Velocity Comp Regulatory News (VEL)

30 April 2018

Velocity Composites plc

("Velocity" or the "Company")

Trading Update

Velocity Composites plc ("Velocity" or "the Company"), the leading supplier of advanced composite material kits, providing engineering value-solutions for the global aerospace industry, today provides a trading update for the six months ending 30 April 2018.

Since the Company's last trading update on 27 February 2018, the Company has continued to make progress, including some small contract wins, and is experiencing growing revenues on a monthly basis with March 2018 seeing revenue of £2.1 million. The Company has seen a continued recovery in its gross margin and the amount of work to discharge over the remainder of FY18 through to the end of FY20, without any new business wins, has increased to £54 million.

The Company expects to report revenue for the half year to 30 April 2018 to be over £11 million, a 20 per cent. increase on the same period last year. The Company has seen a further increase to approximately £13 million of revenue contracted for the remainder of this current financial year (provided there are no further fluctuations in demand signals from customers) with further revenues agreed in principle of approximately £4 million. The current visibility reflects that whilst there has been strong growth in the global aerospace market, some programmes that the Company has been working on have seen short term reductions in demand signals and these fluctuations have affected some rates of growth with existing customers.

In addition to the above revenues agreed in principle, at the time of the last trading update, the Company had included approximately £3 million in relation to one of Velocity's largest customers who have subsequently undergone a significant degree of corporate change. These contracts remain in final negotiation and, if they had been signed on the timescale initially expected, would have been worth approximately £5 million in revenues for the current financial year and are expected to be worth £8 million in revenues on an annualised basis. Even though Velocity is currently a key supplier for this customer, with a master framework agreement already in place, onboarding of each new programme and additional customer site can only begin once a formal contract is in place for each specific line of work. These contracts will result in work on several additional customer sites and across a wide range of programmes. The Company remains confident that signed contracts will be entered into, but continued delays in signing these contracts will affect the revenue outturn for the current financial year. The Company is working closely with the customer to be ready to onboard this business as soon as these contracts are signed.

Given the above factors, the Board believes that revenues and profitability for the full year will be below market forecasts and that this will have a reduced knock-on effect in future years, as contracts will achieve full production later than anticipated.

Despite some of these short-term headwinds, the underlying long-term position and increasing run rate from existing contracts remains encouraging. As noted above, gross margin continues to improve through this financial year and, in addition, the cash position continues to be closely managed and remains sufficient for all existing plans and visible opportunities.

During this half year, an increasing proportion of the Company's new business has been secured from European customers. The Company has elected to provide manufacturing for these European customers from the UK until there is sufficient volume from one geographic location to justify additional resource in proximity to one or more customers. In addition, progress continues to be made with larger opportunities outside of Europe and the Company will provide an update on progress in respect of an international site alongside the publication of its half year results, which are expected to be released in the week commencing 25 June 2018.

Jon Bridges, Chief Executive Officer of Velocity Composites said:

"The first half of the current financial year has seen continued trading momentum. Whilst it is frustrating that certain contracts have taken longer to close than envisaged by both Velocity and our customer, with the resultant reduced impact on expected revenues for this year, we continue to demonstrate that our customers can make significant savings and that we help to improve build rates. We remain wholly confident that this remains a timing issue rather than anything more fundamental. Our customers appreciate our efforts to help them to reduce costs and the Company has made substantial progress and is now producing kits with a value of over £2 million per month, up from just over £1 million per month 18 months ago, with both visibility and confidence that this value will increase substantially alongside continued improvements in our gross margins.

"We also continue to progress the strategic expansion of Velocity outside of Europe and are looking to leverage existing relationships where possible. An example of this is the winning of a tactical project worth £0.7 million which includes the supply of structural material kitting for an engine which is used on the Airbus A320 aircraft to a global Tier 1 sub-contractor to Airbus and Boeing. This tactical position presents an opportunity for Velocity to build upon its position in Europe and the potential to strengthen its presence in the Asian and North American markets.

It is important to be adding a leading global Tier 1 subcontractor to our customer base and we look forward to working closely with that new customer and aiding them in further operational synergies which Velocity can provide as we continue to grow our offerings. The customer, a leading global Tier 1 sub-contractor with sites in Europe, North America and Asia will initially be supplied from the Company's Fareham production facility."

Mark Mills, Non-Executive Chairman of Velocity Composites added:

"This is a timing issue. At the time of flotation, the Company calculated its visibility of future revenues in accordance with our customers' demand signals, the Company's previous experiences and through the contracts it held. At the present time, the amount of revenue Velocity will ultimately derive from its customers has increased and the run rate is increasing, but the timing for delivery of this revenue is delayed as it has taken longer to secure customers than anticipated. Whilst today's announcement is frustrating, the Board are confident that revenues, profitability and gross margins will continue to improve substantially owing to the focused sales effort undertaken in the last six months and we look forward to updating the market on progress."

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About Velocity Composites

Velocity Composites is a manufacturer of advanced composite material kits for the aerospace industry, delivering engineered waste reduction solutions for its customers to build aircraft components using less time and material. The Company's customers include multi-national manufacturers of composite parts and assemblies, who in turn deliver to the world's leading civil and military aircraft manufacturers. The Airbus A320, A330, A350, A380, Eurofighter Typhoon, F35 Joint Strike Fighter and Boeing 737, 787 and V22 Osprey are all constructed using parts manufactured from Velocity's kits. The Company's business model reduces the operating costs of preparing composite materials ahead of their usage in the construction of an aircraft part and as such, its offering is disposed to being self-financing for aircraft parts' manufacturers. Velocity's services are seeing increased demand as the global aircraft industry enters a more-for-less era. Velocity currently has customers in the UK, Denmark, France and Belgium.