Velocity Composites (LSE:VEL) — Full Year Results for the twelve months ended 31 October 2025

0:00 Good morning, and welcome to the VELOCITY COMPOSITES PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review your questions submitted today and publish responses what is appropriate to do so. Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO, John Bridges. Good morning to you, sir. Good morning, and welcome, everyone, to our presentation for financial year ending 10/31/2025. Hope you're well and usual format around myself and Rob taking you through the headlines in the presentation and then picking up questions afterwards.

0:55 So getting started, if we look, you see the headlines there. We'll cover all the points and the reasons behind some of these numbers in a moment, and Rob will take you in detail through the financials. But essentially revenue a little bit down due to some of the reasons that we'll discuss, but a lot of work gone on internally to drive gross margin, which again we'll cover off in a moment. And if we look at the year in review, clearly, think really 2025 industry wise has been very similar to 2024 for this pretty much the same reasons. Hopefully, as we go into '26, we'll talk about that in a minute. Some of these issues will clear, but in terms of the industry wise, we're seeing the Spirit reacquisition by both Boeing and Airbus obviously clearing and a lot more clarity there at the sites involved.

1:58 And for us what that means is a lot of the sites we're engaged with were sort of paused whilst that activity was going on in terms of any change activities. But again, as that is clears, we'll either look to pick those up properly now with the new owners. So that big sort of reason for distraction, if you like, industry wise has been cleared. Also good is to start to see the key programs like seven thirty seven MAX production rates start to increase a little bit directly to us, but more importantly for a wider customer base to be busier and obviously to get back to rates that were previously enjoyed and probably previously invested for by our wider customer base.

2:44 And I think as well, we talked about defense. Defense, we're starting to see procurement activities ramp up and move from planned rate increases to real rate increases. And again, we hope that'll flow through down to our supply chain and our customers as those kick in and move from planned increases to real live production increases. I think in terms of key programs like A350, we're seeing production rates pretty much flat through '25 as they were in '24. And as you may remember, as an industry, we're looking to ramp up in '24 and we're still expecting that to happen and Airbus is still buoyantly talking about rates ten, twelve in the not too distant future. So again, '26, we are starting to see customers look to get ready for those sort of rates and ramp up activities involved.

3:43 Looking forward into 2026, I think it's a word that's been missed for a while, optimism does seem to start to return certainly to our customers as they look forwards and these rate increases and defense production increases into 2026, which will, of course, be beneficial. As we say, the distraction from the Spirit reacquisition from some of our customer base will clear, and we can start to get back to some of the activities we were prior to that, probably two years ago now. That defense sector lag, we're starting to transition into real volume increases. And again, we'll look to those certainly through '26. And as you know, we have sites in Europe, in The UK and in The US as well, and wanting to capitalize on the capacity that we have in those sites, not only on the existing contracted business as that ramps, but also new business as that flows through.

4:50 Although we do see, you know, some little sort of changes with some of the customers as they move from sort of legacy programs and transition forward into their sort of new volumes. And also one customer is looking to move some production from The UK into Mainland Europe. So again, we'll talk about that and what we're doing to support those customers and hopefully follow that work. But again, it does mean changes in the sort of local portfolios going forward. Thanks, Ron. US operations, so as you know, we've been delayed for a little while now on the transfer of one of the key programs from our launch customer, not to do with VELLOCITY or VELLOCITY COMPOSITES, more an issue between our customer and the OEM customer, which has delayed any change activities.

5:45 Laterally, we're starting to see that clear finally and a lot more positivity from our customer and the OEM in terms of the transfer of that key amount of business in this year. And actually talk discussions with a customer how we can support the sort of recovery in the ramp beyond previous volumes to support the wider program going forward. So I think that's been finally a resolution comes to that package of work and you'll see those volumes throw through in '26. We have actually started to engage a lot higher level with that and other customers. So our large customer in The U. S. That's clearly communicating the impact this has had on us and our business and investors who funded the key US facility and the business that comes with it.

6:45 So we've actually engaged at a much, much higher level and that's obviously been fairly well received and we've got a good plan and relationship going forward to not just get that original work contracted, but also look at additional business from that site that it's won in the meantime, and also the wider group and, you know, leverage our performance and the relationship to assist that customer in the size it has both in The US and in Europe. I think this wider industry optimism has meant that we can really step up and move new business activities from the sort of development and bid phase into serious engagement now as we look to close those relationships.

7:33 And we've made a lot of progress in The U. S, some of which was delayed by the Spirit Boeing Airbus reacquisition. But the sort of good news is we have a good relationship with what will be our second customer in The U. S, part of a wider group, and we'll be announcing progress in due course there. But again, as we've already talked about, there is capacity in The U. S. Facility and the investment is already made to deliver not just the existing business, but also additional business too. So clearly, want to utilize that investment and that capacity to deliver both on our launch customer and subsequent customers going forward. And then in Europe, through the year, we announced a contract renewal with our existing long term defense customer earlier in the year.

8:24 Again, it's been long term business on key programs. And also a ten year extension, well, pseudo extension really, we've been doing some launch programs with that one customer site. And what we have now is a ten year agreement for all the business on that site, and we're currently in the process of transferring that into our Burnley facility. So again, piece of work, obviously long term work and on a key growing growth rate platform as well. And I think, you know, it's probably again more sign of customer optimism looking forward. You know, that program has been around for, you know, we've been engaged with that customer for, you know, eight plus years now. And again, only now do we post COVID and post all the disruption and ramp up delays, I think the optimism in industry means that people are looking forward and signing these long term agreements on key platforms.

9:26 And as I mentioned earlier, we have got a couple of UK customers that are going through a little bit of change and two very different reasons and activities. One is a customer who's looking to move work from The UK into Europe. And again, the full details of that have yet to be announced by the customer. But we're working with that customer to understand what that looks like. We've sort of got a reasonable picture for '26, but sort of '27 and beyond, where, again, we're we're engaged with the customer. We would clearly look to follow it using our forward stock location model. But as of today, we're just sort of flagging that that change is coming. As we also know, clearly we all know, transfer programs can morph over time, but we remain close to the customer and support them in that, and we'll obviously support them wherever that full portfolio ends up in their organization.

10:29 And then the second customer, mainly on legacy programs, those legacy programs have moved from sort of volume production to spares and repairs type production and the sort of residual other programs with that customer, some of which they're looking to in load just to fill capacity within their facility. Again, neither of those two activities are commercially driven. We've been clearly stated to that by the customers. It's not about what the quality of VELOSITES products or the commercial offering of those products. I think it's just, you know, looking at the, you know, particularly with the legacy side of things. There are a lot of customers with spare capacity and how they fill that across all their plants, across Europe and beyond, you know, they're looking to do it in any means possible. And, you know, certainly, you know, one of the customers, the small amount of VELOCITY business that's looking to in load is part of, you know, multiple in load programs across all their value streams, like, you know, sheet metal and, you know, and others just really to bring as much work back into that fairly poorly well, underutilized facility, shall we say.

11:47 So, again, we'll we'll manage that with the customer. We'll look to work with them and and maintain as as much as we can. Clearly, we still got the the spares and the other business with them, but, you know, we'll we'll balance that along with the new business work to offset it. Thanks, Rob. I'll hand you over to Rob, who'll take you through the financials. Yes. Good morning, everybody. So I'll do a fairly high level summary of what's going on with the financials. As John mentioned, revenue was down in the year '20 3,000,000 down to 20,700,000. It's 10% decrease. However, you'll notice the gross profit actually increased and that is as our gross margin went from just under 26% up to 29.5%.

12:42 So our gross profit improved by well over a 100,140 odd thousand pounds. So despite the lower sales, we're in a better position of gross profit. Our administrative expenses were flat on the year and actually trending down. And we've identified further areas of cost reduction. We actually implemented some savings in the back office right at the end of FY '25, which will benefit from a full year savings of through FY '26. This was in no small part due to us migrating our internal ERP system to a node based system, whereas our legacy systems were required quite a bit of manual intervention.

13:38 Most of the systems now are fully integrated and tie up between functions. So we've been able to reduce our headcount. Operating loss improved in the year. Clearly, the drive is to get back to a positive, but we have made good progress to get that going in the right direction. And we also reduced our finance expense during the year. So year on year reduction in loss before tax and more significantly, we actually improved the adjusted EBITDA. So we moved from just under 400,000 EBITDA to just a smidgen under a million pounds EBITDA.

14:25 So good performance operationally, but clearly we need the revenue to grow to start to generate full profitability. Moving forward, Looking at the balance sheet, noncurrent assets did increase year on year. That was investment in capitalization of R and D activities. This is process developments, which we which are ongoing within the business to become more efficient. And also, we invested in a freezer store in The U. S. This is a very large freezer store because most of our raw materials have to be kept at frozen temperature and finished goods whilst they're on the premises need to be frozen as well.

15:15 Inventories reduced. That was in part due to the lower sales but more to do with the fact that margins have improved. So the profit we're making on each pound of inventory is improving. So you need less inventory to generate the same amount of sales. Trade receivables came down. That was as sort of effect of the lower sales, but also an improvement in our debtor days. We've moved down from fifty three days to forty four days. And those both inventory and trade receivables, we continue to work on to get the best efficiency out of our balance sheet that we can. The current balance of the CMIL loans is £400,000 down from £500,000 We're now into the last leg of the repayments on loans.

16:12 So we've moved and we've got a 100,000 in the long term period point portion of those c bills, but long term means the first half of FY twenty seven. So by this time next year, we will be more or less debt free as far as the CBIL loan is concerned. Trade and other payables came down mainly as a result of the reduced sales, but again due to the improvement in margins, clearly if you're buying less inventory, you're owing suppliers less money at any one time. Obligations on the finance leases increased. This was as a direct result of the use of US freezer store.

16:58 So under the role of IFRS, we capitalize those leases and we show the obligations under finance leases, both the short term element and the longer term element. Moving to cash flow. The business generated cash from operations. You can see the net cash flow from operations was inflow from operations is just under a million pounds. That underlying shows that the underlying business is cash generative and profitable. Where the money is going is investing in investment activities, that's to freeze the store, r and d capitalization, and those things, and financing activities, which is the repayment of the CVIL loans, interest charges and lease obligations, which are being paid.

18:04 Overall, a net decrease in cash of 1,200,000 leaving us with a cash balance as at the October 31 of 400,000. Taking off the remaining loan, that left us in a net debt position of a £100,000. But I should advise you that we have an invoice discounting facility. The total value of the facility, if if we control down on all of it, $3,100,000 So a significant amount of headroom. At any one time, we'll be able to draw down circa $1,500,000 of that. So there's a good amount of headroom.

18:51 I would also comment that one of the things we're required to do as our own public company businesses is look at our whether we have a going concern status And we review our forecast going out over a period and we look out over two years. And we've done a lot of modeling and testing. And in each of those tests, we confirmed what we need the going concern status, and we're able to sign the accounts up as going concern. And that's with that within the existing cash and facilities availability. I'll hand you back over to John now, who will summarize.

19:36 Thanks, Rob. So again, looking forward, clearly completing the transfer of our business with our launch customer in U. S. Is key. And as I mentioned earlier, we're seeing a different support level there from the beyond the site, with the senior leadership of that organization and utilizing that both at that completing that transfer and also on other opportunities where we can work together to grow and support that customer. And then really manage those work transfers that we talked about and program support, supporting with the customer to see, you know, where VELOSITI can support wherever that business is manufactured from.

20:24 Supporting being able to respond to those sort of both new existing business and new business opportunities is utilizing, as we've mentioned before, the capacity in our existing facilities, but supporting customers by forward stock locations. And these are much smaller sort of scaled either freezers or support structures on-site with customers where, you know, much, much more lower investment than having a full production facility. You know, we have production facilities with capacity. So, you know, the forward start locations allow us to work with customers, you know, like we are with the the second customer in The US and the sort of big customers in Europe to actually support them closely by by the forward start location, but everything manufactured centrally where we have the, you know, the know how, the capacity, and the infrastructure.

21:23 So that's what we're looking to sort of implement going forward. And also that's supported by our VAMOS. Again, if you look at our previous way of working where we'd we'd sign an agreement and then we'd have to wait for the sort of transfer to complete and our customer would have to wait for the transfer to complete for the benefits to flow. With VAMOS, you know, it's much more of an immediate transfer of initially the sort of material management side of things where, you know, the customer gets a benefit, we get revenues and everyone's on a much more sort of driven transfer program. And if that does get curtailed for whatever reason, you know, there's revenues there already and benefits for the customer as well. So we are sort of tweaking those services as we roll out into new customers served from our hubs.

22:22 And the cautious optimism of the industry is perfect. I talked about it in the annual report about the sort of environment for customers to take up the business cases that are on offer as they grow, as they get busy and really focus on customers who are growing, on growing platforms, geographically stable with diverse portfolios across civil and defense is what we're focusing on as we expand both in Europe and North America. I think that covers the main bulk of the presentation. So I think what we'll do is we'll go straight to the the questions. So question one, in terms of augmenting the sales effort.

23:12 Yes, I agree. It's a relatively small team. But again, our customer base and potential customer base are relatively small numbers and we are focusing now at senior level engagement rather than site level engagement. We sort of recognize that sites have their time scales and priorities, but what we offer really is of interest at the corporate level where the cost savings, the inventory reduction, and the cash that that inventory reduction frees up is really more suited to the sort of corporate level. So, yeah, it's a it's a good question. It's something that we review very frequently, excuse me, in our in our board meetings.

23:57 And I think, you know, there will be some updates there through this year as we sort of ramp up that senior level engagement to turn these, you know, costed business cases into contractual agreements. It looks like question three from Paul L. Financial question. Should I address that? Over to you then, Rob. Yeah. Alright. So as mentioned when we went through the balance sheet, so thank you, Paul L, for submitting the question. You comment on the inventory and trade payables coming down from FY twenty five from between FY twenty four and FY twenty five and what the flow of that is going through FY twenty six.

24:48 Now you'll appreciate we can't comment on FY '26 because it's not in the public domain. Other than I'll give you a flavor for what's going on. So FY twenty five and we continue to bear down on inventory and push up margins. So one of the big reasons why inventory came down was an improvement in margins. As in margins improved, we need to buy less inventory to get the same sales. How the first three months of FY twenty twenty six has progressed, as I said, we can't comment on that specifically without advising all investors at the same time. However, there is a waiting through the year as the transfer of programs in The US on that lead customer comes through.

25:46 As John mentioned, we currently got about 40% transferred. We're expecting to get the majority of that work transferred by the end of the year, and it transfers during the year. So there will be a second half waiting. But the drive on inventory and receivables continues. We would look to get more and more out of the balance sheet we can. Thanks, Rob. Question for from Daniel B. How much of the FY twenty six revenue is contractually committed? Without an exact number, the sort of most of it really, if not all of it, Rob, is pretty much contractually committed.

26:32 And we're, again, looking at production rates, we've been on the side of caution there and sort of assumed fairly flat production rate year. And as I'm sure you appreciate, a lot of our forecasting is based on the forecasting from our customers as well. So we've taken a relatively prudent approach. But again, as Rob says, was the big transfer from The US and getting that done is an important part of that, which we have a lot more confidence around and have a committed timeline with the customer. And, yeah, anything new to that will get updated to the market accordingly. So back to Paul and more financial questions.

27:19 First question is about going concern modeling. And you asked, does this assume full view use of invoice discounting? So let's see. So one of the things we have to do is a thing called a reverse stress test, which says, at what point does your cash run out if you reduce in the sales level? So we've modeled that if we reduce sales down to 75% and make no other mitigating cost savings, so it's a conservative number, cash would run out if we were at 75% nothing else changed. That does assume full use of the invoice discounting facility.

28:08 This is a very highly unlikely scenario and is part of the modeling exercise we have to do for to get the accounts through the audit. I think we missed a question, Roe, actually. I think so. Key milestones Oh, sorry. We did miss a question. Yeah. We'll go back up to Chris L. Key milestones, I think, as as we've talked about, obviously, getting The US project complete delivers that. And then really turning some of the live business cases and the, you know, the activity that's already been completed and sat there with customers into contracts. And again, as the industry sort of begins to ramp up and get busier, that's the feeling is certainly that the ability to do that will greatly improve because we've seen some customers, current customers as we've seen are not that busy and on different programs, whereas all our focus on new customers and growth customers are on ascending programs, but also on a diverse portfolio.

29:24 So that's where our focus will be and as we move through those, that's obviously delivers the the the sort of what's asked in the question there, but even just delivering what we've already contracted gets us to that position. Could I grab the last just so I can see that? You answered that one. No. No. Sorry. That's the next one. So, again, Paul, I'm trying to interpret your question. I'm not certain. I fully understand mean, what but it is so I believe what you're asking is have we included increased production from our US site and from the contracts and the answers that haven't transferred yet. Yes, we have.

30:18 It is through the year and is at the latter point of the year. So that comes in later in the year. There is some runoff on legacy program well, there is legacy runoff on legacy programs in The UK, which we factored in. So the guidance that's in the market for FY 2026 does take account of those activities. Yes, there is a process for qualifying production, which transfers to us and we are in process on that at the moment. It's called first article inspection and we are going through that and we're on a timeline.

31:11 There's been a great agreement with the customer which transfers the work during the year. Thanks, Rob. A question from Simon g. What share of the business does through US plan? Rob, you got that number probably? Yes. So through FY twenty six, The US plant becomes the larger of the two plants as the work transfers in from our lead customer and the legacy work starts to dip off in The UK, I believe it's about 55% US, 45% UK.

32:00 And there's a subsequent question on the European customers. You mentioned the European customer. So we've assumed no revenue to Mainland Europe in the current market forecasts which are out there. And we see that that will be a case of ramping into FY '27. We haven't indicated FY 2027 numbers as yet because there's quite a few moving parts of the jigsaw which we need to close out over the coming months. And we're looking to put guidance out at the half year in sort of three months' time. That's great, Rob. John, if I may just jump back in there as you have addressed all the questions from investors today. And of course, the company can review your questions submitted today. I will publish those responses on the Investor Me company platform.

32:55 But John, before I redirect investors to provide you with a feedback, which one is particularly important to the company, could I please just ask you for a few closing comments? Yeah. Thank you, and thank you everyone for joining us. As we say, it's '25, we hopefully see the sort of the end of the sort of post COVID malaise really in the industry. We're seeing a lot more cautious optimism with our customers. We have, as we mentioned, progress in The U. S. With the second customer, progress in completing that key transfer of work with a key customer, which we want to utilize that relationship in Europe as well. And really move some of these business cases into the from the engagement stage into the contractual and delivery stage, because again, the services are needed and will be even more needed as customers get busier and need to meet some of these challenging rate increases.

33:56 Fantastic. John, Rob, thank you once again for updating investors today. Could I please ask investors not Thank COMPOSITES PLC, we would like to thank you for attending today's presentation, you. And good morning to you all.