Velocity Composites : 2021 Annual Report & Financial Statements

31 October& 2021

Contents

1. Strategic Report

Page

Highlights ...................................................................................	4
Chairman's Report .....................................................................	5
Outlook ......................................................................................	8
CEO Report ..............................................................................	10
Financial Review .......................................................................	13
Principal Risks & Uncertainties ...................................................	17
2. Governance
Statement of Corporate Governance ........................................	24
Board of Directors and Senior Management ............................	31
Directors' Report ......................................................................	34
Director's Remuneration Report ..............................................	37
3. Financial Statements
Independent Auditor's Report ...................................................	39
Consolidated Statement of Total Comprehensive Income .........	52
Consolidated and Company Statement of Financial Position ....	53
Consolidated and Company Statement of Changes in Equity ...	54
Consolidated and Company Statement of Cash Flows .............	56
Notes to the Financial Statements ............................................	57
4. Shareholder Information
Advisors ....................................................................................	84
Notice of General Meeting .......................................................	85
Notes to Notice of General Meeting ..........................................	89

Strategic Report Highlights

Our Mission

To revolutionise aerospace composites manufacturing by enabling our customers to reduce waste/costs whilst meeting increased global demand by creating a lean and scalable supply chain in a more-for-less era, delivering real value for all stakeholders.

Financial Highlights and Group Key Performance Indicators

Revenue		Gross Margin %
£9.8m		26%
Adjusted EBITDA 1		Cash at Bank	Operating
	Profit / Loss
£(0.5m)	£3.5m	£(1.4)m

1 Earnings before Interest, Tax, Depreciation, Amortisation, Impairment, adjusted for exceptional administrative costs and share based payments. The business uses this Alternative Performance Measure to appropriately measure the underlying business performance, as such it excludes costs associated with non core activity. Workings are provided in Note 29 of the financial statements. Share based payments are added back to make the share based payment charge clear to stakeholders.

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Strategic Report Chairman's Report

Chairman's Report

• The need to improve fuel
  efficiency is one aspect which
  opens the door for even

greater use of composites as manufacturers look to reduce "Andy Beaden Executive Chairmanthe weight of various machines.

Overview

In the global storm of the pandemic, our innovative technology and engineering skills have shone through and our competitive edge remains solid. As a digitally enabled business, we have invested throughout this period to develop what we believe are the most advanced integrated solutions for front end composite material preparation for manufacturing in the world. Over the last twelve months, the team has worked tirelessly with all our major customers to renew and extend our valuable long- term contracts, building deeper technical relationships with new and existing clients. This has laid the foundations for both our recovery and future growth.

Financial Performance While we have a positive view of the future because of the team's hard work over the last twelve months, the challenging environment has meant tough decisions had to be taken to protect the Company's financial position.

Revenue for the year was £9.8m (2020: £13.6m), reflecting the

nadir of suppressed civil aircraft OEM volume productions. Sadly, this meant we had to take the difficult decision to reduce our workforce from approximately 122 to 75, enabling us to break- even at an adjusted EBITDA level from the second half of FY21. As a result, the full year adjusted EBITDA is in-line with our expectations announced

at H1 FY21, at £0.5m loss. This represents an operating loss of £1.4m reflecting the very difficult start to the year.

We have benefited from our supply chain management team's ability to reduce our inventory levels, protecting our cash position and that of our customers. This has not been easy given the limited life of most materials we use due to expiration dates of the material. We are grateful to our suppliers and customers for their collaboration. Inventory levels reduced by £1.0m in the financial year. As at 31 October 2021, the Company had gross cash balances of £3.5m and £1.0m of net cash.

Improved Customer

Proposition

Although sales volumes were lower during the period, we have continued to invest in and develop our customer proposition. The pandemic and the pressures it has placed on the end industries the Company serves has reinforced the ability of the Company to add value to our customers. Our technology and services have served us well in navigating recent global supply chain issues. They offer real benefits to our customers and their respective industries, reducing material wastage to minimal levels, which reduces costs and makes composite technology more commercially viable, as well as having a major environmental benefit. Our systems reduce labour time and provide greater efficiency and faster outputs, hence our name Velocity Composites.

Over the last twelve months, we have integrated our services into one key package, called Velocity Resource Planning ("VRP"). VRP can be provided via a traditional fully outsourced model of manufacturing kits for the customer, onsite, or as

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