Velocity Composites losses widen in first half

Aerospace composite material supplier Velocity Composites updated the market on its first half on Monday, reporting “significant progress” since the start of the year, with three key contract extensions with three of its largest customers announced in the period.

The AIM-traded firm said that represented an estimated total annual value of more than £8.1m at current impacted build rates, providing it with a “strong” financial base for future growth.

Its board said that, while there had been a continued reduction in near-term customer demand as aerospace industry production was curtailed by the Covid-19 pandemic, progress made by the company in the six months ended 30 April provided it with a “high level of confidence” over the company’s long-term prospects.

As it had previously announced, demand in the current financial year ending 31 October remained suppressed due to the impact of Covid-19, although the directors said they now viewed prospects for an improved second half performance in the 2021 financial year, and into 2022, with “cautious optimism”.

Although demand in the first six months had continued at the levels seen in the second half of the 2020 financial year, sales had stabilised, with management expecting sales of £4.4m in the period, down from £9.5m year-on-year, leading to an adjusted EBITDA loss for the first half of £0.5m, widening from £0.3m.

With the organisational restructuring process completed, the company said its cost base was now in line with a target £13.5m sales breakeven position, and with further cost reduction activities the board said it was “well-placed” to return to a positive adjusted EBITDA in the second half, albeit in “challenging” market conditions.

“In addition to the aerospace contracts wins already announced this year, work has progressed in promoting Velocity technology in other composite material markets, particularly the defence sector,” the board said in its statement.

“Due to restrictions on international travel these initiatives have been focused primarily in the UK and following a period of development with a large, multinational defence group the company has recently achieved full approval to supply structural material kits for the F35 fighter, in addition to the process material kits already provided on this programme.

“Work is ongoing to establish a commercial position on this platform to support advancements in efficiency and digital manufacturing driven by Velocity's technology offering.”

Velocity said the F35 approval would also assist negotiations with other suppliers into the same programme, with the board adding that the developments had “further strengthened” its confidence of an improved trading position in the second half of the year.

“Cash flow and liquidity remain satisfactory,” the directors said, explaining that the company was driving cash flow efficiencies through improved stock management, reducing stock levels by over £1.1m since October, and by the successful tenor extension of the existing £2.0m Coronavirus Business Interruption Loan facility, as previously announced.

Cash at bank was £3.5m at period end, up from £2.8m a year earlier, with the business remaining in a net cash positive position after deducting debt drawing.

“The company continues to have access to its invoice discounting facility, which was undrawn as at 30 April, but has current capacity of £1.6m based on outstanding receivables.”

Velocity said it would announce its results for the six months ended 30 April on 30 June.

At 1018 BST, shares in Velocity Composites were down 2.95% at 21.35p.