Velocity Composites (LSE:VEL) — Velocity Composites interim results IMC meeting - June 2021

0:00 Good afternoon, ladies and gentlemen, and welcome to the VELOCITY COMPOSITES PLC Interim Results Investor Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated in the right hand corner of your screen. Simply click on q and a, type in your question, and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your Investor Meet company dashboard. You'll be notified once they're ready for your 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. I'd now like to hand you over to Andy Beden, Non Executive Chairman John Bridges, CEO and Christopher Williams, Group FD of VELOSITI COMPOSITES PLC. Good afternoon.

0:49 Presentation. Those familiar with the the company will follow the usual format. And so, first of all, I'd like you to hand you over to Andy who'll take you through some of the highlights.

1:05 Thank you, John. Welcome, everyone. The key things that I want to highlight to investors and to potential investors is some of the strategic achievements and milestones that have been executed in the last six months. We all know that the COVID pandemic has had a a major impact on the volumes of the contracts that we have and of the build rates within the aerospace industry. But that doesn't mean that we've lost any actual customers. In fact, we are actually processing more parts today than we were twelve months ago in terms of complexity.

1:52 It's simply the volume of those parts has reduced. And one of the some of the key milestones that have been achieved is all our major contracts, which we have three major large customers, have been renewed on at least a three year basis going forward in this period, all with potentials of additional years to be added, all with either actual opportunities or potential opportunities for expansion of parts and sales over the next three years. So for example, one of those three key contracts, we did about 75% of their UK kitting work. And the new contract, when it as it kicks in now, for the second half of the year, we'll be doing a 100%.

2:45 So this is a a a key major milestone that underpins the opportunity for recovery and actual growth on top of recovery over the next several years. And on top of that, there's a fourth point, which is the second bullet point here, is that we've achieved f 35 approval, meaning that we can now start to break in meaningfully into the defense industry starting in The UK, but also targeting The USA as well. And, again, this is not something that should be taken lightly. We have had to work very hard to achieve this approval, and we are working directly with the main OEM in The UK for that program.

3:32 And that OEM has several other key defense programs that we will be working on as well over time.

3:40 And the difference between the defense contract and the civil aviation contracts is that the defense contractor was focused on our service and our technology way before any view of efficiency or pricing or material saving. Their focus ultimately initially is on the quality and the service and the digitalization of the front end of their composites facilities. And in that, this is a different type of contract commercially than the other contracts. So it is focused on us really charging for our engineering and process services and technology directly rather than a buy sell on material. And as such, it has a higher margin.

4:36 And so if you then look at the margin in the half year, despite all the pressures, despite the fact that, you know, we have the volume pressure, and we've had to rationalize the shop floor as well as the staff at VELOSITES, we've actually improved our margin from just over 20% to 25%. And the two reasons for that, one is our technology and our processing has improved efficiency, which is both benefiting us and our customers and underpins the fact that the customers therefore wanted to renew those contracts. And second, that we are selling our processes and technology at a higher margin through the defense contract rather than doing purely a material sell.

5:32 And we expect that margin to improve further in the next six months as more of our business is going through that diversification. And therefore, we have a very strong pipeline for growth. The growth is now got various stages. There is the recovery phase of COVID. If you remember, we were on these contracts that we had running at just over 20,000,000 of sales. They're now only worth about 8,000,000, and there's significant upside there for over the next couple of years as we recover out of this phase. There is then the extra business that we have won, which at the moment is a lot lower volume, but has the opportunity to also expand out.

6:19 And then there are the key projects that we are still working on, one of which is expanding our relationship with defense contractors in The UK, and the other is expanding into The US, which has had to be put on hold because of travel and other restrictions, but has now been really reinitiated in in the last month. Underpinning all that has been a very strong control over cash, reduction, which means we still have net cash, net after debt on the balance sheet having gone through the pandemic, which means we have a strong position in terms of investing out of the situation and into the future.

7:11 And on top of that, we've even secured more funding through Close Brothers, which is, you know, in no way a distressed form of funding. That relationship with Close Brothers is quite important to us strategically long term because as we look to expand in The States and elsewhere and expand through the selling of our technology, we will we can see a time when we will be putting our kit our automated kits and automated technology into customers' factories.

7:56 And we wanted a partner that could help finance that through the contracts so that it became more compelling to the customers. So an important strategic move there for us. So I'm gonna hand over to John who's gonna do a deeper dive into the market itself, and then Chris is gonna cover the financials for the last six months. As Vaudi said, there is an opportunity for q and a. We we usually get more questions than we can answer in the period, but we will fill out the ones that we don't have time on. But as I repeat, really, in the key message, yes, at the moment, volumes are much lower. However, this business still has plenty of cash in its balance sheet. It has reduced its its operational costs.

8:46 It is improving its margins, which means that as those volumes and sales come back, they're gonna come back at a higher margin, and the breakeven point of the business has been halved. So, you know, there is very significant forward opportunities now to move back into profitability. And we are forecasting in the second half of this year that the EBITDA will be back to at least breakeven. If you look, the second half of last year, which was in the depths of COVID, we lost 1,300,000 EBITDA level. First half of this year, it was point six. Second half of this year, we expect it to be zero nil. And then we, you know, target to long term move into profitability.

9:35 So I hand you over to to John now. Thanks, Andy. So picking up there, as Andy said, on the on the market outlook. I think the the phrase cautious optimism sits very well with what we're seeing at the moment. It's been, also, an incredibly difficult time for for everyone, not just ourselves, of course, but our customers and, ultimately, our suppliers as well. The whole industry has been impacted, but we are starting to see some,

10:05 let's say, shoots of recovery, which gives us a lot more optimistic approach to the future. So, you know, as we've spoken before, we're very fortunate in the the sort of raw data for our industry. It's very public. So in terms of the primes like Airbus and Boeing, they have, you know, very clear public information around their market expectations, and we saw recently a slight increase in production rates from Airbus starting in 2022, which is the first one to really lift the production rates from the sort of sort of minimum values that we've seen over the last twelve, eighteen months. We are expecting that recovery to differ depending on the the platform and the market segment, and there's a slide coming up where we go into a bit more detail there.

10:57 But anywhere over the next two to five years from the from the start of the pandemic is when we're expecting to see that recover recovery really bite. There's also some some encouraging news over the last few days as well. You probably saw on United Airlines placing quite a large order for for new aircraft. And, again, this is other signs that the the industry the wider industry is starting to plan for the recovery and plan for, you know, the the post COVID era. As Andy said, why why that makes us well placed? Well, clearly, we've we've survived a very difficult period, and we've done a lot of work during that period to, as as mentioned, to get that breakeven point down to, currently, the 12,000,000. I think we're around 13,500,000 at the the full year mark.

11:44 That that journey continues and, you know, really using all the improvements that we've done within the business, the the technology improvements to help drive our own, you know, profitability, hopefully, you know, sits really well as that moves forward into expanding the service to to customers as well, and we'll we'll talk about that in a couple of slides as well. We obviously the key milestone was contracting customers, and, again, that wasn't an easy activity. You can imagine the disruption across the whole industry. But again, we worked very hard with customers. We'd we'd have the relationships in place. But again, people needed something different as they responded to COVID and, you know, reduced the the staffing levels of their sites and, you know, saw the same volume reductions through their production areas as well. So again, a lot of the technology developments that we'd brought forward and and utilize ourselves allowed us to to put an even more compelling proposition to customers while still improving our margins as well. So that technology is key not only for for ourselves, but also the the customer proposition.

12:53 And that technology continues to be developed. We've got another, you know, important six months ahead of us and beyond as we we further improve that. And it's really about taking the what is the the industry problem, if you like, of, you know, very expensive materials, very long lead times, demand changes, optimizing, you know, customers' utilization of the products and and the the follow on use of the products through into their facilities, and taking that whole numerical puzzle and developing,

13:23 you know, very good, strong digital technology to help manage that and to manage it in real time using a lot of industry four technology. And as Andy touched on as well, a lot of, you know, very innovative digital manufacturing to make sure that the products we make, you know, that data is fed back back to the system in real time to allow us to make the decisions to drive that efficiency and also help our customers by being able to respond to any changes to any hopefully, now a lot more rate increases and and manage that through the whole, you know, six month plus material lead time supply chain. So it's proven very useful for us. We've seen the effects of of that technology development. And again, it's coming up. We'll talk about a slide of where we can take that forward into enhanced proposition for customers.

14:12 And then, clearly, underpinning all that is the is the liquidity position, which Chris and the team have managed very well. And, you know, the whole business is supported in terms of making sure that we, you know, we maintain that liquidity through these what have been quite difficult periods. But also, obviously, with an eye on the recovery to make sure, you know, we can we can manage the the recovery with things like material lead times and costs as we support the industry through that recovery. The next slide, as we discussed, talks a little bit about about how we see the industry recover. And, again, it's difficult when there's there's a lot of public information out there. Everyone's got different opinions and, you know, the it'll become a lot clearer as air travel unlocks and, you know, people are allowed to take much much more, you know, international journeys.

15:02 But, essentially, we've we can see three clear segments of recovery. You've got the the sort of single aisle, the the a three twenty, the seven three seven type aircraft, and now

15:13 the a two twenty. We've seen probably much more confidence around a a rapid recovery on those platforms, again, supported by the recent announcement from, you know, United and and other airlines where they look to build their fleets back stronger, having taken a lot of capacity out of the the global fleet through the pandemic. And the next segment is the the wide body, the sort of twin aisle aircraft, which are much more stronger adopters of all composite aircraft. So things you know, aircraft like the a three fifty and the seven eight seven are pretty much all composite structures. But, again, we're starting to see some some noise of recovery and some

15:56 expectations of rate improvements over, certainly, into 2023. But still a bit more uncertainty in the the different sort of market analysis about when that comes back and and how. And again, as we say that the clarity there will come when international travel opens up properly and opens up permanently with some clear, you know, longer term recovery there. And then the final sector, which, you know, Andy talked about previously, which we we said at the sort of full year, we're looking to to diversify into predominantly because there's good opportunity, but also the rates haven't been affected by by COVID, is the defense sector. And again, we're not seeing a we're not having to forecast a recovery because there's not been a reduction, but there is also some strong growth in platforms there as well, particularly about some of the key programs like f 35.

16:53 And again, these are all pretty much fully composite aircraft. These were the early adopters of composites, if you like, into in the defense market. And, you know, we see strong opportunity there and, you know, very sort of robust production volumes even with things like, you know, COVID that comes along, you know, this the defense sector just hasn't been affected by by the rate reductions there.

17:20 So that's how we we see the market. As we say, it's it's a it's an ever moving picture. There are lots more signs of recovery than there was at the the full year. But again, we we keep a close eye on this. It's a lot of public information and yeah. As as our platforms then feed into this and then the things like stock at customers and and product stock feed through, we'll have a much clearer position on what that means to to our demand from our customers over the obviously, the the the next six months and beyond. Moving on to the the model development we've we've mentioned. And, again, this this has been quite an interesting activity over the six months, obviously, with with limits on travel and limits on what we can achieve. Sort of, having a wider world, it obviously, there's been a lot of focus internally and a lot of development internally, firstly, to help us because this technology is what we're using at the moment internally.

18:18 But then as we've developed that technology, it's really opened up a different opportunity on how we you know, a more flexible way on how we can utilize that technology in a in a different way to support customers post COVID in a more flexible and a more sort of rapid deployment way. So as we say, this development's been been been made for for our own benefits, and we've seen the benefits of that without, you know, the improved proposition to customers and the improved margin. And what this means really is taking all our key areas and developing a unified system which controls, manages, and, you know, utilizes the data from those systems in in a real time way. And that that development's ongoing. It's not complete by by any means yet, but we're starting to see and have seen the benefits.

19:08 So previously, you know, the the model was really much based on a 100% offload. So essentially, customers would take something that they're doing. We'd, you know, sort of onboard it into our facilities. We do it more efficiently, and then deliver the products back to the customer. That model works great, and that model will continue to work great for customers who we can serve with nearby facilities or have plans to serve with nearby facilities. But also customers who are space constrained and want to, you know, remove these non valued non value added activities as they see them into someone's facilities who can manage them much better. What we found is as we develop that technology further with with some other developments to the technology, I putting a, you know, in in very simplistic terms, putting a, you know, a front end on it and allowing it to be sort of managed centrally but deployed externally.

20:04 What that allows us to look at now is a different model where we can actually deploy that technology on-site to customers. And again, it there is no one one sort of

20:16 solution fits all. It really depends on that particular customer, their needs, their constraints, and their sort of use of use of their site going forward. But for some customers, it is very much attractive if we can take that technology, take our digital manufacturing hardware as well, and actually deploy it onto the site and actually deliver the service from the site, albeit controlled centrally and controlled by our teams. Or the third way there is a hybrid of both where we can control the whole supply chain ourselves, but perform some of the manufacturing in our facilities and some of it on-site at customers as well. And again, what that means is there's a complete flexibility on how we deploy the service. The actual end product is the same. The customer will still get those, you know, super efficient, high quality kits just in time delivered to the site to allow them to start their manufacturing all wrapped up in, you know, a very data driven, digital, continuous improvement environment.

21:18 It just gives us the flexibility on how that is deployed and how that meets the customer's requirement,

21:25 you know, in in in the in the required time frame. So a lot of interesting development work continuing there. You know, we're looking to have the pilot completed in the next six months, and we'll obviously update matters at the the full year in January. But yeah. Interesting as we say. It's a lot of clever hardware and software solution, but it is all it all wrapped up in in our team. So interesting development. We've benefited from the the in out in house version, and essentially, what we're developing now is a an a a licensable or deployable version that can be put out to customer sites to offer, you know, a very different way of delivering it with the same quality, the same service, and and the same commercial benefits for for us and the customers as well. So very interesting grammar there.

22:15 I'll hand you over now to Chris, who will take you through the financial summary. Great. Thank you, John, and good afternoon, everyone. I think what I'd like to do is just take you through some of the financial financial highlights, highlights, some of the key numbers as as we see them. So starting really with our revenue, our sales. So so we've we've we've seen, obviously, a significant impact from the underlying build rates from the from the the COVID pandemic. So so tip typically, last year same period last year, we were at 9,500,000. We're currently at 4.4, which is 5,100,000 lower than the same period last year. And I think I guess there's there's probably a couple of things to note in that. So firstly, the same period last year had about four and a half months of pre COVID rates before lockdown really kicked in, and we saw the slump in demand. And and then secondly, the kind of first half of this year, we did see quite a lot of customer closures November, December time just as that the kind of second lockdown was was kicking in more so than normal.

23:30 So so there's there's two kind of slight anomalies in in in both those those periods and and the comparison really. But but I think, you know, the positives that that we've taken from it are are that, you know, that there's no there's no customer losses in in in the half year just gone. In fact, quite the opposite. We've we've we've contracted our three biggest customers, and that's securing a a minimum of, you know, 8,000,000 sales for the next three years is secured through those contracts, and that's at COVID rates, production rates. So so, yeah, the hope is that the recovery will kick in, and those rates will improve in time. And and and then also, we've to see a steady state come in from our sales demand now. So probably from about mid mid January this year on on onwards, we start to see sales plateau a little bit. And and, you know, thankfully, we we we've seen the we've seen the bottom, we think, of the of the situation.

24:26 And then just just a couple of other points really on on the sales point. So, you know, although it declined just just over 5,000,000, we haven't seen that all fall through into our our profit or loss as the case may be. So typically, at our old margins, at a at a 5,000,000 sales loss, we'd have expected about a $11,100,000 decline in in profit or or increase in the loss, and we haven't seen it to that extent. And and and indeed, you know, we we are looking into the next half of this year with a plan to to break even at an adjusted EBITDA level for the second half of of of this year. And and I'll come on to the kind of reasons why why that is, and we've been pulling some of the levers that we've got available to us.

25:13 From a margin perspective, I think Andy's already touched on this, but a lot of focus has gone into improving our margin position as as something that we can influence. And and that that increase from 20 and a half percent to 25.1 has really come from two areas. So the onboarding of the new military customer and and a slightly different model, does doesn't have material in it and and and and is is is primarily linked to labor, that has had a a higher margin than our usual contract, and and that's helped to boost it from a sales mix perspective. But I think probably the the the key point I'd like to flag is is, you know, a good two percentage points of that increase has come from technological improvements within the business.

26:02 And what we've done within the business focusing on material savings and enhancing our technology is we've actually managed to increase the the material savings and benefits that we've seen, but also we've passed them on to customers as well. So there's actually more savings that we've realized there than than is in the margin. So the value offering of VELOSITES, we believe, enhanced as a result of that and it's been time and investment well spent. From an operating loss and an EBITDA perspective, operating losses increased at naught point 4,000,000 to 1,000,000, and adjusted EBITDA has increased naught 300,000 from naught point 3 to to naught 600,000. So although they're increased losses, given the sales decline, we've not seen that fall through to the bottom line.

26:55 And the mitigations we've put in place have been around improving our margin and reducing our overhead base. We mentioned at the year end that we've been through a restructuring process. We've successfully, year on year, taken out 1,300,000 from our overhead base and work is ongoing to improve on that. But we think that gives us puts us in quite a strong position from an operational gearing perspective for the future recovery as well as future onboarding of of of new customers. And and at year end, we also reported that we had a breakeven point of 13,500,000. I'm pleased to say that we that we brought that down to more like 12,000,000 based on the the current overheads that we're that we're looking at the moment. So and and and the latest margin that we've we've successfully achieved.

27:41 So so so we feel, you know, although we're lost position, we feel like we're well placed for the for the future. From a cash and balance sheet perspective, again, we we feel like we're in a relatively good position on this. Cash at bank at the moment is 3,500,000. The cash as of today is just over 4,000,000 as a result of the the the post period end civils and finance facility agreed with Close Brothers that Andy mentioned. And think that's really key. Mean that's improved from the same period last year, and that's as a result of the 2,000,000 NatWest civil facility we've got in place, the Close Brothers facility, and a lot of work has been done around working capital management, and in particular stock reduction.

28:33 We've successfully reduced our stock levels 1,900,000 when you take out the effect of stock provisions, 1,900,000 from the same time last year. And and that's helped us to maintain a kind of respectable net cash position of 1,100,000, excluding our property lease liabilities. So so we think from a liquidity perspective, we're in a robust position. And and the reason we've we've honed in on that so so much over the the last six, twelve months has been with an eye to that recovery being around the corner and and not a matter of if, but more a matter of when that might happen and being prepared from a funding perspective to be able to afford that and and and invest in our working capital when when needed, when when it when it arrives.

29:22 So from an outlook perspective, just to just to summarize where we see things going. So an adjusted EBITDA level, we think we will break even in the second half of this year. I think our key challenge as management team is looking into FY twenty two at the moment and trying to get that that run rate that that profitable run rate consistent and sustainable from FY twenty two onwards and preparing the business for for that recovery, as well as looking at the the new customer pipeline and and when they might come on board given the the upset that's happened in the sector. So I'll pass you back to to John to summarize from that. Thank you. Thanks, Chris. So as Chris said, to to summarize, you know, the the sort of results of quite a a challenging but optimistic year in terms of, you know, looking forward and trying to, you know, remember the world beyond COVID. We're starting to see, you know, a lot of cautious optimism, as we said. So, really, the underlying business recontracting is, you know, a clear indication of our customers' continued need for us. The the value of the service that we bring and the the developments in that service moving forward is, you know, a strong contributor for for the their recovery in the wider sort of industry recovery as the rates recover.

30:49 The technology that we developed in house and the operational changes that we've made from the the the sort of utilizing that technology has improved our breakeven point, which again, that journey continues, and we will continue to drive that as as the technology gives us the information to make those decisions. The gearing's there ready for the recovery, and I I think, you know, we're in a good place to benefit when that when that starts to bite. And, you know, underpinned with the liquidity position that Chris has just taken us through there, you know, means that we can, you know having managed the storm, we can also manage the recovery as, you know, further, you know, cash is needed for, you know, the recovery and, you know, material stocks and the sort of gen general sort of return to higher rates.

31:43 Yes. The short term values are impacted as we talked about, but this is a long term industry. You know, VELLOCITY has plans to be, you know, a very long term partner to our customers. We're at the front end of the process. We're at the, you know, the critical end to get right in terms of the pay setter for the whole, you know, our structures manufacturing piece. And, you know, the technology that we've developments that we've made really helping us to to improve our own internal position and that of of our customers, and also, you know, a more compelling proposition to to newer customers as they too look to recover back from from the effects of COVID. The challenge, obviously, and the the the expectation from from ourselves is to get back to that breakeven position in this second half while still in this uncertain challenging market. But, you know, we're confident that if everything continues along the the lines that we're seeing, that that is more than achievable.

32:42 We are starting to see, you know, first signs of that low rate recovery. Hopefully, that's gonna continue over the summer as the as the lockdowns and the restrictions release as we, you know, are allowed to go out and visit customers again, you know, that will think could be a a very strong and compounded benefit to everyone and allow us to get back into those pre pre COVID levels and capitalize on what is still a very large and significant industry in the in the world. I think from from our point of view, that covers the the presentation. Everyone, for joining us this afternoon. We'll obviously take questions. Andy's going take a lead on those. And also, there's a lot more information on our investor part of the section of our website, velocity-composites.com.

33:32 Thank you very much indeed, Andy, John, Chris, thank you very much indeed for updating investors today. Ladies and gentlemen, do please continue to submit your questions using the Q and A tab situated on the right hand corner of your I'd like to remind you that recording of the presentation, along with a copy of the slides and the published Q and A, can be accessed via investor dashboard on the Investor Meet company platform. I'd also like to remind you that your feedback is important to the company. Immediately after the 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. Andy, if I may, we have had some questions come through from investors on today's presentation. Where appropriate, can I just read out the question and and either give you a response or or pass it to a member of the team? That would be great.

34:22 Great. Thanks. So the first question is from Andiam, and his question is around the sales process and how we work through that process, which actually, we have a slide on that, which is slide 14. And the second part of his question is then, well, what visibility do we have on our sales revenues going forward? He's put in a normalized world. I'll just answer that second part while John moves to the slide 14, because I think we've got a few to just have very brief chats on that. The the second part is because we contracted, we work with customers, they provide us their forecasts, we plan ahead, that we have quite a good visibility, and we are fully contracted on those sales.

35:12 So we know, for example, that our underlying base level of sales on those key contracts at the moment is 8,000,000, which we've talked about. And then we know on top of that, there is additional requirements in sales. So we we have a good visibility of 80 to 90% of what we're going to see in the next six months. We have security over the vast majority of our sales. The the issue there just become the volume side. And at the moment, what we're seeing is, if anything, customs are slowly starting to upgrade that versus earlier forecasts. But we will see before they are reported. And it's you know, if if if volumes are gonna increase significantly, we'll see that. But it will be probably underpinned by rate increases by the OEMs, which are Airbus and Boeing.

36:10 So, for example, a run rate to look out for would be the a three fifty with Airbus, which is a high composite twin aisle plane. I'll pass you to John just to have give a couple of minutes just on the sale process given that was one of the questions. Thanks, Andy. So, I mean, if you can imagine, in such a regulated industry, there's a lot of process to onboarding new customers, thankfully. When we used to fly, that was obviously something that's very important. So as as part of that, you know, we have to also work with customers who I think to it's it's fair for them, and I'm sure they would agree, then that some of these processes that they have internally aren't necessarily controlled from a from a financial perspective. They sit in overheads. They sit in different parts of their operational organization. So to actually break out what their current cost is can be a little bit time consuming, and that's sort of a one off process. So this is where we sort of really get involved with in that process. So if we take the the flowchart as is, there's obviously the initial engagement where we we sort of working with new customers and explaining who we are, what we do, our track record, you know, how where we do it elsewhere, and how we think we can help them.

37:34 To actually put a a bid together, we need some data. So then there's this phase, really, of of getting that data out of them of their the the the products that they require and how they do in house, developing the solution with our engineering teams, and, you know, really formulating all that into a very, very detailed bid with essentially an individual price per kit and sort of comparing that to their current state. And then we enter this this red phase, and this is where it can take quite a bit of time and effort from us to really work with the customer to help them understand their current state, show them the future state, show them how we achieve that in a way that doesn't, bring any additional risk to the process. As we we said a minute ago, this is the first part of the process.

38:21 You've got long lead times on materials if, you know, if things aren't done correctly, and which makes it very difficult to to to correct. And, again, our processes, our technology means that we can manage that. We we just need to show the customers how we'd manage it and develop these condition of supply documents, these, you know, quality plan, the transfer plan, you know, the commercial agreements. Just work all that through from really a position of nothing to a very, very detailed project plan to launch the the outsourcing activity of the customers. When we get the customer decision, it then moves into a a much more straightforward phase with our new product introduction teams. If you like, the project managers to really deliver that transfer to manage the transition of the material supply chain from in house to external, to use up their existing work, and to to implement all those agreements that have been created in that first phase, and actually move to a sustained delivery.

39:23 So I think in in summary, the the process in the blue areas works very well because it's pretty much led by us. The what can take a bit of time is the red areas where we're really dependent on customers to, you know, understand their current state, you know, actually determine what the current state is and, you know, extract all that information out of overheads and to do a very detailed business case that can, you know, obviously withstand scrutiny. And that's, know, where we're getting a lot more involved in now. And, you know, I think we talked about it at the sort of year end and the half year previous where, you know, the new commercial offering was for us to get very much embedded into that business case and almost create it without looking like we're we're marking our own homework. So a lot of work's gone into that. A lot of, you know, really good processes have been developed by the team.

40:14 It's just, again, been hindered by COVID in terms of not being able to travel, visit sites, and and and actually get in front of customers and and discuss that hard data and show them what the the future state could be. Thanks, John. The next question is from Simon c, and it's about our license model and whether that could be a driver for growth overseas. So I'll answer that one. Yes. We actually developed the model very much thinking about a more simpler effective way and lower cost way to expand overseas without having to build brand new factories. And that was a this hybrid model of actually working within the customers' factories themselves.

41:02 A combination of different ways of setting up within the factory, and it's really dependent on whether we buy and sell the material directly or we just use our technology to process the the materials and the customer continues to do the buying of material direct themselves. Also, there is the issue of do do we put new employees into a factory or overseas, or does the customer provide the the labor support there? But, you know, we measure the benefits that our technology is providing, and then we share those benefits in a a model which would has a fee attached. And so we did do all that for overseas expansion, particularly in The States, and, you know, expect there will be that hybrid model utilized there.

41:56 But in fact, what we found is it's it was also very compelling for in The UK for new customers, particularly, as I said, the defense sector where they are much more protective of, you know, their supply chain. So that that has become the first customer for us to change the way that we operate in terms of how we charge and value our services. And in some ways, that gives it's an easier way to trial that technology with someone who's very close by. But we certainly see this as growth opportunity. So, for example, customers that are in The UK where they utilize our full production facilities today but have overseas operations, you know, we we would love to say, well, why not use this technology within your factories elsewhere where we don't have a presence, you know, following one of these licensed models.

43:03 And just to cover on that, in in putting that model together, you know, we've had we've worked with partnered with Zund who are one of the key hardware providers into our factory, and there's been a very good article with them recently in the press where they just talked about that partnership. Reason with Chris has been working with close brothers is to provide asset financing if we are going to put kit into the factories that, you know, is which is fully programmed of our technology so that it can be fully funded, and we can turn that into charging for a service, which includes actually the cost of capital involved in that. And we've worked closely with software developers.

43:52 We continue to partner with them as well. The next another question is on share based payments and simply noting that we have some share based payment charges in the accounts. They relate mainly to historic share options that were given pre pandemic, and they also relate to the fact that the board and senior management have sacrificed 20% of their salary for share options, which, you know, haven't been drawn down or used in any way. What we haven't done is bought any shares in the marketplace. So there's been no cash cost to us in those share based payments.

44:38 Another question is really, is the board more stabilized now or has stabilized after, you know, issues several years ago? Absolutely. We've rebuilt the board. We've rebuilt the senior management team. We work together very closely. And I think the fact that we've managed this situation so effectively it's testament to that. You know? And I think, you know, we've hopefully, you can see that we're coming out of this very confident despite the the challenges that we've had. And another question was just clarification. Is the 12,000,000 breakeven point, what what is that? That is sales revenue, top line revenue is where Chris had worked out the current breakeven point is.

45:26 I have to say, I think that could fall further because if the margin increases, particularly on new business, then the breakeven point actually falls further in the in the business going forward. So but it's fallen from, you know, 8 $17.18, 19,000,000 down to 13,000,000, down to 12,000,000, and and I think it's more likely to fall further than increase, you know, in the next twelve months. But hopefully, that answers that question as well. I think that in doing that, I've answered all the questions as well. Sorry. Just add on that because I I think the question asked around operating profit. So it was adjusted EBITDA I was referring to when we talk about breakeven Okay. Which which is what we use internally as a measure of Yeah. Our performance, profitability, and cash generation. So just to just to clarify on that bit. Yeah. So it's profit before appreciation.

46:23 Yep. And Thank you. I think you actually there have covered them all off as you said, Andy. You have covered all the questions. If we do have any further questions in at all from investors today, the company do have the ability to review these post the event. And, of course, we'll publish all responses responses back on the investor meet company platform. John, perhaps before I could direct investors to give you some feedback, I may ask you just a few final words just to wrap up, please. Yeah. Yeah. As once again, thanks everyone for joining us this afternoon. Hopefully, we've we've covered off the the the key points and given you a flavor for the the work that's gone on of the previous six months and how that sets us up in the coming six months and beyond as we look to enter the the recovery phase in our industry. And as we say, any further questions, please don't hesitate to get in touch.

47:14 That's fantastic. Thank you very much indeed. Andy, John, Christopher, thank you very much indeed for updating investors today. Could I please ask investors not to close the session? It should be automatically redirected for your opportunity to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete and be greatly valued by the company. On behalf of the management team of VELLOCITY COMPOSITES PLC, we'd like to thank you for attending today's presentation. That concludes today's session.