LONDON (ShareCast) - (Sharecast News) - Velocity Composites updated the market on the year ended 31 October on Tuesday, reporting that trading in the first four months was in line with management expectations, but the rest of the year was adversely impacted by the Covid-19 pandemic.
The AIM-traded firm said that had impacted on the business in the short-term through customer shut-downs and an industry-wide reduction in build-rates.

Prospects for the current year remained subdued, with "no imminent indications" of any significant increases to build rates on major civil aircraft programmes as set by primary manufacturers Boeing and Airbus.

The company said it responded to the reduced level of activity through the implementation of a significant cost reduction programme, including an approximate 40% reduction in staffing numbers and a restructuring of the remaining management and staff.

Senior executives and the directors also agreed to a 20% deferment of cash base salaries, with the deferred payments intended to be settled through the issue of share options.

Velocity said it expected sales revenues for the year ended 31 October to be about £13.6m, down from £24.2m, and expected to report an adjusted EBITDA loss of around £1.8m, swinging from earnings of £0.6m a year earlier.

As a result of the cost restructuring exercise, the board said that going forward, the firm would be EBITDA break-even at 2020 levels of revenues.

The company was now "highly operationally geared", so that any significant recovery in activity - even if only to below pre-pandemic levels - would have a "strong positive impact" on future profitability, the directors explained.

Current activity levels were described as challenging, and the first half of the 2021 financial year was expected to continue with revenues similar to those in the second half of 2020, assuming additional lockdowns and short-term customer shutdowns through the winter months.

The firm said it had a "robust level" of liquidity and funding to support it through the disruption, with the board "cautiously optimistic" as to the prospects for future growth.

To support Velocity, it said its corporate bankers had agreed to extend the repayment schedule on its Coronavirus Business Interruption Loan (CBIL) of £2.0m from over two years to six years, starting in July 2021 and ending July 2026.

The firm said it also retained its invoice discounting facility, which could fund up to £5.0m of receivables.

As at 31 October, the company maintained cash at bank of £3.3m, being £0.8m of EIS-designated funds, and £2.5m of free cash.

On the same date, Velocity said it was in a net cash position of £0.9m, net of the £2.0m CBIL liability and £0.4m hire purchase agreement liabilities, with the invoice discounting facility undrawn.

The board noted that recent positive developments regarding a possible widely-available vaccine for Covid-19 suggested that, as economies recover, demand for air travel would return to the benefit of the entire aerospace sector.

It said there was also long-term demand for new aircraft to replace older fleets - a number of which were retired early during the pandemic, for both environmental and economic efficiency reasons.

Those newer aircraft had higher composite material content, increasing the industry demand for Velocity's kitting technology.

"Clearly 2020 has been an unprecedented year in the aerospace industry due to the global 70% reduction in air travel and the original equipment manufacturer's (OEM) immediate reduction in aircraft production rates to minimal levels," said chief executive officer Jon Bridges.

"Our collaborative approach between Velocity, our customers and the raw material suppliers has sought to mitigate the impact of this."

Bridges said the company was continuing to work "with all parties" to ensure Velocity was right-sized to deliver on its current programmes, while continuing to respond to new business opportunities to support its customers as they looked to reduce costs.

"Whilst the immediate disruption is painful, our customer proposition is even more relevant and there are positive signs that the recovery will start in 2021 and through 2022.

"The changes we have made allow us to weather the disruption and be in a stronger position as both production rates and new business combine to return the company to pre-pandemic levels with a resilient and focused team."

At 0831 GMT, shares in Velocity Composites were down 12.5% at 14p.

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