Velocity Composites (VEL) , a leading supplier of composite material kits to aerospace, has released a trading update relating to the ramp-up of its activities at the recently commissioned Alabama production facility, alongside outlining increased UK demand.
Velocity announced its entry into the US market in December 2022, with the signing of a five-year Work Package Agreement with GKN Aerospace, expected to be worth in excess of US$100 million in revenue over five years. However, as a result of a slower ramp up stage of production, FY23E revenue has been reduced to £2.2m from £5.0m.
Velocity told investors that the agreement is still expected to generate £15.4m of revenue each year for the company.
In addition, Velocity is on track to further its US presence, as it is in advanced discussions with a large, global Tier 1 composites manufacturer with multiple sites in the US on another agreement.
Finally, the aerospace materials supplier said that UK demand is on the rise, with an anticipated growth of at least 15% in FY2023 compared to FY2022. In FY2024, Velocity aims to capitalise on additional work from a UK manufacturer looking to expand capacity to meet the increasing demand. Coupled with the expected growth in the UK and the initiation of full-rate production under the agreement in the US, the company is still set for profitability in FY2024.
Andy Beaden, Chairman, Velocity, said: "Velocity is focused on successfully completing the FAI with the Customer, enabling it to achieve operational success in its projects. Collaboration with the Customer has been close knit, working together on what is one of the largest composite kit supply FAI processes ever conducted in the industry.
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Velocity supplies its material kits to industry leaders such as Airbus, Boeing, and GKN, where these customers can free up internal resources to focus on their core business. The company holds immense potential for expansion, both domestically and internationally, with opportunities in new and emerging markets. These markets encompass diverse sectors, such as wind energy, urban air mobility, and electric vehicles, where the demand for composites is projected to witness huge growth.
Velocity’s expansion into the US market is well timed, given the scale of aircraft manufacturing in this region - the US being the world’s largest exporter of aircraft equipment, with exports reaching $12 billion in 2021. More broadly, Velocity is well-positioned to benefit from the aviation sector's accelerated growth post-pandemic, with recent estimates suggesting that demand for air transport will increase by an average of 4.3% per annum over the next 20 years.
On the news, broker Cenkos maintained its FY24E sales forecast of £33.4m, but lowered its FY24E adjusted EBITDA forecast from £3.5m to £2.1m, reflecting the additional investment costs.
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