Velocity Composites (LSE:VEL) — Interim Results Presentation

0:04 Good morning, ladies and gentlemen, and welcome to the VELOCITY COMPOSITES PLC Half Year Results Presentation. Before we begin, we would like to submit, as usual, the following poll. For your information throughout this presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab situated on the right hand corner of your

0:25 screen. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today, and we will publish responses where it is appropriate to do so. These will be available via your Investor Me company dashboard. Finally, we'd like to remind you that this presentation is being recorded. I'd now like to hand over to John Bridges and Andy Beeden from VELLOCITY COMPOSITES. Good morning, guys. This is Andy Beeden, the chairman of VELOCITY COMPOSITES PLC. I'm going to take you through the first few slides and then hand over to John. So if we go to slide two, just to give you an overview of what we're going to discuss today. We got the highlights of the half year and, in fact, bring you up to date.

1:10 We'll deal with the COVID impact, but then we're gonna dig do a deeper dive into the aerospace industry as we see it now, our extensive business development work, which is in fact we are very busy in this area, and then a summary and an outlook. So in the last half year, in fact, up to today, we've actually been extremely busy in terms of developing the business. And the start of that is we've widened our approvals from Airbus into Boeing. So we've got a Boeing approval for our technology, and that is widening from Europe into Asia as well. And we also have increased our NAB cap score from the standard one up to the merit level.

2:01 And the merit level is a world class recognized blue chip award. And, again, this plays to our strategy of working with the large tier ones and primes themselves who, you know, aim to operate and have their supply chain operate at that sort of level. We've also done quite a lot of work reorganizing our customer facing team. This is meant that some people have moved on, and we've brought in a very experienced program director who will run the engineering and business development side of our business with John. And they have ten years experience working in composite materials for a big supplier into Airbus, and have been working on all the Airbus programs around composites.

2:55 They know us well. They understand the technology, and they have a lot of key strategic contacts. And, again, this strengthens the company as as well, and, you know, it all fits into our business development strategy. Now COVID, you know, is challenging for all businesses. For us, it's actually proved a point. As a smaller business in the aerospace industry, you will be challenged over the resilience of your business, you know, compared to very large customers and suppliers. To show you today that we have definitely met that test, we've been hit by quite a significant short term reduction in demand as customers have simply shut their plants down, and now they are reopening them.

3:45 But we're financially secure, and you'll see that we have £2,000,000 in the bank. We have it today, and we had it to the half year. And we also have up to 7,000,000, if needed, of debt facilities, including an additional 2,000,000 through the government support program, which we'll we'll probably draw down on in July, cost us nothing, and we expect to pay that back within the next year. It's simply a belt and braces approach in case there is a a second wave or some other challenges that come. We don't actually need the extra money today.

4:19 And a key message around this is though at the moment, there's an artificially low level of production going on within the aerospace industry, and it will when it recovers, it it will not recover initially back to the pre COVID levels. That will take a couple of years to achieve. The we have not lost any contracts. We have not lost any customers. It's simply that those contracts we have today are at a lower level of demand. On top of that, we have a very significant amount of new business in the pipeline, you know, transformational levels of potential new revenues. Again, none of that has stopped either.

5:07 All those bids continue to progress. And in fact, we always say that it's actually easier to sell our service to a customer that has a burning platform because they need to do new things. They need to consolidate plants. They need to free up capacity in plants that are being consolidated into, and they're looking actively for cost savings. And these are all the things that VELOSITES bring with its technology into the industry and into our customer base. And with that, I'm going to pass you on to John who's going to do a deeper dive in terms of the industry today and and also also our own strategy and business development. Thanks, Andy. Good morning, everyone. John Bridges, chief exec.

5:55 So really taking you on to slide four there. I think in terms of the the COVID impact, a pretty standard response had with most businesses in terms of understanding our demand, taking action to reduce costs, taking action to ensure that our material supply that's incoming was aligned to the reduced demand and really, you know, understanding the the immediate shock to our industry as much as everyone else's industry and and taking the actions to to preserve our position and our, you know, the balance sheet that we have. As part of that as well, so once we sort of move through the the crisis management phase and we've done our scenarios and, you know, recognize we have, you know, a period of stability and, you know, a a good horizon in terms of what that means, then we can start it and and have started to look at how we actually really capitalize on the the sort of disruption as as it's created. So, okay, we've got an immediate disruption on our existing business. But in terms of new business, how can we look at really tailoring our proposal to meet the the new requirements of our customers as they themselves navigate the effects of of COVID nineteen. So we'll talk about that in a moment around the accelerated customer proposal.

7:17 So that realignment is pretty much complete. You know, as Andy said, we still have a healthy bid structure and and quantity of bid there that's being worked on or has been submitted. None of those has deteriorated. And now we know that the with through the modeling that's been done, liquidity is sound, you know, we can really start to look forwards beyond COVID and see how we shape the business and shape the customer proposition to to, you know, better meet our customer requirements in the new post COVID era. Onto slide five, looking at the the industry. And, again, you know, as it says there in red at the top, any significant decrease in the size of the industry, you know, the current is around 25, 30%. We're looking at it until, you know, that two year recovery period is significant.

8:15 But whilst we're in our market share that we are, you know, we still have a huge amount of market to to operate in and to to bid for. And as we said, no bids have been affected and no current contracts have been affected other than the the sort of scale of those contracts. We're also starting to see some financial support from the government. So there was the sort of blanket furlough support, which we've utilized. But in terms of the specific industry support, you've seen the sort of recapitalization of airlines is is good. The the sort of plans for airlines to get back into flying programs, which is good. And, also, some more, perhaps, longer term actions where they've started to retire older aircraft sooner.

9:05 And, certainly, their four engine aircraft, you've seen a lot of work that's gone on where seven four sevens and even a three eighties have been retired sooner. So what we're seeing is airlines are reducing their capacity by retiring older platforms quicker. I think as well what we're also starting to see is as the government support the industry and particularly airlines, that that support always comes with strings attached. And the strings that we're seeing are that the the governments are looking for a return in terms of the emissions and the sustainability of the industry as as those governments come under pressure from from the, you know, wider environmental improvements. So, again, that's good for us because, you know, we operate in the newer side of the aircraft industry.

9:56 And, again, as aircraft get more efficient and are able to travel longer distances, less fuel, less emissions, then that's the key role that composites do play now and will continue to play into the future. And we've made that transition on the twin aisle longer range aircraft, and I think we'll see as well that that transition on the single aisle, you know, the shorter range aircraft will be a will be a composite one as well. So, again, we're seeing the capacity marked up by early retirement and, you know, still a healthy requirement for newer, more efficient aircraft as airlines recover. As Annie said, we're starting to see our customers respond to this change by starting to look at their own industrial footprint, starting to look at consolidation. And again, that's where our services really, you know, offer that immediate benefit to customers in that they can outsource a relatively non value added activity and free up real floor space that's ideal for for new, you know, production of the flying parts from other sites or other buildings as they consolidate their footprint.

11:02 So this is what we're starting to see from our customers, and, we we want to play an active part in that consolidation. And that's all been wrapped up really in our accelerated proposal, and this is, you know, where we've modified the the the proposition to customers, particularly around existing bids that are in place, where what we can do is tailor those bids to the the sort of post COVID response where they need those improvements quicker, easier, with more support from VELLOCITY to implement those changes. And, again, that's what our proposal is really offering there, a really much more fully integrated proposal rather than just the the the ultimate manifestation of supply of kitted raw materials and, you know, value add services, this is a full supply chain optimization service including the implementation of it. So that's where we see, you know, our tailored service really fitting to the needs of the industry.

12:04 Slide six, as Andy mentioned, we just wanna talk about some of our how we're tailoring this to the the business development activities. And, obviously, as you can see, a lot of this was begun pre COVID, but it's even more important as we look post COVID as well. So you can see as you picture there, it's more of our production areas. You know, it is a very technology driven manufacturing environment. We're really applying some very proprietary technology that we've developed and integrated ourselves into this huge mathematical puzzle, if you like, of how to turn raw materials into very efficient pre manufactured kits for our customers. So that technology is really being brought to the fore. So rather than have it behind the scenes, we're now part of our strategic direction of the company really bringing that proprietary technology to the fore, and, actually, it's now an integral part of the sales, not just the nesting software, but all the other elements that have been developed, and we'll talk about that on the next slide.

13:07 And really, that is because, you know, rather than be seen as a kitting company, as we've done historically, perhaps if we targeted customers at a tactical level, now as we target customers at a more global strategic level, we want to be seen and are seen as this turnkey supply chain partner that is able to look after the whole of that composite raw material supply chain and deliver it into our customers in a lean and efficient way. Key to that, as we've talked previously, is around partnerships. So rather than have to completely develop our own supply chain globally, you know, we can work with partners, like Encor in North America where we can utilize their existing relationships, their existing facilities and infrastructure, and really, you know, bring the composite side of things into their existing hardware, chemical, and, you know, other elements of the aerospace supply chain and and utilize that existing infrastructure to deliver our services as well. And that's, again, something that we continue to develop and continue to look and develop partnerships where we see the benefit.

14:12 Then we talked about the accelerated proposal and how that works. And then the other piece there in terms of the flexible manufacturing zones is once we've got all the technology, once we've got the bid, once we've got the the proposal into customers, clearly, then it becomes a deployment activity. And where historically, we've looked at, you know, opening facilities very close to customers or covering several customers, what the flexible manufacturing dome offers is where we need to really tailor a particular application to, you know, even one customer, one large scale customer, or several customers in a region. What we can do with these flexible manufacturing domes is create that capability at a much lower cost and a much more tailored and flexible way. So we'll we'll talk about that in another slide.

15:00 But, again, having the ability to deploy that technology in a low cost way, you know, really increase that return on investment,

15:06 we think is gonna be key to us as we start to expand the the footprint of the business. One thing we talked about at the half year, which has continued to be developed, albeit it's curtailed a little bit in terms of the physical opening of the facility due to the restrictions lockdowns is we have now an advanced technology development center on-site here in Burnley. That is is built. It's in the process of being finalized, and that really is allowed us to develop not only in the the the solutions for the now and for current business, but also for future business, and also for the the long term developments required for us to stay relevant in our global industry over the next twenty years.

15:52 So so, you know, you'll you'll see on the technology slide in a moment how that's helped to develop some of those technologies, but also how we look to integrate with our customers as they look to things like the as we talked about the single r replacement, the the ever increasing drive to make composites more efficient and more developed in from a manufacturing point of view with our customers, take cost out, but also look at things like, you know, some of the more wider activities like wind of the future and some of those real structural industrial projects where we need to develop new technologies and new techniques to to meet the customer requirement. Page seven is the summary of the technology.

16:42 I think, you know, where we've developed this ourselves, historically, we've we've obviously focused on the advanced cloud based nesting, which is key to certainly the material efficiency side of what we offer. But that's really just part of a much wider system that we've developed called our VRP system. You can see that sits in the core of all this and, you know, integrates with all these sub technology areas that have been developed to to help us to to meet the customer challenge. So, clearly, obviously, nesting is important. The the actual cutting of materials and preparing of those kits is important there. We have a lot of activity where we take a three d customer requirement. We have to bring it back into the two d

17:25 world to understand how we manufacture it from from the two d raw materials and then back in the three d world for, you know, the customer use. So we've developed some integrated some existing technology there that looks at scanning three d assemblies at customer sites, capturing that data really quickly, really accurately, and then bringing it back to the tech center for for development. On some of the other projects that we've developed, there's a lot of work that's been performed on the things like welding of polymer films for some of the three d vacuum bag assemblies that we manufacture and making that more robust. With the the life sensitive materials that we manage on behalf of customers, We now have a a bespoke RFID, the sort of radio frequency identification systems that actually sit on the materials and track their life, their progress, their position, their, you know, in the freezer, out the freezer locations, and really manage that for us in an automated way so we get much better life management of our materials and control of those materials as stock.

18:34 We talk about automation in our world, you know, we still relatively utilize the sort of human aspect of the manufacturing of the kits because of the the diversity and the complexity of some of the materials. The way we can add automation is in terms of the inspection and the verification in line with our approvals. So we've done a lot of work looking at an automated vision systems to inspect the cut shapes as they're manufactured, to verify that they've been, obviously created correctly and and have found themselves into the correct kit. And all that's done automatically and, you know, verified, ready for incorporation into our certificate of conformity onto customers. Linked to that is another system we've developed for verifying processes.

19:19 So, you know, certain customer wanted a certain process verified. So rather than do that manually, we can develop these, you know, existing technology at that's out there on vision systems integrate them into our system to to really make sure that we're staying at the leading edge of where the technology needs to be to help us to do what we need to do. And then, of course, demand management, tracking traceability is built into the system, and then linked with the the ability to deploy that through the flexible manufacturing systems, you know, be very close to customers in a low cost way. Again, both ourselves and our customers see a really powerful proposition that's a long way ahead of of where they are. And, also, realistically, for them to invest in this to this level individually, it doesn't make any business sense.

20:06 They're starting to understand and and by working with us, the real benefit of this technology and seeing it deployed across their their businesses worldwide is much more cost effective than having to start and develop it all themselves because, clearly, it's not available off the shelf.

20:23 Page eight, really, just an update on US opportunity. So as previously announced, we have a partner in North America. It used to be called Wesco. They've now merged with another company called Patternair and are known collectively as Incora. It's a much larger organization. COMPOSITES is very significant part of their growth ambitions as well working with us. So, again, we've continued as much as we can through the restrictions to progress the the opportunities in North America with them. We'll be picking those up, obviously, again, as as restrictions are lifted, but nothing's changed there in terms of the the bids that we have in play at the moment. We will be opening a a facility in the Atlanta region.

21:09 Those bids incorporate a flexible manufacturing system, which you can see there in the picture. And, again, it's perfect for what we need. These are twenty plus year warranted structures, very low cost. But for us, what we need is a a very controlled environment, and this is exactly what these need there. You know, a lot of air management in these structures. It's filtered. It's environmentally controlled. It's particle controlled. It's exactly the same environment we need, and we see a real benefit of deploying these very close to customers and offering a a a very bespoke service free of logistical headaches. On page nine is a similar update for Europe. So, again, you can see the sort of people we're working with in the addressable market.

21:56 Really, three pronged type of approach in Europe, mainly direct rather than with partners, but we do have some partnership work in Europe.

22:08 But, essentially, here, it's about continuing with the the live bids we that already have and the bids that have already been submitted and progressing those through now with the accelerated proposal. And then with existing customers where we're completing the remaining projects on a particular site or other sites in their portfolio in Europe where they can offer a sort of a fully regional proposal. Secondly to that is targeting more direct work with the key OEM in Europe, which of course, Airbus. So again, the changes that we've made with the customer programs director and the the refocusing of that team really helps to improve the the direct relationship with Airbus and its direct supply chain because, you know, that's where a lot of the the businesses, certainly in composites in Europe, and, you know, understanding and being an integral part of that supply chain is key to our growth.

23:05 And then the third piece of the of the European opportunity we see now, certainly post COVID, is we're heavily focused on the the civil market. However, there is also a large military market which is less affected by things like COVID. So, again, we've got a strategic approach there, particularly around the f 35 supply chain and some existing customers in the in the regions that we already have facilities to really target that supply chain at a much more strategic level and offer that particular customer and customers, you know, a tailored approach with with military to try and improve and increase the amount of military business within within VELOSITI.

23:51 Page 10 is our financial summary. And, Andy, would you like to take us through that? Yes. Thank you, John. So if we go back to when COVID impacted the supply it started to really impact in March and then very significantly in April. And the initial impact is that most factories and facilities went through a period of shutdown and then reopened at lower levels. And some then went into secondary shutdowns as they cleared down inventories and awaited what the new norms may be.

24:31 So you had significant disruption March, April, May, and June. And and as we come now out of June, we're seeing nearly all customers opening up their facilities. So as I we've not lost any contracts, but, therefore, the volumes being taken by those customers was significantly curtailed at the end of the half year and then into the second half of this year,

24:59 and you can see that reflected in the revenues. And before that impact, we were on target to be similar year on year, probably with a better gross margin year on year. And the gross margin now has been slightly impacted by the fact that you carry fixed costs through the factory, which no longer get covered by the sales margins. We but we're not significantly behind last year on that gross margin, and that simply reflects the fact that we would have been ahead of it, you know, strategically. And then just talking about our gross margin, the new business that we're working on and the way we're selling that enables us to ultimately widen that margin because we're getting better value for the full technology and services going forward. And that is one of our strategic objectives.

25:54 The impact, therefore, of the lower revenue is a small operating loss and also a small EBITDA loss compared to where we would have expected to have been. And that, again, you know, is an artificial position, really, and will be in the second half of this year. And more importantly for ourselves and yourselves as investors, it's what will be the new norm. What will we get back to? And the expectation at the moment is that within twelve months, the market may settle down at 25% contraction, which for a big company, the lot our large customers is a huge headache, and they have to consolidate sites and and make major restructuring. For ourselves, which as you've seen, we're running just penetrating the market and we have significant new bids ongoing, which are transformational, we can live with that. That won't affect the long term strategic direction of this company.

26:54 We have to start a little bit behind where we were, and that's frustrating. But it will not affect long term drive for this company and its value longer term. And just to reiterate, really, we have 2,000,000 in the bank plus the ability to draw down on up to 7,000,000 in debt. You know, we don't need that 7,000,000. You can see that, but, you know, it is there, I guess, as a backup. And the invoice discounting facility is there to manage growth rather than, you know, any anything else. And the government support is there to underpin the costs of the lockdown. And, also, given we didn't actually need it initially, it's there as a belt and braces in case there is that second wave and and a real unexpected second lockdown.

27:46 So I'll pass you back to John to do a sum up, and then we'll move on to the questions. Thanks, Andy. So on page 11, as you can see there, I think, you know, on on planned, of course, and on on unwelcome, but we've have to demonstrate and, with all the work we've done through COVID, this very resilient model and the fact robust financial, liquidity position and, you know, also make sure

28:16 and and demonstrate and be very, very comfortable around the ability to withstand the recovery scenarios because, you know, recovery, of course, is respected. We're applying for that, but we want to make sure that the company's capitalized accordingly. We have this strong pipeline, circa 30,000,000 at the moment, which we continue to progress. Some of those have been bid or in bid or are planned bids and and responses to RFQs from new and existing customers, and we'll continue to work through those as we move through this recovery period. We've strengthened the business development team, which is key, and, obviously, we find the pitch in light of COVID to really really tailor that now to the exact requirements of customers as as they could come through this this period, and really make it much easier and quicker for them to adopt the services of VELLOCITY as they need to, transition themselves.

29:19 And, again, that's that's possible because of all the work we've done prior to COVID strategically, but also the changes we've made in the teams and the the changes we've made to the the customer engagement processes, which allow us to really tailor this now and get actively involved in our customers' recovery and restructuring processes and give them the savings that they need now in a much more immediate way. The partnership with Incora in The US is obviously progressing very well. A lot of activity there, and the primary bid includes the deployment of a flexible manufacturing system. So, again, once that's live in that particular world part of the world, you know, we expect that the the ability to demonstrate that locally to have, you know, a very positive effect with other customers when they can see it in action and the benefits that it bring.

30:17 The leadership changes in the business have been very beneficial in terms of, you know, the the strategic changes we made prior to COVID and managing through the COVID process, and that's both at the the nonexec level and also the exec level. And now we have a very good focused team, awful lot of commercial experience, financial experience, but also key aerospace experience and composite experience. So certainly, I feel now we've got a much more balanced and capable team with the experience needed to move into the the sort of next phase of growth.

30:53 And with the with the technology that we've developed to to deliver this, we're wrapping that up within our advanced technology center to really get involved in solving our customers' current problems and developing solutions to suit, but also being involved in the longer term evolution of the industry and making sure that we have the the the key technology of products and processes to enable us to to offer our services, not just now in the next five years, but also twenty years as the industry moves to this low emission, lightweight, composite aircraft structures. And then finally, if we could summarize all that in, you know, two sentences almost, I think, clearly, as with everyone, the trajectory has been affected by the disruption, but the opportunities certainly haven't diminished.

31:47 The pre proposition that we have, we feel, is even more relevant now, and we're getting some very positive response from customers as we start to roll that out. We wanna make sure that we're set up not only for the new training environment now with customers, but also the expected growth period

32:05 once the the industry recovers and moves to this lightweight low emission phase. Brilliant. Thank you very much, John. Thank you very much, Andy. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. But just while the company take a few moments to receive those investor questions submitted today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your Investor Meet company dashboard. Before we just go into the Q and A, I'd also like to remind all investors that your feedback is very important to the company. Immediately after this presentation has ended, you'll be redirected for the opportunity to provide your feedback in order that the company can better understand your views and expectations.

32:58 John, Andy, obviously, investors had the opportunity to submit questions pre the event. We received a couple, which if I could start with those and then perhaps if I could ask you then to address those have been submitted today and just remind you if you could tell us either who they're from and particularly read the question so everybody can then address your response. And of course, I know you can only answer so many questions within the remits of what is in the public domain. John, Andy, the first question that we have pre submitted by investor was, can you elaborate on the VELOCITY COMPOSITES PLC's exclusivity rights incorporated into that agreement between the two parties? Yes. So we have an exclusive partnership with INCORA in North America, it's it's expandable to other territories if we both see benefit, but it's really focused around North America and the significant customer base that operates there.

34:01 Thank you very much indeed. The follow-up question submitted was what efforts are being put into diversification from aerospace and conventional aircraft? The automotive, drone taxi sector both seem likely candidates for VELLOCITY COMPOSITES Do these form part of the identified growth strategic plan? Yeah. So I think we we talked briefly about the the sort of civil side and military side. So I think military is a focus in terms of the sort of diversification. One of the constraints we do have is that, certainly, in terms of our approvals and the the specifications we adhere to, it's pretty much aimed at aerospace composite.

34:46 So, you know, things like automotive would would not be seen to be to you know, there are risks of operating both automated grade materials and aerospace materials and processes in the same building, so we'd have to look at that. But in terms of, you know, things like UAVs, that is something that's active. There are some customers who are working in both civil aerospace and and UAVs. So, yeah, the it's very similar from that respect. A little bit more consideration if you were to look at automotive, but I think the other thing to bear in mind is the value. I think we we see aerospace is where the value is, and there's much lower value materials that are used in in automotive. So I think it would have to be separate, but it's we are really focused around things that fly at the moment. Brilliant. Thank you very much for that. So, obviously, if we can then just move on to those questions that have been submitted today. Obviously, if I leave it to you guys to to address those ones where appropriate. And as I said, if you could read the question, that'd be very useful and perhaps who it's from.

35:52 Okay. Well, I'll well, the first question is quite a long one. So I'll I'll what I'll do is I'll summarize. It's from Alex R. And, really, it's asking what has changed now from, say, the last two or three years where the company had flatlined in its revenue, but, you know, had the expectations of growth. And so the essence of this question is around what, you know, has changed in terms of getting opportunities over the line versus maybe the last looking back the last few years. And I think, John, you you probably could very easy answer that question now given your presentation. Yeah. So I think in terms yeah. The the growth driver is certainly the same.

36:41 We've looked at, you know, how we engage with customers and where we've tried to engage at a being, you being the size that we are and were. I think, there was a real engagement at the the lower levels coming in at site based level, whereas now and we talked about it at the the sort of full year as well. We're we're engaged on more a smaller number of larger projects, albeit at a much more strategic level. So that's certainly a completely different strategic approach, you know, based on the work that was done certainly last year with the the the exec and the the board. Yep. Yep. Absolutely. I think that's the key that, you know, the the opportunity for growth is clearly been there for a number of years.

37:31 I think it's the way we now engage with the customer at the right level. So with a number of key customers that we already sell to at a a u business unit level, we're now engaged with people who work at a strategic level. And, you know, they are empowered to look across their whole business and look at us from a strategic perspective and then push that back down into opportunities. Some we've worked with before and others that, in fact, opening up and doing a a cut and paste of what we do across their facilities. Unlikely, we have to be able to react to that on a global basis, hence, our flexible manufacturing solution. So the there are there's been a couple of questions that were, I would say, asking us about our USP, and I think we've answered that now. They came in earlier on the presentation, so I don't see we need to go through that again.

38:33 And there's been a quest there was a question also on what we saw around expanding in The US and would acquisitions help accelerate this. And the answer is we we wouldn't see the need for an acquisition. We have a a partnership with Incora who are on the ground in The US, a major facilities provider there. And, you know, the we wouldn't need to invest in our dome structures across The US as we win business. But we we wouldn't see the need for an acquisition because we've both sell got our own networks and also the support of Inkura. So I think that's the the answer to that one.

39:20 In terms of and the the next question, which comes from Robert m, is what is the outlook for CapEx and, again, the cost, maybe the expansion in The US? Well, just currently, we've obviously gonna freeze on any nonessential CapEx to retain cash. But we have already costed the initial first phase of expansion into The US and phase into Europe, and that's all covered by the current EIS funds that were raised at the IPO. If we then go into a second phase, then we do have the invoice discounting solution, which can help fund that.

40:06 And we could look if we had a very significant demand for CapEx at raising equity. And we also should point out that the solutions that we've developed are actually far lower CapEx intensive than just putting up your traditional facilities on the ground across a a new region. And they are able to be deployed on winning a contract. And in fact, we we include within the contract the costings for putting in those facilities. The next question is about is from Craig p, and it is about the government aid. And it asks what are the figures and shown.

40:55 And it says, if not, what would they will look results look like? So I think that's really just I I suspect that's a question about what the aid has been for VELLOCITY rather than the industry. And as we said, we have furloughed. It is the predominantly lower paid up manufacturing operators, but we have furloughed about 60% of our staff. And that probably gives us a benefit to several 100,000 a month while we do that. And then the next question is from Alex r, and it's about the 30,000,000 pipeline.

41:43 And is this the annual contract value or the total contract value? And it is the annual contract value. So, you know, that's when we quote those contract values in that way, we're talking about potential for for an an annualized amount. And often the contracts come with an LTA, which is usually between two and five years in length. The next question is from Alexar, and it says, again, can you run through the CapEx working capital requirements onboarding new business? Well, John, do you want to maybe elaborate, say, on The US first stage opportunity just to explain maybe some of the costings around that? But what I would say is that winning business in The UK clearly just fills the current capacity of the current plants, and therefore, there is no extra CapEx.

42:53 And, you know, it's covered by the able to fund that through discounting the invoices. But there's a relevant question if you move into new territories. So, John, maybe to highlight, you know, how you see that initial implementation in The States. Sure. Yeah. And and I think it also answers Alex's next question. So in terms of the CapEx, that that initial inquiry has been supported from The UK from VELLOCITY's point of view, and, obviously, in CORA have their local teams. The CapEx really just covers the the phase of, you know, the the engineering creation of that bid. So, again, if those familiar with the company will know that we don't very rarely get very refined RFQs. It's more of an engagement with the customer to understand the current state and then determine a a future state and a a complete supply chain solution and then, you know, bid at that level. So there's a lot of engineering work from our business development teams to come up with that and to understand how we would supply them.

44:05 And, you know, you you almost having to create the service before you can bid it because of you understanding, you know, the nesting scenarios, the materials, the costs, etcetera. In terms of CapEx, already spent in North America. We have some spend already on some of the long lead time equipment, so some of the cutting machines. And other than that, really, it's about building the teams, and we have a full implementation plan on how we would, you know, recruit and train the people supported from Europe initially on the first opportunity to to get that flexible manufacturing center set up and up to speed with all the the training requirements and the people requirements. And I think the the next point from Alex are around your main competitors. I think this this covers that. We're really the main competitor for us, and in that example and all the other examples is, you know, this work is currently performed by our customers themselves, and it's really about helping that particular customer and and and all customers to to outsource this in a way that they've never done before. It's always lived within their facility.

45:16 And now just as the industry and their requirements have have grown, it's about being able to offer to them a complete service that's better, that's more, you know, utilizing all this technology to take out the waste, the cost, the risk in terms of managing these materials and providing a really lean and efficient service that's premanufactured and delivered right to the line side. So in terms of our main competitor, it's ultimately it's our customers themselves. And, you know, some of the challenges we faced has been helping our customer to understand their current costs because it it spans many departments internally and lots of things are lost in, you know, areas like hover overhead. So, you know, part of the accelerated proposal is to really perform not just the, you know, the the engineering work and come up with the price for the service, but also help customers to realize what that means in terms of their current costs and the total savings and the the sort of total cost of ownership of this part of the supply chain and how, you know, how much it's can, you know, transformed by moving to VELOSITI and all those costs are realized.

46:22 So that's, you know, that's where a lot of work's gone on. That's where a lot of work continues and really helping our customers who are our competitors to become, you know, very content with a complete outsource solution. And then, obviously, now in this environment, it's about doing it in, you know, relatively short order now because of the immediate need to to take that cost out and to free up capacity and space to do other things. And so the next question, which is Ali asked, thank you for the presentation. Can you explain the gross margins at circa 20% for a high value added company? So one of the reasons for that is that there are two well, there's two key points. One, we do have a strategy to improve our gross margin, and you can see in the way that we now are selling our services and technology, you know, it it's it's moved from being someone who can cut out parts for a customer to someone who supplies a full solution in the supply chain, and we would expect that to improve our margins.

47:31 The so some of this is historical. The second factor is that one of the primary elements that we are buying and selling and and therefore preparing the material for our customers is highly is is expensive composite materials, And they are their cost is a pass through in our business. And that does mean that the margin is, you know that cost is passing through the p and l and the cost of sales. If we work on what we call process or consumable materials, that margin is very significantly higher because the value of the material is lot less versus the added value what we charge.

48:24 The and then the next question is, basically, how do we split the revenue between ongoing customers and ad hoc revenue. We have very, very little ad hoc revenue. So all our revenue really is for ongoing customers. We had a little bit of we will have a little bit of revenue in this second half year, which is actually manufacturing PPE, and we're using our cutting machines to help n a NHS suppliers. But that, you know, is fairly small and obviously is ad hoc, but the rest of our revenues really are repeating long term revenues from long term contracts and more importantly, long term relationships.

49:16 John, would you wanna add to that? Or Yeah. Totally totally agree, Andy. It's very little is ad hoc. It's all it all has to be very long term, all contractually agreed. The materials all flow down. It's all global flow down pricing. And so it there there isn't a very strong long term element to it, only on the material and the pricing, but also the fact that, as we're saying, this is work which transferred from our customers. It's done in a very controlled way. And so any transfer out of customers, you know, takes time and and is very carefully managed. And so, you know, one of the, you know, parts of that strategic customer relationship is the fact that, you know, we work very closely because it's very difficult to move this from our facility as well. So we wanna make sure that we build very strong long term strategic relationships with customers and continue to offer them, you know, high levels of value and incredible service levels.

50:16 Thank you. John, Andy, I think just monitoring the questions, I think you you've given everybody a response to those questions that have been submitted today. I don't know if you just wanna have a a a quick wrap up and then hand back to me so I can obviously redirect investors for the ability to give you feedback. Okay. Thanks. Well, we thank you all today listening and asking the questions. Recognize, you know, as investors, you know, these are difficult time and challenging times. But the message from the board and its management from VELLOCITY is we did the quick things, the things that needed to be done in terms of protecting the business and the investment. You know, we can flex our cost base and will, if needed, to adapt to a lower, shorter term revenue and demand.

51:13 But the business case for long term investments and growth remains. And all the work we've done in the last twelve months, wrapping it up into a technology solution, pushing that out to customers at the right strategic level, building up that network across the industry, getting Airbus and Boeing to know who we are, and actually being advocates of us as well as building relationships with the big suppliers in the composite industry and getting those new qualifications in place. This is all major progress that we feel will still, you know, yield significant benefits for investors and the company in the next twelve to two years twelve months to two years. So I thank you all. I thank John for your presentation and going into the new technology and everything, and we'll speak to you next time. Thank you very much, John. Thanks, Andy, and thank you really for giving all investors the opportunity to to become part of your investor roadshow around these results.

52:21 Could I ask investors please not to close the session as you will now be automatically redirected for the opportunity to provide feedback? You access this meeting from our website, you will be Once again, thank you very much, everybody, for attending today. That now concludes today's presentation. Thank you once again.