Velocity Composites (LSE:VEL) — Preliminary Results Investor Meeting

0:02 Good afternoon, ladies and gentlemen, and welcome to the VELOCITY COMPOSITES Results Investor Presentation. The company may not be in a position to answer every question it received during the meeting itself. However, the company review all questions submitted today and publish responses where this is appropriate to do so. These will be available via your Investor Meet company dashboard, and we'll

0:33 send you an e mail to notify you when they're ready for you to review. I'd also like to remind you that this presentation is being recorded. Before we begin, we'd like to submit the following poll, and if you could give your attention to that, we'd be most grateful. And I'd now like to hand over to John Bridges, CEO Chris Williams, CFO and Andy Beeden, Non Executive Chairman of VELOCITY COMPOSITES. Good afternoon to you all. Good Good afternoon, everyone. I'll take you to the first slide. And as chairman, I wanted to just give an overall summary, we're going to pass you on to John, to Chris, our new CFO. Clearly, this past year has been extremely challenging for the aerospace industry.

1:23 However, we're take you through VELOSITES journey in that. Naturally, there are still some very significant opportunities for VELOSITES looking forward in the composites aerospace industry. We've taken a lot of actions to make sure that we can take advantage of what we see as the way forward now, and it's been a very challenging time. We had to understand what the real impact of COVID nineteen was gonna be. And like a lot of people, we all thought it would not extend as long as it clearly is going to. Once we understood that, though, and we're working with our partners in the industry, suppliers, and customers, and end market, customers, including Boeing and Airbus, we were able to put together a plan that extends over quite a number of years both to exit the current, situation and then to rebuild and work with those customers over a long time frame, which we believe will lead to some very significant growth and opportunities for VELLOCITY.

2:32 Now in the short term, we've had to take some costs out and right size the business, and that has been fairly dramatic. We've gone from a 132 people down to 70. We've also, rebuilt the senior management team and the board.

2:47 Couple of years ago, there was virtually no one on the board who had any aerospace experience. Today, myself, who's NED chairman, has over twenty years experience in aerospace materials. John Bridges, our CEO, who founded the business, has always worked in the aerospace composite industry. We also bring have brought in Rob Sehwin, over twenty years experience at GKN Aerospace, and we've brought in Margaret Amos twenty seven years experience in Rolls Royce. So the non executive team and the full board now is very, strong in terms of this sector and also not just in civil aircraft, but in defense as well.

3:33 Below the board, we've strengthened the team as well. We've brought in a new programs director. Chris Williams, who's on call today, is our new CFO, which brings a wide range of experience from corporate finance to systems to commercial experience. And we've also been strengthening our technical skills and our innovation, which is critical for us in terms of winning business long term. Big blue chip tier one customers are not going to just outsource anymore just because we may be a little bit cheaper than what they are doing something internally. It has to fit in with their strategy in terms of their technology. We've invested very heavily ensuring that anyone who outsources their front end or their composite production to us is outsourcing into a world class facility We wrapped around services around the supply chain, and we can work with them on innovation of new products and help them win new business.

4:36 So we give a full turnkey solution. And that, we believe has, one has, credits with our large customers over the last six months, and we expect to see renewal of some long term contracts as well as new business being onboarded in the next twelve months. Now what this all means is that with the rightsizing of the business and also the new business that we are winning and securing is that we expect to be a breakeven EBITDA in the second half of this year despite the fact that we have ongoing shutdowns with our customers and, you know, an unknown situation maybe in the next six to twelve months. We have done enough to get back to a breakeven position, but we protected the business.

5:26 Longer term, this means we're well geared operationally. And I believe that we will get back to not just get back to the current revenues, which were pre COVID, but we will surpass them because we actually have more business today than we did then. It may be at lower levels at the moment, and that may continue for another year or so. It will change, and this business will benefit significantly from it. So So that is the message from the board and from myself as the chairman. And I wanna hand you over now to our CEO and founder, John Bridges. Thanks, Andy. So just picking up on slide three from some of the points that Andy's already mentioned and given a bit more detail around those. So as Andy said, you know, clearly, we went through quite an immediate disruption caused by COVID-nineteen and our customers immediately turning down demand on us because they themselves had seen the uncertainty through the demands from from aircraft build rates.

6:36 So, again, those of you that know the company will be aware that, you know, we have quite long term supply of materials. It's a life material product as well. So there's a lot of activity initially when the immediate disruption hit was to to right size that supply chain and ensure that material that we already had in stock and material that was due to be delivered

7:00 was, you know, balanced with the needs of the customer and the changes in their demand. So again, we work very closely with our customers to understand that and work very closely with our material supply partners really to balance that need and supply and demand between those two huge users of the products and really align that to ensure that every material that was was coming in was for for a need and material in stock was provided for in terms of its consumption and management with our customers. So, again, a very difficult situation because of the immediacy of it, but a lot of work with those partners to to right size that. As Andy has already mentioned, clearly, the disruption was gonna last for a lot longer than initially thought or suspected.

7:51 And so the next thing then was to focus around rightsizing the business to the the new production rates, if you like, whilst everyone managed this disruption. So as you say, there was a significant reduction in headcount. We also did some reorganization of the senior management roles to align things mainly around the supply chain side, around operations, plus around new business with with James joining us in the customer programs team. I think all that work was incredibly difficult. What it did do was strengthen our relationships with our key customers and our key material supply partners, really because it's all around this is you we talk about later in terms of the technology, this is all about real time data and being able to understand the immediate impact of changes both in demand, both in material supply, both in consumption, efficiency and really rationalize all that into very clear signals for both us, to our customers, to our material suppliers in terms around what that means for the long term picture.

9:05 So yes, it was difficult but it also really strengthened those key relationships and we, you know, thank customers and suppliers for that hard work and these unprecedented times. But it did not just build the relationships but really help to further develop our technology and our processes to manage this sort of unprecedented disruption. Clearly all the way through that, we have to have some very robust cash management activities, really again feeding in from that real time immediate information to understand

9:45 And that. We'll obviously we did the rightsizing activity. But also we utilized the CBIL scheme and subsequently that's been extended as, again, everyone's realized sort of longer term disruption that's going to be caused. All that activity, yes, incredibly difficult, incredibly challenging, a very fast moving picture, a lot of uncertainty. But again, I think it really proved the relationships, it proved the technology, it the systems and the people in the business, their resilience to work through some quite challenging times.

10:31 As it says there, net cash remains positive and we sort of close off FY 'twenty really or certainly calendar year 'twenty with an end to the immediate disruption and crisis management and move towards looking forward and understanding what the recovery looks like and what the industry looks like over the next year or so. So taking us into FY 'twenty one,

10:57 as Andy said, that work was the challenge. And again, let's not underestimate that whilst this was difficult for us, it was also incredibly difficult for our customers and suppliers as well. So certainly, if we take our customer side, they were doing a lot of work to right size their business and understand the impact on them. And these are quite large manufacturing facilities around the world. A lot of activity was going on there. And I think from our point of view, we you know, working with our customers, we really reinforce the value of working with VELOSITI, particularly through this unprecedented disruption. And what that means, you know, going forward is, you know, we look to reinforce those relationships and really, as you can see, two key customers have confirmed their intent to renew those contracts we're working through and we'll be announcing as they come through.

11:49 As we've also talked about, all these customers that we work with, they're all large customers with facilities around the world. And one of those customers, in addition to that, is looking, you know, as part of a continued rollout is to is to grow that base across other facilities as well as their facilities in in Europe. So again, it's positive output from some very detailed and intensive work with customers as we as we manage the disruption. Clearly, has been very difficult within local areas, let alone nationally and internationally, and that has put a constraint on certainly the new business side of things, particularly as we understand and, you know, we've talked previously about how important it is to have very close relationships with customers and be very integrated into their sites and facilities and and to develop a solution unique to their exact requirements.

12:45 So, you know, we're starting to, you know, we're focused mainly around The UK, particularly in the disruption. We have we maintained, you know, contact and dialogue with our potential customers in in Europe and North America. And what we're really starting to see now is a reengagement with those customers. Everyone starts to come out of the sort of crisis management phase, clear the year and then start looking forward in the new year. So we'll pick those activities up when travel allows and as customers finish their own, you know, of rightsizing activities start to look forward. And as Andy mentioned, we want to make the, you know, the and take positives out of this situation. So clearly, all this hard work has led to improvements in how we operate and higher efficiency and better and more novel solutions to our customers.

13:42 So it's clear that we will really want to embed that learning into our systems, into our processes, into our technology so that it it sort of raises the bar and that becomes the new norm in terms of the service offering. So you may remember we we opened our R and D center here in Burnley at the start of the start of the pandemic really. And we've continued to invest with the in terms of the people and the processes from there to really develop our next level of systems technology, our next level of systems integration, industry four data technology and really to drive that real time advanced manufacturing data driven processes that really allow us to hone in on the most efficient and the most smarter way to perform our manufacturing and to perform our services to offer the best efficiency to our customers.

14:39 So that has continued. And, again, learn building in some of the learning from the from the quite unique circumstances that happened in FY 2020. And as part of that, relationships that have been built and developed and enhanced through that period, we're also working with some of our other partners looking at new propositions and new service offerings in new new industrial areas where we can see that our technology and our services are just as applicable as with aerospace. Now we're not doing this in any way that sort of diverts us from our from our commission. We're really looking at ways where, you know, in quite risk light way we can look at new opportunities and new industries really harnessing the power of some of our large, very well represented partners in the aerospace and particularly the composites industry.

15:35 So I think that's really a summary of the previous financial year and really a look forward into what we see happening in this new financial year and we'll pick up some of those points later. But I'd now like to hand you over to Chris Williams, who'll take you through some of the financial summaries. Thanks, John. Good afternoon, everyone. As Andy said, the business in the middle of f y twenty and new to the business in in early August. Started, so I I think I've kind of had a interesting kind of few months kind of getting my head around it all. But think what I'm talking to today is a is a a pretty good business that's at the time, was kind of understanding the the the true impact of COVID and and and what what what the situation has done, certainly, for myself, given me kind of two very clear priorities over over the last six months or so around them being one big cash liquidity and cash forecasting and the cash needs of the business, getting very quickly to grips with that. And the second one being around performance, the commercial performance of the business, looking forward beyond this kind of COVID situation as as to what the shape of the the business is, but but also understanding the the current situation with more clarity as well. So and so

17:08 starting with that second one, the performance and just looking at the P and L for FY 'twenty. So clearly, taking a big hit in the year, 44% down at 24,300,000 to $13,600,000 in FY 'twenty.

17:27 By far, the main driver of that and almost exclusively is underlying existing demand with existing contracts and customers. I think it's fair to say the first four months of the year went as expected and as according to what management thought the year would look like. And then beyond that, when we went to the first lockdown and beyond the volatility we saw in the demand coming from customers, coming from the OEMs, it's it's been a year of trying to find out what that new baseline underlying demand is. And and And that's been the course of the year and even a little bit into this year is bottoming that out. So sales dropping 44%.

18:15 You see the big driver on profit is the gross profit decreasing $2,900,000 year on year. The sales decrease volume decrease contributed $2,300,000 towards that. And to make it up to the 2,900,000

18:30 the final $600,000 was due to stock provisions we took at year end based on our kind of best insight at the time around slow moving stock we held as a result of the volatility in the demand. But what I would say is we've also reflected a prudent position in this given the uncertainty in the market at the time and to an extent now as well. They're the two guys behind that. That stock provision has impacted the gross margin. You'll see it's decreased to 17.1. Last year, it was at 21.7%. But without that stock provision, we would have been on a par with last year. We'd have been at 21.7%.

19:19 And I think that's a testament to how well VELOSITES have flexed their operational costs in the current situation. We've utilized the furlough scheme, which has helped.

19:29 We're now slightly more permanently flexed with with the ongoing demand based on the the unfortunate rightsizing we've had to do in headcount reduction from 132 to 70, but that that has helped support that and made made us future proof. From from an admin cost and an overhead perspective, so step steady year on year. What what I would say is that that probably doesn't reflect our efforts in the year,

19:58 the kind of rightsizing and the reducing the cost base. I think that being the notice period for people to work, the time to take costs out of the business, we have and are on target to this date to take $1,300,000 cost savings out of that. And if you were to look at it versus the early FY 'twenty months at the overhead levels then, we've taken $1,700,000 out on those monthly run rates year on year. So real focus on that, you know, certainly over the last six months and

20:34 looking at a kind of EBITDA breakeven cost base on FY 20 sales levels. So and and that's that's certainly in a in a positive place at the moment. If we look at the exceptionals, so $300,000 relating to the restructuring and the people cost associated with that. But that really brings us to the operating loss of 3,100,000 for the period. Adjusted EBITDA at $1,900,000 to $2,800,000 down from FY 'nineteen, which is at $834,000

21:06 So in summary then, performance really hit by the underlying sales demand dropping off very significantly. A little bit of gross margin hit from the stock provisions and slow moving stock. But all in the process of things as we've been rightsizing the business and future proofing us for future years. Okay. From a balance sheet perspective, so net assets for the year on year period have reduced $3,000,000 as that loss has been absorbed within it. But I think the key in the balance sheet to pull out is it's been a year about cash control. And certainly, as I've got to grips with it as well, it's been about working capital and tight cash control.

21:53 I'll start with the working capital side. But looking at the stock front, you can see there's a 1,300,000 reduction year on year there from 3.2 to 1.9. Six 100 k is obviously that increased provision for the slow moving, but the remainder of that has been a targeted focused stock reduction program where we've been really driving the utilization of the existing stock we've got on the previous activity levels.

22:21 And I'm expecting another $05,000,000 to come off that figure this year, that's helping support our strong cash position. From from a data data side of things, we haven't seen a a great deal of change in the customer profile mix.

22:39 But across the board, they've reduced their sales demand. And so we've seen debtors fall in line with that and as I said, reduced 1.7 year on year. From a creditor's perspective, you see a reduction there of $1,700,000 That is really reflecting the kind of minimal stock purchasing activity we've had at year end and as I've said around the focus on utilization of existing stock we have. You'll see some significant movements in noncurrent assets and the noncurrent liabilities. It's just worth flagging that under IFRS 16, we've had to make right of use assets of being capitalized and the and the the equivalent lease liabilities have been recognized in that. So that's 1,100,000 of noncurrent assets due to recognized as right of use.

23:33 Within that increase year on year is also 700,000 CapEx for the year, which is related to completion of the R And D facility in the early part of FY 'twenty and set some spend on equipment in The U. S. Operations, which have been largely paused as travel halted between us and the states. And then finally, you noticed the loan there, 500 ks current loan, is 1,500,000 of noncurrent liabilities related to the VEL loan. So £2,000,000 as as announced for the was the VEL support loan that we received initially for a two year period. We've now extended that to six years in total, so an additional five years after the twelve months interest free.

24:24 And and that profile much more suits our business forecast needs of the business as as we as we go forward into the future years. So and so we're balance sheet. It's been all about cash. You see our cash position, 3,300,000 versus last year of $3,400,000 So only a $100,000 decrease. So relatively strong position on that, and that's been helped by the working capital work we've done there as well as the CBIL and the further government support and tapping the cost base as quickly as we could. Moving on to liquidity. So pretty nice on liquidity position. As John said earlier, net cash position, we finished the year of 1,900,000 a reduction of 2,200,000 on FY 'nineteen, but that's despite a $3,100,000 operating loss. So we've mitigated some of the cash impact within that with some of the things we've been doing.

25:23 EIS at at 745 k, just reflecting the r and d completion work and the and The US equipment spend we've done to date. The outstanding balance largely being related to the The US operations, which has been on on pause since travel has been suspended there. And you can see also the CBOE cash coming in and the equivalent liability. I think the key takeouts from liquidity is that we're in a healthy position. We still have our invoice discounts, as I

25:55 say, which is undrawn at year end. That's up to $5,000,000 but depending, obviously, on our debtor levels, but it would certainly help us and when we can come back into that growth stage. And then I do think there's more upside to be having on the stock, and we're working on realizing that as much as we can and more also to have on trade creditors if needs be around kind of extending that trade credit line. So I think a relatively healthy outlook on the liquidity side, which positive. John? Thanks, Chris. So just I think that sort of summarizes where we were in terms of dealing with issues through main part of the disruption.

26:40 But also I think it's worth looking forwards and sort of seeing what we need to do in the through the recovery and beyond. So I think, you know, clearly, it's worth remembering that there is still a huge and strong underlying need for composites both in civil and defense applications. It is the sort of material of choice now and, you know, continues to be so, and we're not seeing any indication that that's changed in terms of the end use. I think looking at the some of the sort of outposts from the pandemic is that we've seen an awful lot of older aircraft retired. So, yes, there's a lot of aircraft parked up, but also airlines have taken this opportunity to retire a lot of their particularly their older four engine aircraft.

27:33 So whilst the fleet size has reduced to match the demand, we're also looking forwards as the need to travel returns. We've seen that a lot of airlines have taken this opportunity to retire from their old fleet as they look to be more sustainable, a lot more efficient and even we've seen some of that need baked into some of the support that airlines have had on a sort of country level. So yes, a lot of old fleet have left. That capacity has been lost and it will need to be replaced with new aircraft. If we look at our service proposition, clearly, you know, we're heavily driven around reducing costs and waste within the supply chain.

28:24 And what we've seen, you know, that has a high value in in the best of times. But also through these incredibly challenging times, we've seen that be even more value. And we've, you know, very thankful for the partnerships that we we have with our customers to showcase that and to help them as well meet this disruption. But it's also shown its value in in in ways that we never envisaged. And as we said earlier, we're we're taking that learning and baking it into the system going forward to make sure that it's continues to develop and become the sort of de facto choice for managing this part of the supply chain. Looking into the recovery, as Chris mentioned, there will be two aspects. Of course, we will see our existing business return to more normal run rates or more pre COVID run rates. There's still some debate within the industry of what platforms will return when and obviously that's all geared to around when airlines can start to operate to some sort of level of normality.

29:28 But we do see obviously our existing contracts returning over the next period. On top of that, the pipeline that we had pre COVID hasn't changed. We still have a large pipeline of new business both with existing customers but also new customers. And again, as travel restrictions permit and as the response in our customers has changed from dealing with the disruption to looking forward, we'll start to see activities within that pipeline return. And also as much as that capacity has been reduced from airlines, we've also seen capacity at our customer sites reduce.

30:13 So everyone's gone through this painful restructuring. People have left the business and the scale of capacity in the facilities have left the business. So what we're seeing as well is as customers build back, they're looking to build back smarter and taking this as an opportunity to do things differently, which perhaps were a bit more of a challenge when everything was stable and normal. So, again, we see that as a real catalyst for change and some of the activities that we've been involved in for a while even pre COVID, we're starting to see those become part of the solutions as customers look to return that capacity in smarter way.

30:59 And so all that really gets wrapped up within our technology and bios. Our technology is our software systems, our manufacturing technology, but also the integration of both those together to give us a really powerful business systems where we can see not only what's happening internally, but as I said earlier, you know, start to rationalize that customer demand, that material supply chain, and of course our own efficiency and our own improvement activities to really drive efficiency on behalf of our customers and to take cost and waste out of this part of the aerospace supply chain. So that covers some of the, you know, the underlying and where we see if anything has changed and what opportunities from that disruption.

31:49 And then just to give everyone some of the the sort of statistics around what we're seeing and how it compares on a longer view, this chart here gives you an idea of what we've seen in terms of the reduction in air traffic. And so we run a very strong trend going forward and, you know, even previous issues around nineeleven, SARS, the financial crisis caused, you know, relatively small blips. But what's different about this was it was pretty much a global impact to the fleet and to air travel that was very, very immediate. So you can see that there on the chart but also was on the back of quite a period of strong, you know, above trend growth as well.

32:38 So it was a very, very severe impact and, you know, that sort of rule of thumb 50% impact to us, to our customers, to the airlines, to the wider industry. But there is obviously scenarios and planning to build that back to, you know, pre pandemic levels, albeit over, you know, a period of one, two, three years depending on the exact platform the the exact market. The next slide really just gives you an idea of what that means, again taking the longer view in terms of aircraft programs. So certainly the talk in the industry is really around the recovery of the two aircraft types. So the single aisle, the a three twenty, the seven thirty sevens.

33:28 And again, this comes on the back of the the seven thirty seven max disruption that we had pre COVID, which, you know, feels a long way away now. But again, has to be taken into account with the sort of level of reduced rates that that aircraft platform was seeing prior to COVID and the the level of aircraft that were manufactured ready for delivery prior to COVID as well. But you can see from those two key single r platforms, a lot of growth in the years, ten years prior to COVID, but both platforms showing significant growth in the ten years after. So again, the industry is still forecast to grow and this, albeit incredibly painful, is a relatively short term blip on a very long term industry trend.

34:19 Other aircraft platforms, as you can see, and and any of those, you can see in the lighter blue are the platforms that we're working with. So the the f 35 is a military platform, but also the two main twin aisle aircraft platforms, the seven eighty seven and A350 and then 777X which is entering the market pretty much now will become a key platform as well. So strong growth, incredibly painful in the short term, but we're still part of a larger growing trend for more more air travel, albeit we are seeing a lot more of a drive for that air travel to be a lot more efficient and a lot more sustainable, hence the reduction in the sort of four engine aircraft fleet that we've seen over the previous ten months.

35:09 Obviously, it's always worth reviewing our strategy and seeing how we can adapt that to suit the the current market. And really, from our point of view, we're very still heavily committed and very much focusing on the composite air platforms for both civil and and military aircraft. That is where we see the value. That is where we see the need, and that is where our our relationships are in terms of of the the customer base. As we said earlier, that doesn't mean that our technology and service isn't applicable, but we're we're focusing on our on our key market as that as that recovers. Also, where we're also spending a lot of time and and focus and just to reiterate, this isn't technology that's available off the shelf in its current form. What we're having to do is develop the technology and integrate sort of other technology in other areas for our for our end use and integrate that hardware and software.

36:09 So what we will continue to do is develop that advanced technology and our industry for manufacturing capabilities and continue to develop our service offering and the products and processes that we can use to assist our customers. And as we say, we opened the technical center earlier in the year that's now heavily involved in this with our industry partners both customers but also equipment providers. And really we will continue to develop that and hone those to really drive efficiency and to utilize materials as efficiently as possible. And some exciting developments going on there and we'll obviously keep everyone updated as those come through and apply to some real significant customer opportunities.

37:04 I think as we mentioned earlier as well, that strategy was validated through You know, the relationships we had were tested in terms of just the sheer magnitude of the the problem. But we also worked incredibly hard with our customers and suppliers to to work through it. And, again, the the ability to utilize that technology, to have that real time data available at our fingertips, and to understand the multitude of scenarios that we were running every day was really powerful in terms of helping everyone to get through the worst times of disruption. There will be increased pressure on our customers, OEMs and the Tier one aerospace manufacturers And that pressure will continue as rates recover just as it's quite difficult on the way down. It's just as difficult sometimes on the way back up as well. So we will continue to work very closely and to offer those solutions to customers and really assist in that transaction back to the near normal.

38:12 That capacity, as it does recover, we are very confident we'll need outsourcing as a very viable alternative for customers just adding back in those fixed costs. As we said earlier, whilst it's an incredibly difficult period, it is also an opportunity to get things done with customers who are, you know, perhaps at earlier times and pre pandemic were quite stable and comfortable and, you know, what we do does involve a certain amount of change to the process. And again, whilst we wouldn't wish to have to do this do the work that we've had to do over the previous ten months before, what it does at least do is force everyone to look at their operational footprint. It forces our customers to look at how they want to develop their parts of the business, what is core business and what isn't. And, you know, we want to work with those customers and help them by giving a a really viable alternative to adding back in those fixed costs.

39:14 Because of that, you know, we do think this will be a a catalyst for change and the catalyst for installing improvements and delivering that step change in the levels of efficiency. And, you know, we'll stay active in that as both new and existing customers recover and new business opportunities arise. And just to underpin all that again, you saw from the previous slides, even though we have seen significant reductions, we are still seeing annual deliveries of over $200,000,000,000 So, you know, the industry is part of course that's incredibly painful, but it is still a large industry to operate in. And from our side, as we've talked previously, challenge is to, you know, it's a relatively small organization, is to capitalize on that growth of new business and to, you know, get the service offering out to more new customers and to more of our existing customers as well.

40:12 And, yeah, whilst, you know, it is a significant short term reduction, there's still an awful lot of new business opportunity out there that are operating in this part of the supply chain. And then really just a bit of a summary in terms of the two periods that we've talked about. Obviously, last year, a lot of work to realign around the demand, understand that demand and help to balance that with our customers and with our suppliers, provide that stability and provide everyone in the industry with the data needed to make the decisions and then align our cost base accordingly with what the immediate normal looks like. It's been a real positive in terms of strengthening that relationships with our customers and our suppliers to manage that unprecedented disruption.

41:07 But I think that's been very well recognized. And, you know, in terms of business development, we've maintained that in The UK, we're committed but again customers are really focused on managing the immediate disruption and not really receptive at the time to looking at some of the existing opportunities that we were in discussions with. That said, as we move into FY 'twenty one, that opportunity matrix certainly still there, particularly as well with new customers if we've continued that work and demonstrated further the capability. And we're still seeing, you know, part of a tough H1 as the, you know, the lockdowns and the disruption continues.

41:59 But the, you know, everyone's thoughts around the benefits that vaccines bring and the relaxing of travel restrictions and then the airlines getting back to normal as well. So we're looking to see that clarify more through the second half of the year. And as we say, we're targeting breakeven by the sort of second half of our year as the sort of recovery continues and our activities in terms of cash management and cost management buy. We have started and continue to restart international business development as restrictions start to lift and as people start to look forward. And we'll pick that up as travel permits. But really, it's about embedding that technology, strengthening the sort of management team that we have here, developing that with the technology and really now utilizing the highly operational gearing that we have and putting us in a strong position to support our existing customers and new customers as everyone really looks forward to the time beyond the disruption.

43:10 I think that pretty much covers our presentation. That's brilliant, John. Thank you very, very much indeed to John, Chris and Andy for updating investors today. 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. We just want the company to take a few moments to review 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 League company dashboard, and you'll be notified by e mail when they're ready for you to review. I'd also like to remind you that investor feedback is important to the company. And immediately after this presentation has ended, you'll be redirected for the opportunity to provide your feedback and your views and expectations, and it'd be greatly appreciated if you could allocate a little bit of time to do so.

43:59 Andy, obviously, investors have been able questions during the event, and I wondered if I could perhaps hand over to you. If I could ask you to read out the questions because no investor can see anyone else's questions, and then responses were appropriate, and then I'll pick up from you at the end. Right. Thanks very much. So the first question, in fact, there's a couple of questions talking about the pipeline of the business, and we've quoted there's a 50,000,000 sales pipeline over the next three years. And the key question is, you know, is that 50,000,000 per annum, or is that 50,000,000 over the three years? And then there's a question follow-up question on that, which is, what are the actual business programs, that are gonna commence in 2021?

44:56 And if this leads to work new working capital requirements. So I'll just I'll give a little bit of color, and then I'll let John jump in with the the sales funnel looking forward. Obviously, we can't give out too much details because we haven't put forward forward forecasts, but we can give some additional color on this. From a working capital point of view, as Chris explained, we have a invoice discounting facility completely unused. We actually are hardly using our trade credit facilities as well. So we have facilities with our suppliers where because we've been running down our inventory, you know, we we're not really utilizing even normal trade credits. So when we ramp up again, we'll get the benefits of the trade credit, and we can utilize our working capital facility with the bank to for fund growth.

45:56 So there's quite a lot of flex there in the system, and we're also driving down our inventory turns, which again means that we can expand more quickly without absorbing cash. So, certainly, in in the current short term time horizon, you know, we have the funding there. So, John, do you want to just give a little bit of color about, obviously, we talked about a 50,000,000 pipeline long term, which is over three years. Some of that, I get, is really the expansion of the current contracts we're onboarding and their true full value. I know, for example, one of our largest contracts which we're renewing today might be at 4,000,000 level, but, you know, in a in full pelt within the industry demand, if we come back to that, could be as hon 10,000,000. But, John, do want to give some color on the overall opportunities you see, UK, Europe, US?

46:55 Yeah. Thanks, Emily. So the way we we measure the pipeline is the what the annualized sales would be if all of it was landed in in a full year. So that 50,000,000 is the sort of value of all those you know, every single project that we're in discussions with, working on, have quoted for in the process of of bidding for would would be over that period. And I think the the three years must come from the expected sort of time it would take to work through that pipeline and and deliver every single piece of business in its entirety. So as you you probably know from discussions that we've had before, you know, we customers don't just outsource immediately day one. There's a sort of a transition period as they migrate their internal sort of supply chain over to our external supply chain, and that's normally done at a sort of project or program by program level over a period of of months, really. So, you know, our pipeline, as Andy said, does cover, you know, UK, Europe, North America.

48:00 And it's really just the the active programs that we're we're in discussions with customers or in bit or in the process of, you know, working through the the engineering activities to get to the big phase. Okay. Just to finish on that as well because one of the questions has asked them about particularly about The US and Atlanta, which we've talked about before. That is has been had to be put on hold simply because the plant itself has had a lot of disruption, but also travel and other logistical issues have held us back there. However, we are heavily engaged with that customer. That customer is a very big and a meaningful customer to us in Europe as well, and we do expect to advance that opportunity.

48:51 We've got quite quite a high level of confidence that, you know, we will activate the opportunity that we've talked about before in The US. The timing of it is slightly less certain, and it may be that it's a 2022 early twenty twenty two ramp up of that opportunity. It's really gonna depend on how COVID plays out and how that facility comes, you know, fully back online. What I can tell you is also as we look out into The US, you know, know, we're looking at defense as much as a civil and take that facility again. It has a decent sized defense book as well as civil. So it may be that we what we have been doing with the customer there is looking at a different suite of products to service with them rather than the initial ones that we looked at because of the COVID disruption.

49:48 And I see that another question is saying, well, if this aerospace disruption goes on for a long time, what are the other growth opportunities potentially outside aerospace? And you may have picked up that this is this is definitely within our strategic plan. Our route to market there is working particularly with the big suppliers of materials and looking at other alternative uses of our technology into areas that they already supply their materials into, potentially as a joint venture or a partnership or working together or even white labeling if necessary. And I'll let John jump back in, but a couple that we see as being a great opportunities. One, if I come back to defense, defense will have the the traditional elements you're probably aware of, a rapidly growing element over the next five years will be drone technology, non manned defense aircraft of some kind or other. And that is gonna really develop out over a long period of time, and those sorts of aircraft will be heavily composite.

51:06 So there are new sort of technology, heavily composites, potentially less demands, easier to present into. So one of the opportunities compared to what we do now is still in aerospace, but more in the defense side. A second one will probably be in automotive, and a third could be in wind farms, which are, again, heavily used composite material. But, John, do you want to give some color on non aerospace opportunities that you've been looking at and working on? Yeah. Thanks, Annie. I mean, you're right in the the examples that you gave, and and, really, it's geared around certainly surface transport, if we can summarize one thing, just as that needs to be more efficient and as the proportion method of those changes, then the the level of weight and efficiency needs to increase to, you know, taking to the take the advantages of low power density proportion. So we've seen opportunities there. And you're right in terms of of wind energy, albeit at a slightly level different level of complexity, you know, it's still huge volumes of material and, of course, every industry still needs to to manufacture it in the most efficient way.

52:23 So those coupled with the the defense aspects and the unmanned vehicles and even urban air mobility systems, we're we're starting to see, you know, people look at how they can manufacture those products with much high levels of efficiency and much higher levels of sustainability. Right. Thank you. The next question is a question really just asking us, are are we are we in compliance with our EIS fund requirements, and are we have we had any challenges, I guess, from HMRC? So as you know, we raise funds under an EIS fund into the IPO, and there are various compliance requirements around there and how you deploy that to meet the tax breaks that ultimately the investors get. Just to summarize for those, maybe what that question is about.

53:23 And the answer is, yes. We have deployed the funds, and we've taken still advice on that. And though you can see some of the cash have not yet been spent, though most of it has, that's because it has been allocated and deployed into key projects that qualify, but they have been disrupted with COVID, and it's mainly The US, project. And we feel, reasonably confident that, that delay does not, impinge on the overall certification or have any problems. You can see it's about 700,000 to spend. We've not had any challenges back from HMRC. Clearly, we're not going to invite them, but we've not had any challenges either.

54:10 And there's only a small amount of the funds left to deploy compared to the total. So I don't see that as being an issue, and we're certainly not aware of it being any sort of issue for us. I know it was a couple of years ago, so, hopefully, that's been resolved. The next question, which is really about, you know, what how big is our market? You know, and and the question is really, you know, how much have we penetrated the market, how much can we penetrate the market, what is the size of the market, and, you know, it's and also about main competitors. Well, we we do there are some other competitors that do kitting, but they don't approach it from the level of technology that we do or the engagement around the supply chain services that we do.

55:03 They are just simply, we'll do your kitting cheaper, and it and it tends to work at a a more lower level of technology. They are there, but we don't believe and, you know, where we target and the customers we target, we see them not as major competition whatsoever. Our major competition is our customers' own ability to do the same thing because they are tier one producers, world class manufacturers, and clearly, if they put their minds to it, can do anything they want to do. However, our proposition is always to them, well, we have nailed it here in this element of the production process, plus we've got these services we add on top around the supply chain, and we can drive down your your total cost of ownership in that section of production.

55:56 And, you know, we've invested heavily in that technology, which means that they can focus on later stages of production. And that and that's I'll pass back to John. John, do you wanna give I mean, we've done this before, the size of the potential market. We've talked about the 50,000,000 pipeline, but clear that the actual global market is huge, isn't it? Yeah. So within Europe and within North America, we've we've got, obviously, a a full opportunity matrix per customer. It's not a it's not a huge market in terms of number of customers, but it's a huge market in terms of the value and the volume of the business that happens at, you know, a relatively small number of large scale manufacturers. So, you know, for each each territory, there's perhaps, you know, less than a 100 key end use customers and and, you know, potential customers for for us.

56:53 And for each one, we understand, you know, the programs we're involved in, the value of the the potential business, and the level of engagement that we're obviously involved in with those customers. So that's where, you know, part of that is our 50,000,000 of of pipeline, but with certainly, the Europe and North America is each, you know, north of $500,000,000 per per region of potential opportunity. And, you know, our our our challenge and opportunities, how we approach that and deliver it in a in a sustained way whilst taking into account all these other external factors like COVID and everything else. But, yeah, we we we have a plan to approach that that opportunity and work through it in a way where we capitalize on existing relationships existing partnerships.

57:42 In terms of Correct. The sorry. Sorry. I'm just saying in terms of the competition, Andy's absolutely right. It's, you know, our competitors are our customers doing it in house. And, again, everything we've seen suggests that we're, you know, a level of investment and focus on a relatively small area of the supply chain and for us to do it incredibly well in complex way means that we're, you know, quite advanced compared with, you know, the customers doing in house, but, you know, we're not complacent. We continue to drive that development, that investment in the technology and the software to make sure we, you know, we're orders of magnitude ahead and be able to show to customers that, you know, this isn't their core business. They can focus on the the clever subsequent steps of, you know, manufacturing with the composite, you know, curing your machine in it and and building it into very, very complex aerospace components.

58:36 Great. Okay. Done. With a few quite a few other questions, I'm gonna try and get through some of those fairly quickly if I'm conscious of time. One is just on the board conflicts and has, you know, has the resolution of that helped in terms of customer relationships? Well, the bringing of new people onto the board with deep industry experience has definitely helped. And I don't wanna really go back into the history, which I'm sure a lot of people are aware of, of the previous board issues. But that's certainly all behind us now. And, you know, it is utilizing the current board and its skill sets, and that's definitely helped us in this difficult time. And it's definitely helping us with international expansion and expansion into areas like defense. The next question that I was going to cover is that someone has asked an obvious question.

59:32 What happens if, given the difficult time in the industry, airlines extend the life of current aircraft? Though that is clearly something that will happen with some airlines, at the same time now, we're actually seeing the opposite. So we're seeing airlines actually are retiring old planes, so they don't need to maintain them, worry about them, effectively scrapping them. And then they will onboard new planes when they need the extra capacity. So we're not we're not seeing predominantly people ex ex extending the current life because one of the several reasons for that, one, if you retire a plane now, you save the cash from now to maintain. If you just sat doing nothing, you can but also the new planes are far more efficient, meet your strategy far better, and therefore, they in terms of them expanding or recovering, that the name of the game is to do that in the most efficient manner possible.

1:00:36 So the really, the die is cast to see an upturn in production and the demand for new aircraft. But there'll always be examples of certain airlines that may look to extend and maybe cap may may have take a different strategy, but that's not what's been seen at the moment globally on the ground. There are some elements, but not certainly, there's more positive than negative happening there. The next question is really about space and adding that to our sector and saying, have we looked at this SpaceX and the other opportunities there? And then then, absolutely and that tends to fall into the same as defense. Defense and space manufacturers tend to sit together or or often the same in terms of the component parts and technology, but that will definitely feature as we target out. Particularly, as we move into The States as well, there will be a lot of opportunities there from really the same customers that we deal with today.

1:01:43 And, obviously, someone's asked the question really saying, well, look, you're having curd a lot of costs and and losses in terms of expansion into Europe and North America, and and that is and, you know, and yet we've not yet got the revenue. We would I'm absolutely certain we would have been breaking ground and seeing revenue in The States in this current year if it hadn't have been for the pandemic. We did have a customer ready to go, highly engaged, very strong proposition, and, you know, we are very hopeful that, we will see that happen in the next, twelve months. As I said, maybe starting next year. But the key point is that these customers we're targeting in The States are far larger than our our European manufacturing basis that we'd be currently supplying to.

1:02:38 So once we crack that, there is very meaningful growth opportunity. We have shifted maybe our strategy from Asia into The US, quite on purpose because we think there's far more opportunity for us, and our partnerships both within Cora that you've seen and also outside that just directly with our customers and suppliers, meaning The US is the biggest single opportunity for us. And, obviously, Europe remains one, again, working through those same customer base. And the next question is really it is a similar question I think about.

1:03:23 So I think we've covered that really, which was about the percentage of composite kits that are currently outsourced amongst our customers versus and the trends around that. And John and I have both covered that. The vast majority of this is done in house. We usually, nearly always, when we look at a customer, can see we can we can do it more efficiently, and so it is a proposition of them outsourcing to us. And we very rarely, if they are already outsourcing, do we see someone who is more competitive than what we can be because of the use of our technology. The so I've looked through all the questions, and I think that that covers them.

1:04:10 Some of them we've combined together. And I'd therefore like to sum up if that's okay. Perfect. Thank you very much indeed, Andy, and then I'll redirect investors for feedback. Great. So, you've heard from me, John, and Chris. Clearly, the financial results, look, you know, very difficult. However, if we look into that, we can see that one of the biggest potential risks that we had faced as a small company in a large industry that has been hammered in 2020 is liquidity and survival. And in that element, which is critical to ourselves and investors and managers and you as investors, we have, come through that. We secured new funds.

1:05:01 We've reduced our working capital. We've worked closely with customers and suppliers, and, you know, we start the year and end the year with 3,000,000 of cash in the bank. We've had to draw some money from the government support scheme, but that has been now given to us over a six year period rather than anything short term, and so forms part of our capital base over the next few years. So the survival of the company has been protected as well as we think many other businesses have within this industry. And we look forward with the opportunities. We are winning business. We are bringing new business in. At the moment, those levels are very, very low compared to what they were just twelve months ago. But they will recover, and they don't need to recover to what they were even though long term, they will probably surpass, the current past volumes.

1:05:58 But we don't need to get to that because we have already won newer business. We will expand into The States, and that is a huge opportunity for us, and we continue to push our technology. But the most important thing for me is I I look now around the team and the board, and I see a wealth of experience within this area, within the aerospace materials technology, and also in areas such as defense, which we've talked about coming into, or material supply and logistics. And that gives us, I think, a much stronger platform than we had before. And this management team has proved itself in the most difficult of times to be resilient.

1:06:46 And that is a great test which I believe we are coming through, and this is a great company that I believe has a great future ahead of it. And the market, as I said, will recover, and we will be there to support our investors and benefit from the growth. So I thank you all for listening, for asking your questions, for supporting us if you are investors, understanding the challenges that exist. And we look forward to talking to you again. And, hopefully, at some point, we can invite people back to our facility, and you can see some of the transformation that we've put in there, and and we can go further on some of the opportunities that we see are coming into this business.

1:07:31 So thank you. Andy, thank you very much indeed. And also to John and Chris and and to the investors, thank you so much for your questions that you submitted today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback? If you access this meeting via our platform, then you'll be simply, redirected to the feedback page. Alternatively, if you access this meeting via the link sent to you by email, you'll simply be asked to log in to provide your feedback, but we'd encourage you very much to give your views and expectations on the company. On behalf of the management team of VELLOCITY COMPOSITES PLC, we would like to thank you very much indeed for attending today's presentation. That now concludes the session, and good afternoon to you all. Thank you.