THIS ANNOUNCEMENT (INCLUDING THE APPENDIX) (TOGETHER "THIS ANNOUNCEMENT") AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, THE REPUBLIC OF SOUTH AFRICA, JAPAN OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.  PLEASE SEE THE IMPORTANT INFORMATION SECTION AT THE END OF THIS ANNOUNCEMENT.

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE OR CONTAIN ANY INVITATION, SOLICITATION, RECOMMENDATION, OFFER OR ADVICE TO ANY PERSON TO SUBSCRIBE FOR, OTHERWISE ACQUIRE OR DISPOSE OF ANY SECURITIES IN VELOCITY COMPOSITES PLC OR ANY OTHER ENTITY IN ANY JURISDICTION WHERE TO DO SO WOULD BREACH ANY APPLICABLE LAW OR REGULATION. NEITHER THIS ANNOUNCEMENT NOR THE FACT OF ITS DISTRIBUTION SHALL FORM THE BASIS OF, OR BE RELIED ON IN CONNECTION WITH, ANY INVESTMENT DECISION IN RESPECT OF VELOCITY COMPOSITES PLC.

THIS ANNOUNCEMENT SHOULD BE READ IN ITS ENTIRETY. IN PARTICULAR, YOU SHOULD READ AND UNDERSTAND THE INFORMATION PROVIDED IN THE APPENDIX WHICH CONTAINS THE TERMS AND CONDITIONS OF THE PLACING.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET ABUSE REGULATION (EU) 596/2014 WHICH FORMS PART OF UK LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("UK MAR"). IN ADDITION, MARKET SOUNDINGS (AS DEFINED IN UK MAR) WERE TAKEN IN RESPECT OF CERTAIN OF THE MATTERS CONTAINED IN THIS ANNOUNCEMENT, WITH THE RESULT THAT CERTAIN PERSONS BECAME AWARE OF SUCH INSIDE INFORMATION, AS PERMITTED BY UK MAR. UPON THE PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN AND SUCH PERSONS SHALL THEREFORE CEASE TO BE IN POSSESSION OF INSIDE INFORMATION.

9 August 2023

VELOCITY COMPOSITES PLC

("Velocity or the "Company")

Proposed Placing of and Subscription for 15,500,000 New Ordinary Shares to raise £6.2 million

Proposed REX Retail Offer to raise up to £0.5 million

and

Recommended proposal for the cancellation of the Share Premium Account

Velocity Composites plc (AIM: VEL), the leading supplier of composite material kits to aerospace and other high-performance manufacturers, is pleased to announce that it has conditionally raised £1.2 million (before expenses) through the issue of 1,900,000 Firm Placing Shares and 1,100,000 Subscription Shares at the Issue Price of 40 pence per New Ordinary Share, and has also conditionally raised £5 million (before expenses) through the issue of 12,500,000 EIS/VCT Placing Shares at the Issue Price.

Furthermore, the Company announces a retail offer to raise up to £0.5 million (before expenses) through the issue of 1,250,000 new Ordinary Shares (the "Retail Offer Shares") at the Issue Price (the Firm Placing, the Subscription, the Retail Offer and the EIS/VCT Placing together defined as the "Fundraising"). A separate announcement will be made shortly by the Company regarding the Retail Offer and its terms. Those investors who subscribe for Retail Offer Shares will do so pursuant to the terms and conditions of the Retail Offer contained in that announcement.

Key features of the Fundraising

·      Conditional Firm Placing of 1,900,000 new Ordinary Shares and Subscription for 1,100,000 new Ordinary Shares to raise £1.2 million (before expenses) at the Issue Price with new and existing investors;

·      Conditional EIS/VCT Placing of 12,500,000 new Ordinary Shares at the Issue Price with new and existing investors to raise £5 million (before expenses). The EIS/VCT Placing is conditional, inter alia, on the cancellation of the Share Premium Account and Shareholder approval;

·      Retail Offer to raise up to an additional £0.5 million is being made through the REX Retail Offer at the Issue Price to existing shareholders of the Company through certain intermediaries. A separate announcement will be made shortly regarding the REX Retail Offer and its terms;

·      The Issue Price of 40 pence per New Ordinary Share represents a 13.0 per cent. discount to the closing middle market price of 46.0 pence per Ordinary Share on 8 August 2023, the last business day prior to the announcement of the Fundraising;

·      The Company has the authority to issue and allot the Firm Placing Shares, the Subscription Shares and the Retail Offer Shares pursuant to certain existing shareholder authorities granting such powers to the Directors at the Company's Annual General Meeting held on 28 February 2023.

·      First Admission of the Firm Placing Shares, the Subscription Shares and the Retail Offer Shares to trading on AIM is expected to occur no later than at 8.00 a.m. on 15 August 2023.

Use of proceeds

The net proceeds of the Fundraising will be used for:

·      Capital expenditure;

·      People (engineering, software and business development); and

·      Working capital for expansion

General meeting

The EIS/VCT Placing is conditional, inter alia, upon Shareholder approval at the General Meeting, which will be held at 11.00 a.m. on 29 August 2023 at the offices of the Company at AMS Technology Park, Billington Road, Burnley, Lancashire, BB11 5UB.

The Company will shortly be posting a Notice of General Meeting and an accompanying circular (the "Circular") to existing Shareholders following this announcement. All relevant documents will also be available to download from the Company's website at https://www.velocity-composites.com/investors.

Subject to, inter alia, the passing of Resolutions 1, 2 and 6 at the General Meeting, Second Admission of the EIS/VCT Placing Shares to trading on AIM is expected to occur no later than 8.00 a.m. on 6 October 2023.

 Andy Beaden, Chairman, Velocity, said

"This well subscribed fundraise is a key step forward in the development of Velocity into a substantial business. The funds enable us to grow faster and add additional skilled staff in the aerospace composites market. The Board is delighted at the positive response received from investors and their backing of our growth plans at this exciting time."

Enquiries:

BACKGROUND TO, AND REASONS FOR, THE FUNDRAISING

Velocity business overview

Velocity manufactures advanced carbon fibre and ancillary raw material kits for use in the production of aircraft (civil and defence). The Company operates from a purpose built facility in Burnley, Lancashire and adapted new build facilities in Fareham, Hampshire as well as the Company's recently purposely refurbished facility in Tallassee, Alabama in the United States ("Alabama Advanced Manufacturing Facility"). The Company uses its process knowledge, business processes and proprietary software (which it markets as Velocity Resource Planning ("VRP") and includes a digital manufacturing cell) to reduce the amount of material required by its customers and to also reduce the associated material waste when making aircraft parts. In turn, this reduces the aircraft manufacturer's costs, with the raw material kits delivered on time and in the required form to allow Velocity's customers to more readily meet significant increases in aircraft build rates as forecasted by Airbus and Boeing.

The challenges for composite part manufacturers when they perform the kitting process in-house are:

·           materials are expensive and on long, fixed lead times (2 - 6 months) from single source approved suppliers. Any demand changes during lead times needs to be managed to prevent stock outs or overstocking/life expiry risk;

·           raw material contains uncured resin which has a shelf life and so required to be kept frozen at -18°C until needed to make shelf life usable;

·           a kit contains multiple materials and so any supply impact on one material will affect the consumption of the other materials, and the overall kit availability;

·           highly regulated process with global approvals and batch/life traceability requirements from material receipt to kit delivery;

·           material order book needs to match kit demand, with life and batch traceability needing to be maintained; and

·           not considered core business by Velocity's customers with low appetite for investment.

Velocity offers a more efficient, outsourcing option by:

·           investing in advanced, real-time proprietary technology and digital processes to deliver kits of all raw materials with a focus on traceability and material efficiency;

·           holding all approvals needed from Airbus, Boeing and the National Aerospace and Defense Contractors ("NADCAP");

·           enabling customers to outsource all relevant processes to Velocity who can deliver one kit, with one batch number with everything needed to build the part, just in time;

·           detailing all cost savings in a 'Total Cost of Ownership' business case for customers to explain all cost savings compared to an in-house service;

·           allowing customers to focus on their core business of aerostructure part manufacturing;

·           driving customer savings through efficiency and growth and sales for Velocity; and

·           once transitioned, customers face investment, time and cost to repatriate.

Velocity's technology drives efficient management and use of raw materials, aimed at providing at least 10% material cost saving and 20% time cost saving to customers.

The Company's customers include GKN Aerospace, Safran, BAE Systems, Spirit and Aernnova. In the highly regulated global aerospace industry, the Directors believe that the provision of its services has barriers to entry including the Company's global approval with Airbus, Boeing NADCAP. Velocity's main competitors are customers performing similar services to Velocity, in-house. By using Velocity's proprietary services and technology, manufacturers reduce costs and free up resource to focus on their core business.

Composites and Market Drivers

Composite materials comprise of a matrix (thermosetting resin) and a reinforcement (fibres) which, when combined, produce properties which are superior to the properties of the individual components. Composites are lighter, stronger, more corrosion resistant and more fatigue resistant when compared with metals. In the aerospace sector, this results in an increased flight range and reduced flying costs. To manufacture parts from composites, the raw material is produced on rolls of fibres/fabric pre-impregnated with uncured resin. Complex shapes are cut from the rolls that are defined at the part design stage and applied to a tool in many layers in order to create a laminate of uncured, multilayer material. When complete, this is cured under vacuum to produce a fixed structure in a one-shot process i.e. once cured, the structure cannot be reworked. Given the uncured nature of the raw material it has to be batch controlled and stored at -18°C in airtight packaging before being fully thawed just prior to kit cutting. The materials are specified and manufactured to order from a single source with lead times of between 4 and 26 weeks meaning the supply chain needs to be managed effectively, and controlled so that material is available for kit production when needed by the part manufacturers.

Composites play an important role in light weighting all new aircraft platforms in both civil and defence. The aerospace sector has a clear strategy to achieve net zero by 2050 and demand for composites is expected to grow as older aircraft are retired for a new generation of aircraft including the A220, A320neo, A330neo, A350 and A380 manufactured by Airbus and the 737max, 777x and 787 aircraft manufactured by Boeing. Currently, only 20% of the 20,000 passenger aircraft in service are regarded as 'new generation' and by 2041, this 'new generation' of passenger aircraft are expected to represent at least 95% of an expected fleet of 45,000 aircraft.

The Company has a contracted order book for FY24 of new and existing business in Europe and North America which is expected to be between 2.5 and 3 times larger than FY22 revenues. Longer-term, carbon fibre composite material usage is generally expected to grow significantly in civil aircraft and other transportation modes. The benefits of its relative light weight will play an important role in reducing the use of fossil fuels through greater fuel efficiency in conventional jet engine technology. Wider adoption of composite material technologies will also continue, with light weighting and composite strength being critical to all electrification, hydrogen fuel developments and urban vertical mobility transportation.  Velocity's strategy is to be a key advanced manufacturing solutions provider to these important growth markets and it already has some business in the development stages of these new initiatives.

As a result, and further to the Company's announcement on 20 December 2022 of the establishment of the Alabama Advanced Manufacturing Facility, there are increased levels of international interest in Velocity's services and VRP digital supply chain system, which form an important part of the Company's intellectual property.  Velocity's engineering staff, along with the Company's VRP solution, help to eliminate material production wastage, speed up customer production cycles and increase inventory turns, to enable better production planning and ordering of expensive materials, which have long lead times from material manufacturers. 

Velocity - recent progress and opportunity

Demand is steadily returning to pre-pandemic levels, building on the momentum reported in the Company's recent results as the global aerospace industry recovers and original equipment manufacturer ("OEM") forecast production rates grow.  The Company's UK sales growth was stronger than initially expected, accelerating in the latter few months of the period ended 30 April 2023 ("H1 FY23"). 

Contracted business growth will come from the Alabama Advanced Manufacturing Facility, which is now complete with AS9100 quality approvals granted in November 2022. In April 2023, the Alabama Advanced Manufacturing Facility manufactured the first production kits at the site to support the five-year work package agreement announced in December 2022 with GKN Aerospace ("GKN") (the "GKN Agreement"). The GKN Agreement is expected to be worth in excess of US$100 million in revenue over five years, with GKN confirming strong end-user demand for its parts into 2024.

Significant operational progress has been made at the Alabama Advanced Manufacturing Facility to qualify it for the new programmes being onboarded for the GKN Agreement, although sales only started at the end of H1 FY23 with £0.1m of revenue recognised in the period, due to the rigorous nature of the First Article Inspection ("FAI") process. The FAI process provided verification by GKN that the site infrastructure, capability, trained processes, quality and transfer plans presented by Velocity exceeded the required standard. The ramp-up of  sales to GKN remains on track to achieve market expectations for FY24, with all the new programmes targeted to be at the contracted production levels by the start of FY24. 

The challenging macroeconomic conditions in H1 FY23 put pressure on margins. However, by the latter part of H1 FY23, price increases had been successfully agreed with key customers, and this will provide a larger benefit for H2 FY23. With much of the Company's revenue secured through pass-through mechanisms on any raw material price increases, inflation risk impacts added value areas only, hence the need for the additional price increases.  Furthermore, Velocity's new digital manufacturing cell increased automation and helped secure the Company's longer-term global margin objectives.  

The working capital required to support the GKN Agreement is provided by supply chain finance lines mandated by GKN, helping to provide a self-funding mechanism until the profit from the GKN Agreement can then fund the work under it in the longer-term. 

As well as delivering the GKN Agreement, there has been a focus on using the Alabama Advanced Manufacturing Facility to target the wider US composite materials market, which is significantly larger than the European market. The Alabama Advanced Manufacturing Facility has been constructed so that it can double again in capacity.  

Outside the US, there also remain significant opportunities for growth through international sites of current UK customers and increased usage of the Company's established European manufacturing capability.

The Company has already contracted UK and US business which, when in full production (at current OEM run rates), will significantly increase revenue from current levels. The value of contracted business is currently estimated to be worth between £30 million to £36 million per annum at OEM planned production rates. On some programmes, these rates are still below pre-pandemic production levels and include a growing amount from military programmes, with additional growth forecasted as NATO countries increase investment in their defence capabilities. The manufacturing capacity of the current UK and US manufacturing facilities is being expanded to meet this significant increase in order book and with the Alabama Advanced Manufacturing Facility setup, could be doubled again in manufacturing capacity, to meet further new business and contracted volume growth, of up to £70 million. The establishment of the Alabama Advanced Manufacturing Facility also demonstrates the Company's proven ability to add further facilities in other locations, if or when required in the future. Independent market analysis shows the potential size for Velocity's services in Europe and the US is significantly larger than current contracted business and facility capacities.

BACKGROUND TO, AND REASONS FOR, THE CANCELLATION

The Company had accumulated losses of £7,102,000 shown by its audited accounts for the period to 31 October 2022. The Company's interim accounts for the six months ended 30 April 2023 show accumulated losses at that date as £1,539,000 and £9,727,158 standing to the credit of its Share Premium Account.

The Company's Share Premium Account will be increased on the issue of the Firm Placing Shares. The exact amount of the Share Premium Account following the issue of the Firm Placing Shares is expected to be approximately £10,919,658.

It is proposed to cancel the Company's Share Premium Account. This will not only eliminate the Company's accumulated losses but also create positive distributable reserves equal to the amount by which the Share Premium Account cancelled exceeds the accumulated deficit. 

Whilst the Board and management remain focussed on the continued execution of the Company's stated growth strategy as the primary means of delivering shareholder value in the near term and has no current intention of declaring dividends, the proposed Cancellation would provide greater scope to do so in the future if the Board determined that the declaration of dividends were appropriate.

In addition, the Cancellation would provide the Board with the option of purchasing the Company's own Ordinary Shares pursuant to the power granted at the Company's annual general meeting on 28 February 2023, which requires sufficient distributable reserves to do so.

FURTHER DETAILS ON THE CANCELLATION PROCEDURE

Under the Act, a company limited by shares may reduce its share premium account, as long as it is not restricted from doing so by its articles of association, by obtaining the approval of its shareholders by special resolution and the confirmation of the Court.

The Company is not restricted in any way by its articles of association from carrying out the cancellation of Share Premium Account and is, therefore, seeking approval of its shareholders to the Cancellation. Please see the Notice of General Meeting, which sets out the Reduction Resolution (resolution 6), at the end of the Circular.

If the Shareholders approve the Reduction Resolution at the General Meeting, the Board intends to make an application to the Court to obtain its approval to the Cancellation as soon as possible following the General Meeting.

Provisional dates have been obtained for the required Court hearings of the Company's application, but they are subject to change and dependent on the Court's timetable. If the hearings go ahead on the provisional dates, the present timetable provides that the final hearing, at which it is hoped that the Court will make an order confirming the Cancellation, will take place on 20 September 2023.

Prior to confirming the Cancellation, the Court will need to be satisfied that the creditors of the Company will not be adversely affected. The Company is satisfied, having taken advice, that it will be able to satisfy the Court in that regard.

The Cancellation does not take effect until the Court's order is filed with and registered by Companies House. The Board intends to file the required documentation with Companies House as soon as possible following the final Court hearing and, subject to compliance with all procedural requirements, Companies House will usually register the documents within 10 Business Days. On the present timetable, which is subject to change and dependent on the Court's timetable, this would mean that the Cancellation would take effect on or before 29 September 2023.

CURRENT TRADING

As detailed in the interim results announcement dated 11 August 2023, the Board confirmed revenue for H1 FY23 increased to £7.0 million, up 19% compared to H1 FY22. During H1 FY23, there was significant investment, including approximately £0.5 million of costs relating to the development of the Alabama Advanced Manufacturing Facility. As a result, the Company reported an EBITDA loss of £0.9 million for H1 FY23 (H1 FY22: £0.2 million loss). These costs should be recovered in H2 FY23 as the Alabama Advanced Manufacturing Facility increases production towards the contracted full rates. The Group's cash position, as at 30 April 2023, was £1.2 million and net debt was £1.8 million.

On 26 July 2023, the Company announced the following Trading Update:

"As previously announced, Velocity is progressing the first article inspection ("FAI") process and production ramp up of the US$100 million, five-year Work Package Agreement ("the Agreement") announced in December 2022. The development of the Company's Advanced Manufacturing Facility in Alabama, US (the "Site") continues with further manufacturing cells being installed, and additional workers being recruited and trained.

The first two launch programmes for the Customer at the Site, which account for 49% of expected revenues for the year ending 31 October 2024 ("FY2024"), have successfully completed the FAI process. The first programme is at volume production and the second, the largest, is expected to be up to the full rate of production by August 2023, once the Customer has signed off on the final FAI kits as they are built into finished parts.

Further to the announcement dated 18 April 2023, an updated FAI timeline for the remaining programmes has now been agreed with the Customer, with the FAI process for the third group of programmes (12% of FY24 revenue) expected to commence in September 2023, the fourth group (26% of FY24 revenue) in October 2023, and the fifth group (8% of FY24 revenue) in March 2024.

The FAI process is extremely complicated and has required extensive time and work on both sides. The Customer and Velocity are in discussions for the five-year term of the Agreement announced in December 2022, with the term initially expected to commence in March 2023, to now start on 1 January 2024, when all the critical kits have been outsourced. All other contractual terms, including the full-term revenue under the Agreement of US$100m, are expected to remain unchanged, at the underlying base of US$20m per annum based on current programme production rates. Using current exchange rates of GBP1:US$1.30, this is worth approximately £15.4m of revenue to Velocity for each year of the Agreement.

As a result of the updated FAI timeline, revenue that was expected to be realised in the ramp up stage of production in the US for the year ending 31 October 2023 ("FY2023") has been reduced to £2.2m from £5.0m. However, any FY2023 revenue achieved under the Agreement is in addition to the US$20m per annum for the five-year period of the Agreement and therefore has no commercial impact on the value of that contract long term. Once the programme transfer from the Customer to Velocity is completed, revenues under the Agreement will be more predictable, as they will follow the platform run rates required by the Customer.

For FY2023, with the adjustment to FAI process sales estimates and changes in exchange rates, the Group is now expecting to report revenue of between £15m to £17m, and an EBITDA loss of between £1.2m to £1.6m (subject to finalising the capitalisation of certain costs in the US).

In FY2024, once the contract extension is in place, the Agreement term is expected to commence at volume rates in January 2024, with a renewal due by the end of calendar year 2028, though the contract can be subject to further annual extensions. As a result, FY2024 revenue is expected to be between £30m and £36m, and EBITDA profit of between £1.7m to £2.5m, including additional investment to fund further growth opportunities as they emerge.

The Board is pleased to announce that it is in advanced discussions with a large, global Tier 1 composites manufacturer with multiple sites in the US on another agreement. Further announcements will be made, as appropriate.

In the UK, demand is growing. In FY2023, growth of at least 15% is expected compared to FY2022. In FY2024, Velocity is planning for extra work from a UK manufacturer seeking to expand its capacity to meet growing demand. With expected UK growth and the start of the full rate production under the Agreement in the US, the Company can deliver profitability in FY2024.

To accommodate the planned growth in the US and the UK, the Company is pleased to announce the appointment of Kevin Hickey as Group Chief Operating Officer (a non-Board position). Kevin previously worked at the Company between early 2017 and late 2020, where he was responsible for the establishment, ramp up and ongoing management of the Company's production facility in Fareham, UK. Prior to this, Kevin held a range of senior operational management roles both in the UK and internationally at GE Aviation and brings a wealth of experience in the industry and the Company's processes as Velocity's existing facilities grow, and new facilities are established." 

USE OF PROCEEDS

The Company has conditionally raised gross proceeds of approximately £6.20 million by way of the Placing and the Subscription, and any funds raised in the REX Retail Offer will be in addition to this amount. The net proceeds of the Placing and the Subscription will be used as follows:

Additional amounts raised from the REX Retail Offer will be used to further strengthen the balance sheet.

THE PLACING

The Company has conditionally raised gross proceeds of £5.76 million through a placing of 14,400,000 Placing Shares at the Issue Price with institutional and other investors, comprising 1,900,000 Firm Placing Shares and 12,500,000 EIS/VCT Placing Shares. The Issue Price represents a discount of 13.0 per cent. to the closing mid-market price of 46.0 pence per Ordinary Share on 2023 (being the last practicable date prior to the date of the announcement 8 August of the Fundraising). The Placing Shares represent 39.0 per cent. of the Existing Ordinary Shares and will, when issued, rank pari passu with the Existing Ordinary Shares.

As part of the Placing, the Company is seeking to raise funds through the EIS/VCT Placing by the issue of the EIS/VCT Placing Shares to investors either seeking the benefit of relief under the EIS or seeking the benefit of tax relief through VCTs. The EIS/VCT Placing Shares will be issued to the relevant Placees at Second Admission so that Placees investing as part of the EIS/VCT Placing shall be able to benefit from tax advantages available to Venture Capital Trusts and pursuant to the Enterprise Investment Scheme as governed by HMRC.

The Company has applied for, and received on 10 July 2023, advanced assurance from HMRC that the EIS/VCT Placing Shares will be able to benefit from the tax advantages available for the purposes of the Enterprise Investment Scheme, subject to the Company first undertaking the Cancellation such that the accumulated losses become less than half of the subscribed share capital. In addition, the Company has received advice that, based on the EIS advance assurance received, subject to certain conditions, including the Cancellation taking place before VCTs make their investment, a subscription for EIS/VCT Placing Shares by a VCT would be regarded as qualifying holdings for the purposes of Part 6 of the Income Tax Act 2007 and would be regarded as "eligible shares" as defined in section 285(3A) of that Act, provided that the investment by the VCT (including any existing investment in the Company) will not exceed 15% by value of its total investments at the date of the investment.

However, none of the Company, the Directors or any of the Company's advisers give any warranty or undertaking that reliefs will be available and not withdrawn at a later date.

Pursuant to a placing agreement between the Company and Cenkos dated 9 August 2023 (the "Placing Agreement"), Cenkos has conditionally agreed to use its reasonable endeavours to procure subscribers for the Placing Shares at the Issue Price. Cenkos has conditionally placed the Placing Shares with certain new and existing institutional and other investors at the Issue Price.

In addition to the Placing, the Company has conditionally raised £0.44 million by the issue of 1,100,000 new Ordinary Shares at the Issue Price by way of a direct subscription by a certain private subscriber. The Subscription Shares represent 3.0 per cent. of the Existing Ordinary Shares and will, when issued, rank pari passu with the Existing Ordinary Shares.

The Placing has not been underwritten by Cenkos or any other party. The Company has the authority to issue and allot the Firm Placing Shares and the Subscription Shares pursuant to certain existing shareholder authorities granting such powers to the Directors at the Company's annual general meeting held on 28 February 2023.

The Firm Placing and the Subscription  are conditional, inter alia, on:

·      the Placing Agreement not having been terminated in accordance with its terms prior to First Admission; and

·      First Admission of the Firm Placing Shares, the Subscription Shares and the Retail Offer Shares becoming effective by no later than 8.00 a.m. on 15 August 2023 or such later time and/or date as the Company and Cenkos may agree (being no later than 8.00 a.m. on 31 August 2023).

The EIS/VCT Placing is conditional, inter alia, on:

·      the Placing Agreement not having been terminated in accordance with its terms prior to Second Admission;

·      First Admission having taken place;

·      Resolutions 1, 2 and 6 (including the Reduction Resolution) being passed which will provide shareholder authority for the issue by the Company of the EIS/VCT Placing Shares on a non-pre-emptive basis; and

·      Admission of the EIS/VCT Placing Shares becoming effective by no later than 8.00 a.m. on 6 October 2023 or such later time and/or date as the Company and Cenkos may agree (being no later than 8.00 a.m. on 20 October 2023).

Shareholders should note that the expected dates for the confirmation of the Cancellation by the Court, the Cancellation becoming effective and Second Admission are based on provisional dates that have been obtained for the required Court hearings of the Company's application. These provisional hearing dates are subject to change and dependent on the Court's timetable.

Completion of the Retail Offer is conditional, inter alia, upon the completion of the Firm Placing and the Subscription. Completion of the Firm Placing and Subscription are not conditional on the completion of the Retail Offer. Completion of the Firm Placing and the Subscription are inter-conditional.

The Placing Agreement contains customary warranties given by the Company in favour of Cenkos in relation to, amongst other things, the accuracy of the information in the Circular and other matters relating to the Group and its business.  In addition, the Company has agreed to indemnify Cenkos (and their respective affiliates) in relation to certain liabilities which they may incur in respect of the Placing. Under the Placing Agreement, the Company has agreed to pay to Cenkos a fixed sum and/or commissions based on the aggregate value of the Placing, and the costs and expenses incurred in relation to the Placing.

Cenkos has the right to terminate the Placing Agreement in certain circumstances prior to First Admission and/or Second Admission, in particular, in the event of breach of the warranties, the occurrence of a material adverse change or if the Placing Agreement does not become unconditional.

THE REX RETAIL OFFER

The Company has separately agreed to use the REX Platform to undertake an intermediaries offer of New Ordinary Shares at the Issue Price, alongside the Placing, to existing retail investors of the Company. For the avoidance of doubt, the REX Retail Offer Shares are not part of the Placing and do not form part of the Placing Shares.

In recognition of their continued support to the Company, the Board believes that the REX Retail Offer provides the Company's longstanding and supportive retail Shareholders with an opportunity to participate in the Fundraising. Assuming full take up for an aggregate of up to 1,250,000 REX Retail Shares, the REX Retail Offer will raise gross proceeds of up to approximately £0.5 million at the Issue Price.

Pursuant to the terms of the Intermediaries Agreement, the Company has made the REX Retail Offer to holders of Existing Ordinary Shares only through Intermediaries via the REX Platform. The obligations of the Intermediaries under the Intermediaries Agreement are conditional in all respects upon: (a) the Placing Agreement becoming unconditional and not having been terminated in accordance with its terms; and (b) Admission. Under the Intermediaries Agreement, the Company has agreed to pay the provider of the REX Platform and the Intermediaries fees based on the aggregate value of the REX Retail Offer. It is a term of the REX Retail Offer that the total value of the REX Retail Offer Shares available for subscription at the Issue Price does not exceed the Sterling equivalent of €8 million.

The REX Retail Offer has not been underwritten and has been offered in the United Kingdom under the exemption against the need to publish a prospectus approved by the FCA in section 86(1)(e) of FSMA. The REX Retail Offer has not been made into any jurisdiction other than the United Kingdom.

ADMISSION, SETTLEMENT, DEALINGS AND TOTAL VOTING RIGHTS

The New Ordinary Shares will, when issued, be credited as fully paid up and will rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid on or in respect of the Ordinary Shares after the date of issue of  he New Ordinary Shares, and will on issue be free of all claims, liens, charges, encumbrances and equities.

Application will be made to the London Stock Exchange for the admission of the New Ordinary Shares to trading on AIM. First Admission of the Firm Placing Shares, the Subscription Shares and the Retail Offer Shares to trading on AIM is expected to occur at 8.00 a.m. on 15 August 2023 (or such later times(s) and/or date(s) as Cenkos and the Company may agree).

Second Admission of the EIS/VCT Placing Shares to trading on AIM is expected to occur at 8.00 a.m. on 6 October 2023 (or such later times(s) and/or date(s) as Cenkos and the Company may agree).

Following First Admission, the total number of Ordinary Shares in the capital of the Company in issue (assuming full take up of the Retail Offer) is expected to be 41,170,785 with each Ordinary Share carrying the right to one vote. There are no Ordinary Shares held in treasury and therefore the total number of voting rights in the Company is expected to be 41,170,785. The above figure may be used by Shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the FCA's Disclosure, Guidance and Transparency Rules.

DIRECTORS' RECOMMENDATION AND IRREVOCABLE UNDERTAKINGS

The Directors consider the Fundraising and Cancellation to be in the best interests of the Company and its Shareholders as a whole. Accordingly, the Directors recommend unanimously that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting, as they intend to do in respect of their own shareholdings, which total 6,084,404 Existing Ordinary Shares, representing approximately 16.48 per cent. of the Existing Ordinary Shares.

The Company has received irrevocable undertakings to vote in favour of the Resolutions in respect of, in aggregate, 15,021,315 Ordinary Shares, representing approximately 40.69 per cent. of the Existing Ordinary Shares.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

DEFINITIONS AND GLOSSARY

The following definitions and glossary apply throughout the Circular (including the Notice of General Meeting) and the Form of Proxy unless the context otherwise requires: