4,564 5,710
====================== ====================== ====================== ======================
* a prior year adjustment has been made between property, plant
and equipment and right-of-use asset please see note 30 for
details.
The notes below form part of these financial statements.
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 (GBP1,206,000). The financial statements were
approved and authorised for issue by the Board of Directors on 23
January 2022 and were signed on its behalf by;
Chris Williams
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 2019 90 9,727 (1,663) 537 8,691
Loss for the
year - - (3,130) - (3,130)
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
90 9,727 (4,793) 537 5,561
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
Transactions
with
shareholders:
Share-based
payments - - - 120 120
Transfer of
share option
reserve on
vesting of
options
and issue of
equity 1 - 167 (167) 1
As at 31
October 2020 91 9,727 (4,626) 490 5,682
====================== ====================== ======================= ========================== ======================
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 2020 91 9,727 (4,626) 490 5,682
Loss for the
year - - (1,205) - (1,205)
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
91 9,727 (5,831) 490 4,477
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
Transactions
with
shareholders:
Share-based
payments - - - 90 90
Transfer of
share option
reserve on
vesting of
options
and issue of
equity - - 41 (41) -
As at 31
October 2021 91 9,727 (5,790) 539 4,567
====================== ====================== ======================= ========================== ======================
The notes below form part of these financial statements.
Consolidated and Company statement of changes in equity
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 2019 90 9,727 (1,642) 537 8,691
Loss for the
year - - (3,123) - (3,123)
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
90 9,727 (4,765) 537 5,589
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
Transactions
with
shareholders:
Share-based
payments - - - 120 120
Transfer of
share option
reserve on
vesting of
options
and issue of
equity 1 - 167 (167) 1
As at 31
October 2020 91 9,727 (4,598) 490 5,710
====================== ====================== ======================= ========================== ======================
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 2020 91 9,727 (4,598) 490 5,710
Loss for the
year - - (1,206) - (1,206)
91 9,727 (5,804) 490 4,504
---------------------- ---------------------- ----------------------- -------------------------- ----------------------
Transactions
with
shareholders:
Share-based
payments - - - 90 90
Transfer of
share option
reserve on
vesting of
options
and issue of
equity - - 41 (41) -
As at 31
October 2021 91 9,727 (5,763) 539 4,594
====================== ====================== ======================= ========================== ======================
The notes below form part of these financial statements.
Consolidated and Company Statement of cash flows
Group Group Company Company
---------------------- --------------------------- ---------------------- ----------------------
Year Year ended Year Year
ended 31 October ended ended
31 31 31
October October October
2021 2020 2021 2020
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- --------------------------- ---------------------- ----------------------
Operating activities
Loss for the year (1,206) (3,130) (1,206) (3,123)
Taxation (341) (117) (341) (117)
Profit on sale of
assets (13) - (13) -
Finance costs 182 98 181 98
Amortisation of
intangible assets 76 118 76 118
Impairment of
Intangible assets - 72 - 72
Depreciation of
property, plant
and equipment* 229 223 229 223
Depreciation of right
to use assets* 421 350 421 350
Share-based payments 90 120 90 120
Operating cash flows
before movements
in working capital (562) (2,266) (562) (2,259)
Decrease in trade and
other receivables 302 1,685 294 1,688
Decrease in
inventories 1,031 1,269 1,031 1,269
Decrease in trade and
other payables (446) (1,526) (441) (1,531)
---------------------- ----------------------
Cash generated from
operations 325 (838) 322 (833)
Net cash
Inflow/(Outflow) from
operating activities 325 (838) 322 (833)
Investing activities
Purchase of property,
plant and
equipment* (64) (782) (64) (782)
Development
expenditure
capitalised - (39) - (39)
Proceeds from the sale
of property,
plant and equipment 13 3 13 3
Net cash used in
investing activities (51) (818) (51) (818)
Financing activities
Loan received 634 2,000 634 2,000
Finance costs paid (181) (98) (181) (98)
Loan repayment (119) - (119) -
Repayment of lease
liabilities
capital (400) (402) (400) (404)
Net cash generated
from financing
activities (66) 1,500 (66) 1,500
---------------------- --------------------------- ---------------------- ----------------------
Net
Increase/(Decrease)
in cash
and cash equivalents 208 (156) 205 (151)
Cash and cash
equivalents at 01
November 3,268 3,424 3,265 3,416
---------------------- --------------------------- ---------------------- ----------------------
Cash and cash
equivalents at 31
October 3,476 3,268 3,470 3,265
====================== =========================== ====================== ======================
* a prior year adjustment has been made between property, plant
and equipment and right-of-use asset please see note 30 for
details.
Notes to the 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 figures shown for the year ended 31 October 2021 are based
on the Group's statutory accounts for that period and do not
constitute the Group's statutory accounts for that period as
defined in section 434 of the Companies Act 2006. The statutory
accounts were prepared under International Financial Reporting
Standards in conformity with the Companies Act 2006 the accounting
policies have been applied as described in the Annual Report. The
audit report on the accounts for the year ended 31 October 2021 was
not qualified, did not include a reference to any matters to which
the Auditor drew attention by way of emphasis without qualifying
the report, and did not contain statements under section 498 (2) or
(3) of the Companies Act 2006.
The financial statements have been prepared in compliance with
the measurement and recognition criteria of International
Accounting Standards in conformity with the requirements of the
Companies Act 2006.
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 periods
presented, unless otherwise stated. The financial statements are
presented in sterling and have been rounded to the nearest thousand
(GBP'000).
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 made up
to 31 October 2021. 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 International Accounting 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 periods presented in the
consolidated financial statements.
Going concern
Management continues to undertake a significant level of cash
flow forecasting, in-line with prior year and best practice over
the pandemic period. This is now an ongoing process within the
Company through Integrated Business Planning (IBP) which regularly
stress-tests the forecasting assumptions against the continuously
evolving circumstances, such as the latest COVID variant or
government outlook. It was this work that also supported the
application for additional CBILS support and its associated
asset-financing with Close Brothers. Detailed financial projections
for the following 24 month rolling period to 31 October 2023 were
prepared and a number of sensitivities were run to stress test the
forecasts and understand the cash flow impact of various scenarios.
Even in the most severe down-side scenario modelled the business
had sufficient liquidity to continue trading as a going concern
Our forecasts indicate 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, the latest annual
review in December reflected the banks' support for Velocity's
growth strategy and extended the commitment of both parties to a
minimum 3 months' notice and as such we expect this facility will
remain available throughout the going concern period. Should
alternative financing be required the Group would preserve cash
through slowing investment in growth until longer-term funding
could be implemented, such as asset-based financing against new
capex or equity funding.
The cash flow forecasts are reviewed monthly through
Management's IBP process and the forecasting assumptions are
updated for any new knowledge to ensure there is no change in the
Company's liquidity outlook. This is linked in with the
Management's monthly risk review and should the outlook change
significantly with no mitigating actions the Company'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.
The aerospace sector lends itself to this kind of long-term
planning due to the nature and length of customer programmes,
typically a minimum of 3 years, but often 5 years or more. This has
enabled the business to fully model the period to 31 October 2023
and undertake more strategic, longer-term planning for growth and
full recovery emerging from the pandemic.
Although work is still needed to improve underlying performance,
recent H2 FY21 results has shown that adjusted EBITDA breakeven is
achievable for Velocity. Future recovery will be made possible
through a combination of existing contracts recovering to
pre-COVID-19 run rates over the 3-to-5-year period, as well as new
contracts being won from the significant pipeline of opportunities
and targeted investment being made to support this. Cost
improvement programmes and efficiency drives also continue on an
ongoing basis through the Budgeting process. Should the current
strategy prove ineffective or insufficient to recover the
performance of the business, Management have contingency plans
ready to implement should this become clear.
Alongside the forecasting and governance process, the Company
has demonstrated robust cash flow management over the FY21 period
through successfully reducing Inventory levels by GBP1m and
navigating through right-sizing efforts to deliver a GBP1.6m
reduction in administrative overheads.
Having due regard for these recent deliverables and latest
projections, with available cash at 31 October 2021 of GBP3.5m, an
undrawn invoice discount facility where we can borrow up to GBP3m
dependent on debtor levels, access to an invoice discounting
facility with one of our major customers, and continued confidence
from our banks and shareholders in our strategy, it is the opinion
of the Board that the Group has adequate resources to continue to
trade as a going concern.
There are no other IFRSs or IFRIC interpretations that are not
yet fully effective that could be expected to have a material
impact on the Group.
Revenue Recognition
Revenue is recognised as performance obligations are satisfied
as control of the goods and services is 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 generate 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 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.
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. Goods or services supplied in a foreign
currency are recognised at the exchange rate ruling at the time of
accounting for this expenditure.
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.
Research and development expenditure
Research expenditure - Expenditure on research activities is
recognised as an expense in the period 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
Exceptional items
Items which are both material and non-recurring are presented as
exceptional items within the relevant income statement category.
The separate reporting of exceptional items helps provide a better
indication of the Group's underlying business performance.
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 Velocity Composites plc's functional and
presentation currency.
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 balance sheet presented are
translated at the closing rate at the date of that balance
sheet
-- 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 period. 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, however it was not utilised in the year.
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.
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 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 remove the
asset at the end of the lease, 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.
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 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. Note, a government grant exists on the
group's CBIL loans given they may be below a market interest rate -
the impact of this has not been quantified on the grounds of
materiality as there would be an equal and opposite finance charge,
both recognised within the same financial statement line item.
Current taxation
The tax currently payable is based on the taxable profit of the
period. 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
periods 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
periods 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.
- the initial recognition of an asset or liability in a
transaction which is not a business combination and at the time of
the transaction affects neither accounting nor taxable profit.
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.
Critical accounting estimates
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 buckets
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 an finance impact of an increase in stock provision of
GBP17k.
3. Financial instruments & 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 Company Group Company
Year Year Year Year
Financial ended ended ended ended
instruments 31 31 31 31
by category October October October October
2021 2021 2020 2020
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Current
assets
Trade and
other
receivables 1,902 1,902 2,205 2,205
Trade and
other
receivables
-
prepayments 260 293 259 285
---------------------- ---------------------- ---------------------- ----------------------
2,162 2,195 2,464 2,490
Cash and cash
equivalents
- loans
and
receivables 3,476 3,470 3,268 3,265
---------------------- ---------------------- ---------------------- ----------------------
Total loans
and
receivables 5,638 5,665 5,732 5,755
====================== ====================== ====================== ======================
Current
liabilities
Trade and
other
payables 921 921 919 919
Trade and
other
payables -
accruals 137 137 585 580
---------------------- ---------------------- ---------------------- ----------------------
1,058 1,058 1,504 1,499
Loans 514 514 919 919
Obligations
under lease
liabilities 309 309 585 585
---------------------- ---------------------- ---------------------- ----------------------
Total
Current
liabilities 1,881 1,881 3,008 3,003
====================== ====================== ====================== ======================
For non-current liabilities please see note 17.
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, Euros and Ringgits. The Group
has commercial agreements in place which allow it to transact with
its customers in the currency of the material purchase, thereby
allowing currency risk to pass through the Group.
The carrying value of the Group's foreign currency denominated
assets and liabilities comprise the trade receivables in Note 15,
cash in Note 16 and trade payables in Note 17.
Whilst the majority of the Group's financial assets are held in
Sterling, movements in the exchange rate of the US Dollar, Euro or
Ringgit against Sterling do have an impact on both the result for
the year and equity. he Group's assets and liabilities that are
held in US Dollar, Euro or Ringgits are held in those currencies
for normal trading activity in order to recover funds from
customers or to pay funds to suppliers.
The Groups exposure to foreign currency risk is as follows. This
is based on the carrying amount of monetary financial
instruments.
As at 31 October 2021
US Dollar Euro Total
GBP'000 GBP'000 GBP'000
Trade debtors 1,651 194 1,845
Cash and cash equivalents 993 1,035 2,028
Trade payables (408) (35) (443)
---------------------- ---------------------- ----------------------
Balance sheet exposure 2,236 1,194 3,430
====================== ====================== ======================
As at 31 October 2020
US Dollar Euro Total
GBP'000 GBP'000 GBP'000
Trade debtors 1,484 244 1,728
Cash and cash equivalents 483 159 641
Trade payables (253) 14 (239)
---------------------- ---------------------- ----------------------
Balance sheet exposure 1,714 417 2,130
====================== ====================== ======================
Sensitivity analysis
A 5% strengthening of the following currencies against the pound
sterling at the balance sheet date would have decreased profit of
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
2021 2020
GBP'000 GBP'000
US dollar (112) (86)
Euro (60) (21)
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 period would have had the equal but opposite effect to the
amounts shown above, on the basis that all other variables remain
constant.
Interest rate risk
The Group carries borrowings from leases and CBIL loans.
Therefore, with the exception of the invoice discounting facility
which attracts an interest rate of 2.25%, the Directors consider
that there is no significant interest rate risk.
b) 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.
c) Liquidity risk
The Group currently holds cash balances in Sterling, US Dollars,
Euros and Ringgits 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.
2020 Within One to Two to Over
1 year two five five
years years years
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Loan 500 1,500 - -
Lease
liability
for right
of use
assets 480 317 899 -
Trade 487 - - -
payables
Accruals 585 - - -
Other 15 - - -
payables
Invoice - - - -
discounting
facility
2021 Within One to Two to Over
1 year two five five
years years years
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Loan 541 536 1,462 -
Lease
liability
for right
of use
assets 378 292 1,181 -
Trade 639 - - -
payables
Accruals 137 - - -
Other 14 - - -
payables
Invoice - - - -
discounting
facility
The lease liability is shown exclusive of interest payments.
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
2021 2020
GBP'000 GBP'000
-------------------------- --------------------------
Revenue
United Kingdom 9,702 12,337
Europe 26 1,224
Rest of the World 39 -
9,767 13,561
========================== ==========================
During the year four customers accounted for 95.0% of the
Group's total revenue for the year ended 31 October 2021. This was
split as follows; Customer A - 44.7% (2020: 43.6%), Customer B -
28.5% (2020:
27.2%), Customer C - 13.4% (2020: 12.9%) and Customer D - 8.51%
(2020: 10.3%), please note customer D differs from the previous
year customer D.
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 2021 and year ended 31 October 2020 as the site operates as
an Engineering Support Office for the Group. The US subsidiary is
currently dormant, and no revenue has been generated since the US
subsidiary was incorporated.
5. Loss from operations
The operating loss is stated after charging / (crediting):
Year ended Year ended
31 October 31 October
2021 2020
GBP'000 GBP'000
-------------------------- --------------------------
Staff costs (see Note 6) 2,854 4,336
Cost of inventories 6,335 9,745
Foreign exchange loss/(gain) 156 (39)
Amortisation of development costs 76 118
Impairment of development costs - 72
Depreciation:
Property, plant and equipment* 229 223
Right-of-use assets* 421 349
(Profit) on disposal of assets (13) -
Auditor's remuneration:
Audit of the accounts of the Group 62 60
Other audit related services (relating to
interim review) 12 19
Taxation compliance services 8 5
Other taxation advisory services 13 11
-------------------------- --------------------------
* a prior year adjustment has been made between property, plant
and equipment and right-of-use asset please see note 30 for
details.
6. Group and Company Staff costs
Year ended Year ended
31 October 31 October
2021 2020
GBP'000 GBP'000
-------------------------- --------------------------
Wages, salaries and bonuses 2,435 3,747
Social security costs 240 346
Pension costs 89 123
Share-based payments 90 120
-------------------------- --------------------------
2,854 4,336
========================== ==========================
During the year the company took advantage of the government
furlough scheme, in the year to 31 October 2021 GBP152k (2020:
GBP445k) was claimed in relation to this scheme, this benefit is
not included in the above totals.
Staff costs net of furlough claims amounted to GBP2.7m during
the financial year.
The average monthly number of employees during the period was as
follows:
Year ended Year ended
31 October 31 October
2021 2020
Head count Head count
-------------------------- --------------------------
Manufacturing 45 76
Administration 30 46
75 122
========================== ==========================
Directors' costs
Year ended Year ended
31 October 31 October
2021 2020
GBP'000 GBP'000
Directors' remuneration included in staff
costs:
Wages, salaries and bonuses 333 297
Compensation for retirement from office - -
Pension costs 21 18
354 315
========================== ==========================
Remuneration of the highest paid director(s):
Wages, salaries and bonuses or fees 120 142
Pension 11 15
-------------------------- --------------------------
131 157
========================== ==========================
None of the share options exercised in the year related to
directors.
7. Exceptional administrative expenses
Year ended Year ended
31 October 31 October
2021 2020
GBP'000 GBP'000
--------------------------- --------------------------
Restructuring costs - 341
--------------------------- --------------------------
- 341
--------------------------------------------------------------- --------------------------
The exceptional items reported in 2020 GBP0.3m consist of cost
of restructuring and redundancy costs in the year due to COVID
-19.
8. Finance income and expenses
Year ended Year ended
31 October 31 October
2021 2020
GBP'000 GBP'000
-------------------------- --------------------------
Finance expense
Finance charge from lease liabilities 112 63
Other interest & invoice discounting charges 70 42
Finance Income - (7)
-------------------------- --------------------------
182 98
========================== ==========================
9. Income tax
Year ended Year ended
31 October 31 October
2021 2020
GBP'000 GBP'000
-------------------------- --------------------------
Current tax (income)/expense
UK corporation tax: in respect of prior
years (340) (117)
(340) (117)
-------------------------- --------------------------
Total tax (income)/expense (340) (117)
========================== ==========================
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 profit for the year as follows:
Tax rate 19.00% 19.00%
(Loss) for the year before tax (1,546) (3,131)
Expected tax credit based on corporation
tax rate (294) (595)
Expenses not deductible for tax purposes (12) 595
Adjustment in respect of prior years - R&D
credits (340) (51)
Tax losses not recognised 306 -
Total tax (income)/expense (340) (117)
====================== ======================
In the Spring Budget 2021, the Government announced that from 1
April 2023 the corporation tax rate will
increase to 25%. This rate was substantively enacted as at the
31 October 2021 Balance Sheet date. This has had no material impact
on the financial statements . The UK corporation tax rate for the
year ended 31 October 2021 is calculated at 19% (2020: 19%).
10. Loss per share
Year ended Year ended
31 October 31 October
2021 2020
GBP GBP
-------------------------- --------------------------
Loss for the year (1,206,000) (3,130,000)
Shares Shares
-------------------------- --------------------------
Weighted average number of shares in issue 36,270,917 35,995,289
Weighted average number of share options 1,856,366 2,143,440
-------------------------- --------------------------
Weighted average number of shares (diluted) 38,127,283 38,138,729
Loss per share (GBP) (basic) (GBP0.03) (GBP0.08)
========================== ==========================
Loss per share (GBP) (diluted) (GBP0.03) (GBP0.08)
========================== ==========================
Share options have not been included in the diluted calculation
as they would be anti-dilutive with a loss being recognised.
11. Intangible assets
Group and Company Development Group
Costs Total
GBP'000 GBP'000
-------------------------- ----------------------
Cost
At 31 October 2019 599 599
Additions 39 39
Disposal - -
-------------------------- ----------------------
At 31 October 2020 638 638
Additions - -
Disposal - -
-------------------------- ----------------------
At 31 October 2021 638 638
-------------------------- ----------------------
Amortisation
At 31 October 2019 282 282
Charge for the year 118 118
Impairment 72 72
Disposal - -
At 31 October 2020 472 472
Charge for the year 76 76
At 31 October 2021 548 548
-------------------------- ----------------------
Net book value
At 31 October 2019 317 317
-------------------------- ----------------------
At 31 October 2020 167 167
-------------------------- ----------------------
At 31 October 2021 90 90
========================== ======================
Impairment
The Group reviews the Development costs at each reporting period
for indicators of impairment. An indication of impairment can be
generated from the loss of a customer, or contracted sales. The
Board have provided an impairment of GBPNil (2020 - GBP72,000)
relating to development costs capitalised but where no future
economic benefits are currently expected to be generated for the
Group.
12. Property, plant and equipment
Group and
Company Leasehold Plant & Motor Fixtures Group
&
Improvements machinery vehicles Fittings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ------------------------ ----------------------- ----------------------- ----------------------
Cost
At 31 October
2019 198 1,920 141 349 2,608
Additions 372 569 - 51 992
Disposal (3) - - - (3)
At 31 October
2020 567 2,489 141 400 3,597
Prior period
adjustment (76) (645) (70) - (791)
--------------------------- ------------------------ ----------------------- ----------------------- ----------------------
Balance at 31
October
2020
(revised) 491 1,844 71 400 2,806
Additions - 47 - 17 64
Disposal - - (48) - (48)
At 31 October
2021 491 1,891 23 417 2,822
--------------------------- ------------------------ ----------------------- ----------------------- ----------------------
Depreciation
At 31 October
2019 46 1,233 92 176 1,547
Charge for
the year 33 233 17 45 328
Disposal - - - - -
--------------------------- ------------------------ ----------------------- ----------------------- ----------------------
At 31 October
2020 79 1,466 109 221 1,875
Prior period
adjustment (30) (217) (38) - (285)
--------------------------- ------------------------ ----------------------- ----------------------- ----------------------
Balance at 31
October
2020
(revised) 49 1,249 71 221 1,590
Charge for
the year 50 136 - 43 229
Disposal - - (48) - (48)
At 31 October
2021 99 1,385 23 264 1,771
--------------------------- ------------------------ ----------------------- ----------------------- ----------------------
Net book
value
At 31 October
2019 97 390 - 173 660
--------------------------- ------------------------ ----------------------- ----------------------- ----------------------
At 31 October
2020 488 1,023 32 179 1,722
--------------------------- ------------------------ ----------------------- ----------------------- ----------------------
Prior period
adjustment (46) (428) (32) - (506)
--------------------------- ------------------------ ----------------------- ----------------------- ----------------------
At 31 October
2020
(revised) 442 595 - 179 1,216
--------------------------- ------------------------ ----------------------- ----------------------- ----------------------
At 31 October
2021 392 506 - 153 1,051
=========================== ======================== ======================= ======================= ======================
* a prior year adjustment has been made between property, plant
and equipment and right-of-use asset please see note 30 for
details.
13. Investment in subsidiaries
Group Group Company Company
31 31 31 31
October October October October
2021 2020 2021 2020
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 Proportion Nature of
company office of of of business
registration shares shareholding
and voting
rights held
------------------------- -------------------------- --------------------------- ----------------------- --------------------------- ---------------------------
Directly
owned
Velocity Pentagon Malaysia Ordinary 100% Manufacturer
Composites Suite, of composite
SDN. BHD ES-04, material
Level products
3, Wisma for the
Suria, aerospace
Jalan sector
Teknokrat
6, Cyber 5,
63000,
Cyberjaya,
Selangor
Velocity Corporation United Ordinary 100% Manufacturer
Composites Trust States of composite
Aerospace, Center, of America material
Inc. 1209 N. products
Orange for the
St, aerospace
Wilmington, sector
Delaware
19801
------------------------- -------------------------- --------------------------- ----------------------- --------------------------- ---------------------------
14. Inventories
Group Group Company Company
31 31 31 31
October October October October
2021 2020 2021 2020
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Raw
materials &
consumables 541 1,558 541 1,558
Finished
goods 336 350 336 350
---------------------- ---------------------- ---------------------- ----------------------
877 1,908 877 1,908
====================== ====================== ====================== ======================
Inventories totalling GBP877k (2020: GBP1,908k) 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 release of inventories
provision during the year amounted to GBP593k, in 2020 the release
was not material.
The inventory at 31 October 2021 is after a stock provision of
GBP264k (2020: GBP857k). The provision reflects the aged stock
profile consistent with FY20, 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 2021 amounted to GBP6,335k (2020: GBP9,745k), and these
were included in cost of sales.
15. Trade and other receivables
Group Group Company Company
---------------------- ---------------------- ---------------------- ----------------------
31 31 31 31
October October October October
2021 2020 2021 2020
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Trade
receivables 1,883 1,954 1,883 1,954
Prepayments 260 259 259 257
Other
receivables 19 251 19 250
Amounts due
from
subsidiary
undertakings - - 34 29
2,162 2,464 2,195 2,490
====================== ====================== ====================== ======================
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 76 days (2020: 45 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.
Trade receivables overdue by:
31 October 31 October
2021 2020
GBP'000 GBP'000
------------------------- -------------------------
Not more than 3 months 13 249
More than 3 months but not more than 6 months - 7
More than 6 months but not more than 1 year - 5
More than 1 year - -
13 261
========================= =========================
The overall expected credit loss is trivial, (2020: trivial).
There is no movement in allowance of impairment of trade
receivables during each year.
Trade receivables held in currencies other than sterling are as
follows:
31 October 31 October
2021 2020
GBP'000 GBP'000
------------------------- -------------------------
Euro 194 226
US Dollar 1,651 1395
1,845 1,621
========================= =========================
16. Cash and cash equivalents
Group Group Company Company
---------------------- ---------------------- ---------------------- ------------------------
31 31 31 31
October October October October
2021 2020 2021 2020
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ------------------------
Cash
at
bank 3,476 3,268 3,470 3,265
3,476 3,268 3,470 3,265
====================== ====================== ====================== ========================
17. Trade and other payables
Group Group Company Company
---------------------- ---------------------- ---------------------- ----------------------
31 31 31 31
October October October October
2021 2020 2021 2020
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Current
Trade
payables 639 487 639 486
Accruals 137 585 137 583
Other tax
and
social
security 268 417 268 417
Other
payables 14 15 14 13
1,058 1,504 1,058 1,499
====================== ====================== ====================== ======================
Book values approximate to fair values.
Bank Loan in the period
Group Group Company Company
---------------------- ---------------------- ---------------------- ----------------------
31 31 31 31
October October October October
2021 2020 2021 2020
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Not
later
than
one
year 514 500 514 500
One to
two
years 536 1,500 536 1,500
Two to
five
years 1,462 - 1,462 -
2,512 2,000 2,512 2,000
====================== ====================== ====================== ======================
During the year the company took out a further Coronavirus
Business Interruption Loan for GBP0.45m secured against owned
non-current assets. This is to be paid over 5 years with the first
payments due July 2021, the last payment date is June 2026. The
loan is at interest free for the initial 12 months, followed by an
interest rate of 11.1% per annum.
Another GBP0.45m loan was took out to settle remaining lease
liabilities, of this GBP0.18m was received as cash once the finance
liability on the financed assets had been settled this cash has
been classified as a loan. This is to be paid over 5 years with the
first payments due July 2021, the last payment date is June 2026.
The loan is at interest free for the initial 12 months, followed by
an interest rate of 11.1% per annum
During the previous year the company took out a Coronavirus
Business Interruption Loan for GBP2.0m. On the 19 January 2021 the
term of this loan was extended to 6 years, the first payments due
August 2021, the last payment date is August 2026. The loan is at
interest free for the initial 12 months, followed by an interest
rate of 3.96%.
18. Grant income deferred
Group Group Company Company
---------------------- ---------------------- ---------------------- ----------------------
31 31 31 31
October October October October
2021 2020 2021 2020
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------------- ---------------------- ----------------------
Opening - - - -
balance
Grant income - - - -
amortisation
---------------------- ---------------------- ---------------------- ----------------------
Closing - - - -
balance
====================== ====================== ====================== ======================
19. Leases
In the previous year, the Company adopted IFRS 16 and applied
the modified retrospective approach. The reclassifications and the
adjustments arising from the new leasing rules are therefore
recognised in the opening balance sheet on 1 November 2019.
Right-of-use-assets
Group and
Company
Land and Plant and Motor Total
buildings machinery Vehicles
GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------------------------ ----------------------- ----------------------
Cost
Balance as at - - - -
1 November
2019
Adjustment on
transition
to IFRS 16
on 1
November
2019 479 - 9 488
Additions 885 - - 885
Balance at 31
October 2020 1,364 - 9 1,373
Prior period
adjustment - 561 49 610
Balance at 31
October 2020
(revised) 1,364 561 58 1,983
Additions 414 - 61 475
Disposal (137) - (9) (146)
------------------------ ------------------------ ----------------------- ----------------------
Balance at 31
October 2021 1,641 561 110 2,312
------------------------ ------------------------ ----------------------- ----------------------
Depreciation
and
amortisation
Balance as at - - - -
1 November
2019
Depreciation
charge for
the
year 238 - 8 246
Balance at 31
October 2020 238 - 8 246
Prior period
adjustment - 86 17 103
------------------------ ------------------------ ----------------------- ----------------------
Balance at 31
October 2020
(revised) 238 86 25 349
Depreciation
charge for
the
year 298 104 19 421
Disposal (137) - (9) (146)
------------------------ ------------------------ ----------------------- ----------------------
Balance at 31
October 2021 399 190 35 624
------------------------ ------------------------ ----------------------- ----------------------
At 31 October
2020 1,126 475 33 1,634
------------------------ ------------------------ ----------------------- ----------------------
At 31 October
2021 1,242 371 75 1,688
======================== ======================== ======================= ======================
* a prior year adjustment has been made between property, plant
and equipment and right-of-use asset please see note 30 for
details.
Upon initial measurement 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
balance sheet.
Right-of-use lease liabilities
GBP'000
At 1 November 2020 1,471
Repayment (401)
Additions to right-of-use assets in exchange for increased
lease liabilities 475
Other lease movements 4
At 31 October 2021 1,549
======
Analysis by Plant and Motor Total
length of Land and equipment Vehicles
liability buildings
GBP'000 GBP,000 GBP'000 GBP'000
------------------------ ------------------------ ----------------------- ----------------------
Current 243 50 16 309
Non-current 1,000 206 34 1,240
------------------------ ------------------------ ----------------------- ----------------------
Total 1,243 256 50 1,549
======================== ======================== ======================= ======================
Number of right-to-use assets leased 5 5 2
Range of remaining term 1-10yrs 1-10 yrs 1-4 yrs
Lease Liabilities
Lease liabilities are presented in the consolidated statement of
financial position as follows:
Minimum lease
payments Interest Present value
31 October 2020
Not later than one
year 480 69 411
Later than one
year and not
later
than two years 317 51 266
Later than two
years and not
later
than five years 899 105 794
1,696 225 1,471
============================ ======================= ============================
31 October 2021
Not later than one
year 378 69 309
Later than one
year and not
later
than two years 292 67 225
Later than two
years and not
later
than five years 1,181 166 1,015
1,851 302 1,549
============================ ======================= ============================
Low value leases
The Group leases motor vehicles and property, comprising both
offices and assembly space, under low value leases. The total value
of minimum lease payments due is payable as follows:
Group 31 October 31 October
2021 2020
GBP'000 GBP'000
------------------------- -------------------------
Motor vehicles
Not later than one year - -
Later than one year and not later than two - -
years
- -
========================= =========================
Property, plant and equipment
Not later than one year 4 23
Later than one year and not later than two
years - 4
Later than two years and not later than - -
five
years
Later than five years - -
------------------------- -------------------------
4 27
========================= =========================
31 October 31 October
Company 2021 2020
GBP'000 GBP'000
------------------------- -------------------------
Motor vehicles
Not later than one year - -
Later than one year and not later than two - -
years
- -
========================= =========================
Property, plant and equipment
Not later than one year 4 23
Later than one year and not later than two
years - 4
Later than two years and not later than - -
five
years
Later than five years - -
------------------------- -------------------------
4 27
========================= =========================
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.
20. Deferred Tax
Deferred tax is calculated in full on temporary differences
under the liability method using tax rates appropriate for the
period. The movement on the deferred tax account is as shown
below:
The movement on the unrecognised deferred tax (asset)/liability
is shown below:
Group and Company 31 October 31 October
2021 2020
GBP'000 GBP'000
------------------------- -------------------------
Corporation tax losses brought forward (534) (534)
Corporation tax losses not recognised in the
year (306) -
------------------------- -------------------------
Closing tax not recognised (asset) (840) (534)
========================= =========================
The Group has unused tax losses which were incurred by the
holding company. A deferred tax asset of GBP840,000 (2020:
GBP534,000 - this figure has been updated following the
finalisation of the FY20 corporation tax computations) 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.
21. Reconciliation of liabilities arising from financing activities
Group and Company Long-term Short-term Long Total
borrowings borrowings term
lease
Liabilities
GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ------------------------- -------------------------- ------------------------------
At 31 October
2019 - 4 290 294
Cash flows
Repayment - - (402) (402)
Proceeds 2,000 - - 2,000
Non-cash
Foreign exchange
differences - (4) - (4)
Reclassification
Right of Use - - 1,583 1,583
Transfer from
Long-term to
short term
borrowings (500) 911 (411) -
------------------------- ------------------------- -------------------------- ------------------------------
At 31 October
2020 1,500 911 1,060 3,471
Cash flows
Repayment (119) - (400) (519)
Proceeds 634 - - 634
Non-cash
Foreign exchange -
differences - - -
Additional lease
Liabilities 475 475
Transfer from
Long-term to
short term
borrowings (17) (88) 105 -
As 31 October
2021 1,998 823 1,240 4,061
========================= ========================= ========================== ==============================
We have amended prior year presentation to provide more detailed
information. Lease liabilities have been split from long and
short-term borrowings; the overall closing balances have not
changed.
22. Share capital
31 October 31 October
2021 2020
GBP GBP
------------------------- -------------------------
Share capital issued and fully paid
36,303,064 Ordinary shares of GBP0.0025 each 90,758 90,569
========================= =========================
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.
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 period, is set out in note 23.
Nominal Number of shares
Movements in share capital value
GBP
Ordinary shares of GBP0.0025 each
At the beginning of the year 90,569 36,227,459
Exercising of share options 189 75,605
---------------------- -------------------------------
Closing share capital at 31 October 2021 90,758 36,303,064
====================== ===============================
On 12/02/2021, the Company issued 38,605 new ordinary shares of
GBP0.0025 each to satisfy the exercise of options granted under the
Group's 2017 Share Option Scheme.
On the 28/05/2021, the company issued a further 37,000 new
ordinary shares of GBP0.0025 each to satisfy the exercise of
options granted under the Group's 2017 Share Option Scheme.
23. Share-based payment
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 vest subject only to continued
employment. All options under these arrangements were vested during
the financial year. The options may be exercised at any point up to
the 10th 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.
The 1,480,000 share options dated 29 October 2019 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 10th
Anniversary grant date. During the year 765,000 of these share
options lapsed due to people leaving the businesses and the
performance criteria not being met.
The 615,065 shares options dated 30 October 2020 have no
attached performance conditions and vest subject only to continued
employment. They vest after 5 years, or earlier if a vesting event
occurs as defined in the rules of the Scheme.
During the year ended 31 October 2021, share options were
granted as follows:
278,805 shares options dated 01/04/2021 have no attached
performance conditions and vest subject only to continued
employment. They vest after 5 years, or earlier if a vesting event
occurs as defined in the rules of the Scheme.
Vesting events are defined within the rules of the Scheme as a
reorganisation, takeover, sale, listing (except on AIM), asset
sales or death of the Option holder.
The Group recognised a cost of GBP90,000 (2020 - GBP120,000)
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.
There were no cancellations or modifications to the awards in
the period.
The following options were outstanding as at 31 October
2021:
Scheme and Exercise Vesting Expiry date Vested Not vested Total
grant date price date
GBP
13 Mar
13 March 2017 0.0025 2019 13 Mar 2027 507,525 171,281 603,201
17 October 17 Oct
2017 0.6926 2019 17 Oct 2027 - 35,000 35,000
29 October 29 Oct
2019 0.2065 2022 29 Oct 2031 - 225,000 225,000
29 October 29 Oct
2019 0.2065 2021 29 Oct 2031 - 1,480,000 1,480,000
30 October 01 Nov
2020 0.2065 2021 1 Nov 2026 - 615,065 615,065
01 Apr
01 April 2021 0.025 2021 01 Apr 2026 - 28,805 28,805
01 Apr
01 April 2021 0.13 2021 01 Apr 2026 - 125,000 125,000
01 Apr
01 April 2021 0.158 2021 01 Apr 2026 - 125,000 125,000
507,525 2,729,546 3,237,071
======== =========== ============
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.
Movement in share options
Scheme and grant As at 30 Issued Expired Exercised Vested As at 31
date Nov 2020 Oct 2021
1 January 2017 264,178 - - - - 264,178
13 March 2017 95,889 - - - (40,638) 55,251
17 October 2017 21,804 - - - - 21,804
29 October 2019 108,000 2,826 (30,667) - - 80,159
30 October 2020 - 96,651 - - - 96,651
01 April 2021 - 7,370 - - - 7,370
01 April 2021 - 6,910 - - - 6,910
01 April 2021 - 6,910 - - - 6,910
489,871 120,667 (30,667) - (40,638) 539,233
========== ======== ========= ========== ========= ==========
24. 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:
Compensation of senior management personnel outside of
Director's emoluments paid:
31 October 31 October
2021 2020
GBP'000 GBP'000
========================== =========================
Short term employment benefits - 92
- 92
========================================================================= =========================
No transactions took place with related parties (purchases or
dividends)/sales in the current or prior year.
The Group has previously engaged IN4.0 Access Limited, which provides
consulting services. One of the directors of IN4.0 Access Limited
is a director of Velocity Composites Plc. The Group paid GBPnil (GBPnil
- 2020) to IN4.0 Access Limited during the year and had GBPnil outstanding
at the year end.
The following balances existed at periods end with related
parties (payable)/receivable:
31 October 31 October
2021 2020
GBP'000 GBP'000
------------------------- -------------------------
Related parties - -
========================= =========================
25. 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.
26. Capital commitments
At 31 October 2021 the Group had GBPnil (2020: GBPnil) of
capital commitments relating to the purchase of leasehold
improvements, plant and machinery and fixture and fittings.
27. Pension commitments
The Group makes contributions to defined contribution
stakeholder pension schemes. The contributions for the year of
GBP89,337 (2020: GBP131,761) were charged to the Consolidated
Income statement. Contributions outstanding at 31 October 2021 were
GBP13,557 (2020: GBP22,142).
28. Contingent liabilities
At 31 October 2021 the Group had in place bank guarantees of
GBPnil (2020: GBPnil) in respect of supplier trade accounts.
29. 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, impairment,
share-based payments and exceptional restructuring costs. Share
based payments are added back to make the share based payment
charge clear to stakeholders.
Adjusted EBITDA 31 October 31 October
2021 2020
Reconciliation from Operating Profit GBP'000 GBP'000
--------------------------- ---------------------------
Operating Loss (1,364) (3,149)
Add back:
Share-based payments 90 120
Depreciation of Property, plant and
equipment* 229 224
Amortisation 76 117
Impairment of Intangible assets - 72
Depreciation of Right of Use assets under
IFRS
16* 421 350
Exceptional Administrative costs - 341
(548) (1,925)
=========================== ===========================
* a prior year adjustment has been made between property, plant
and equipment and right-of-use asset please see note 30 for
details.
30. Prior year adjustment
During the period the group and company reclassified balances
relating to leased assets that were incorrectly presented within
property, plant and equipment rather than right of use assets. This
arose due to an oversight and finance leases were omitted when
adopting IFRS 16. The adjustment had no impact on opening retaining
earnings. Details of the adjustment can be found below.
Group and Original Revised
company presented presented Adjustment
statement of
financial
position
GBP'000 GBP'000 GBP'000
------------------------- ---------------------------- ---------------------------
Property plant
and equipment 3,597 2,806 (791)
Depreciation of
Property,
plant and
equipment (1,875) (1,590) 285
Right of use
assets 1,373 1,983 610
Depreciation
Right of use
assets (246) (350) (104)
2,849 2,849 -
============================= ========================= ============================ ===========================
Group and Original Revised Adjustment
company income presented presented
statement
GBP'000 GBP'000 GBP'000
------------------------- ---------------------------- ---------------------------
Depreciation 327 223 (104)
Depreciation of
Right to Use
assets
under IFRS 16 246 350 104
573 573 -
============================= ========================= ============================ ===========================
Group and Original Revised Adjustment
company presented presented
statement of
cashflows
GBP'000 GBP'000 GBP'000
------------------------- ---------------------------- ---------------------------
Depreciation 327 223 (104)
Depreciation of
Right to Use
assets
under IFRS 16 246 350 104
Purchase of
plant and
equipment from
investing
activities (991) (782) 209
Lease
liabilities
proceeds from
financing
activities 209 - (209)
------------------------- ---------------------------- ---------------------------
(209) (209) -
============================= ========================= ============================ ===========================
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END
FR BKNBNKBKBADB
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January 24, 2022 02:00 ET (07:00 GMT)
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