Velocity Composites makes good progress despite board woes

Advanced composite material kits supplier Velocity Composites reported a 5.3% improvement in revenue in its interim results on Monday, to £12.2m.

The AIM-traded firm said it saw a “significant improvement” in its gross margin in the six months ended 30 April, increasing to 20.9% from 15.2% year-on-year, and at the upper end of the gross margin achieved in the second half of the 2018 financial year, which was 21.1%.

Gross profit increased as a result, by 45% to £2.6m.

Velocity reported adjusted profit of £0.3m, swinging from a loss of £0.5m year-on-year, which the board said reflected its gross margin gains and reductions in overheads delivered in the second half of 2018, offset by continued investment aimed at delivering international growth.

It said its cash remained “strong”, with net cash of £4.2m - up from £4.1m at the start of the period - which comprised gross cash of £4.37m, of which £1.8m was earmarked for EIS/VCT qualifying expenditure and was deemed to be 'employed' for those purposes in accordance with the relevant regulations.

The company also highlighted the recertification of Nadcap Special Process accreditation for both UK sites, with nil audit findings.

“We are pleased with the performance of the business during a period of uncertainty at board level,” said senior independent director Brian Tenner.

“Revenues grew and excellent GM% performance gains drove the business back into profit and allowed a cash break even period.

“The board remains confident of meeting its full year expectations for revenue while gross margin will be at the upper end of expectations, subject to customer demand fluctuations.”

Tenner said the ongoing discussions with the founders regarding the reconstitution of the Board were “undoubtedly disappointing”, following what was thought to be an agreed process at the annual general meeting.

However, he said that as the firm announced today, the board was hopeful of reaching a successful resolution to the dispute with the founders in the short term, that would avoid the risk of a disorderly transition.

“Despite the distractions, exciting new investment opportunities are coming to fruition that allowed the group to fully employ the EIS / VCT funds by the due date.

“These opportunities will allow the group to build on the current recovery to deliver long term value.

“If the re-constitution of the board can be agreed and put behind us, this will assist greatly in allowing the business to focus on achieving its true potential based on Velocity's core strengths.”