VEEM LTD — Annual Report 2022

Aug 18, 2022

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VEEM LTD

MARCH 2020 VEEM LTD

DISCLAIMER

THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR ADVERTISEMENT

This document, including the information contained in this disclaimer, is not a prospectus, product disclosure statement or other disclosure document and does not constitute, or form any part of, an offer to sell, or a solicitation of an offer to buy, the Shares. This document does not constitute an invitation, offer or recommendation to apply for or purchase the Shares and does not contain any application form for the Shares. This document does not constitute an advertisement for an offer or proposed offer of the Shares. Neither this document nor anything contained in it shall form the basis of any contract or commitment and it is not intended to induce or solicit any person to engage in, or refrain from engaging in, any transacti on. No person is authorised to give information or make any representation in connection with any Public Offer which is not contained in this document. Any information or representation not so contained may not be relied on as being authorised by the Company, the Lead Manager or any person assoc iated with them. This document does not constitute an offer to sell, or the solicitation of an offer to buy, any securities in the United States. The Shares have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (Securities Act) or the securities laws of any state or other jurisdiction of the United States, and may not be offered or sold, directly or indirectly, in the United States absent registration under the Securities Act or in a transaction exempt from, or not subject to, the registration requirements of the Securities Act and any other applicable U.S. state securities laws.

DISTRIBUTION

Distribution of this document outside Australia may be restricted by law. Persons who come into possession of this document who are not in Australia should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws.

NO LIABILITY

The Company has prepared this document based on information available to it at the time of preparation, from sources believed to be reliable and subject to the qualifications in this document. To the maximum extent permitted by law, Limited Parties accept no responsibility or liability for the contents of his document and make no recommendation or warranties concerning any Public Offer. No representation or warranty, express o r implied, is made as to the fairness, accuracy, adequacy, validity, correctness or completeness of the information, opinions and conclusions contained in this document. To the maximum extent permitted by law, none of the Limited Parties accepts any responsibility or liability including, without l imitation, any liability arising from fault or negligence on the part of any person, for any loss whatsoever arising from the use of this document or its contents or otherwise arising in connection with it.

Neither of the Lead Manager, nor any of its affiliates, related bodies corporate (as that term is defined in the Corporations Act) and their respective directors, employees, officers, representatives, agents, partners, consultants and advisers have authorised, permitted or caused the issue, lodgement, submission, despatch or provision of this document, and none of them make or purport to make any statement in this document and there is no statement in this document which is based on any statement by them.

PAST PERFORMANCE

Past performance information in this document is given for illustration purposes only and should not be relied upon as (and i s not) an indication of future performance. Actual results could differ materially from those referred to in this document.

FORWARD-LOOKING STATEMENTS

Certain statements, beliefs and opinions contained in this document, particularly those regarding the possible or assumed fut ure financial or other performance of the Company, industry growth or other trend projections are or may be forward looking state ments. Forward-looking statements can be identified by the use of 'forward-looking' terminology, including, without limitation, the terms 'believes', 'estimates', 'anticipates', 'expects', 'predicts', 'intends', 'plans', 'propose', 'goals', 'targets', 'aims', 'outlook', 'guidance', 'forecasts' , 'may', 'will', 'would', 'could' or 'should' or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors because they relate to events and depend on circumstances that may or may not occur in the future, assumptions which may or may not prove correct, and may be beyond the Company's ability to control or predict which may cause the actual results or performance of the Company to be materially different from the results or performance expressed or implied by such forward-looking statements. Forwardlooking statements are based on assumptions and contingencies and are not guarantees or predictions of future performance. No representation is made that any of these statements or forecasts will come to pass or that any forecast result will be achieved. Similarly, no representation is given that the assumptions upon which forward looking statements may be based are reasonable. None of the Company, the Lead Manager or any other Limited Party, makes any representation or warranty as to the accuracy of any forward looking statements contained in this document. Forward-looking statements speak only as at the date of this document and the Limited Parties disclaim any obligations or undertakings to release any update of, or revisions to, any forward-looking statements in this document. All dollar values contained in this document are in Australian dollars (A$) unless otherwise stated.

NOT FINANCIAL PRODUCTADVICE

No attempt has been made to independently verify the information contained in this document. You should make your own assessment in considering an investment in the Company and should not rely on this document. In all cases, you should conduct your own investigations and analysis of the financial condition, assets and liabilities, financial position and performance, profits and losses, prospects and business affairs of the Company and its business, and the contents of this document. This document is not, and should not be construed as, a recommendation by the Company, related bodies corporate (as that term is defined in the Corporations Act), or any of their respective officers, employees, directors, shareholders, partners, representatives, agents, consultants or advisers or any other party referred to in this document (each a Limited Party and, together, the Limited Parties ) to invest in the Company. The information in this document is of a general nature and does not constitute financial product advice, investment advice or any recommendation. Nothing in this document constitutes legal, financial, tax or other advice. The information in this document does not take into account the particular investment objectives, financial situation or needs of any person. You should seek legal, financial, tax and other advice appropriate to your jurisdiction.

2

FY22 in Review

Revenues of $54m. Propulsion and engineering products and services were 01 strong in FY22. Defence reduced due to completed major contracts, gyro unit numbers steady, but revenue less.

Revenue, EBITDA and NPAT down on the prior year due to raw materials and freight cost increases, general staff shortages and COVID impact on customers, 02 suppliers and staff.

Foundry issues impacted profitability in Q2FY22. These issues were addressed 03 and rectified during Q3FY22 and defect levels have remained low.

Maintained dominant position as the only major supplier in the large marine gyrostabiliser market, with significant investment and ongoing development 04 providing major barriers to entry for potential competitors.

05 Increased propeller capacity by over 25% with two new machines commissioned in FY22. Lead times did not reduce indicating strong demand.

Net assets increased by $7.0m to $43.6m. Cash on hand of $2.6m at 30 June 2022 (30 June 2021: $2.2m) plus an undrawn overdraft facility of $3.4m and an undrawn 06 commercial loan facility of $2.0m.

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3

FY22 Full Year Financial Results Summary

	FY22 A$mil. FY21 (Excluding Jobkeeper*) A$mil. % Change Revenue 54.2 59.5 -9% EBITDA 6.1 8.7 -30% Profit before Tax 1.4 4.4 -68% Net Profit after Tax (NPAT) 1.3 3.8 -67% Earnings Per Share (EPS)(cents) 0.93 2.95 -67% Cash Flow From Operations 2.5 4.1 -38% Net Assets 43.6 36.6 19%

*Refer to slide 13 for the reconciliation between the FY21 audited result and the above data which is shown excluding the JobKeeper subsidy received in FY21. Net assets are not adjusted for JobKeeper.

4

Gyrostabilizers

• VEEM sold 12 gyros (in line with prior year) worth $5.5m in FY22 and had orders on hand of $1.3m at 30 June 2022. Current orders on hand is $2.4m.

• VEEM maintains the dominant position as the only major supplier in the large marine gyrostabilizer market (est. US$1.1bn for new builds and US$13.5bn for retrofits*).

• Commencement of Head of Sales and Business Development - Europe has already resulted in an increase in the volume and quality of leads and enquiries from European customers and shipyards.

• Development of an international service team was brought forward to counteract the impact COVID had on our ability to provide after-sales support.

• Damen’s new walk to work vessel, the FCS 7011, launched in early 2022 (over 12-month delay). VEEM has subsequently received enquiries for gyros on the back of this vessel.

• The level of volume and quality of leads provides confidence of strong orders and sales in the near to medium term.

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5

Pro ulsion p

• Sales of propellers and shaft lines totalled $20.7 million for FY22, up 26% on FY21, on the back of very strong demand for recreational boating products globally.

• New key superyacht builders added VEEM as a primary supplier, with some requesting possible long-term, volume-based contracts.

• Several price rises were implemented during FY22 to account for cost increases.

• Propeller manufacturing capacity was increased by two new propeller CNC machining centres delivered during FY22.

• Three smaller machines are scheduled for delivery in late 2022. This will increase capacity by a further 25%.

• No pull back in demand currently evident, with key customers globally forecasting increased production, evidenced by many yards being booked out to 2023-4.

• R & D focus is to continually increase the automation of the propeller process reducing time and cost and, notably in the current environment, the requirement for highly skilled labour as capacity expands.

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6

Defence

• As expected, revenue from the defence sector was down 39% to $14.3 million in FY22, with revenue from both ASC ($7.2 million) and Austal ($4.7 million) lower on the prior year.

• Deliveries for the next Collins Class FCD order ($9m) commenced in FY22 along with the normal levels of spares. Collins Class submarines will continue well into the 2040s with a life of type extension program as well as ongoing FCD.

• Austal ride control and propulsion work is ongoing, with overall revenue lower due to completion of LCS contract after 14 years.

• Deliveries of the Evolved Cape-class Patrol Boat (ECCPB) and the Pacific Patrol Boat (PPBR) from Austal to the RAN are underway, with VEEM providing the propulsion equipment. Austal aim to deliver nine vessels to the RAN this calendar year, of which all vessels comprise VEEM products.

• Phase 1 of the qualification program for the manufacture of the Hunter Class Frigate propellers for BAE Systems Australia and Kongsberg was successful and Phase 2 has been tendered. VEEM is one of only a very small number of manufacturers globally able to meet the demanding standards.

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7

Engineering Products and Services

• VEEM’s traditional engineering and industrial products business was a strong contributor to profits and margins with revenue of $8.4 million for the year, up 20% of FY21 (includes hollow bar, excludes defence).

• This growth was due partly to strong demand from the mining sector and several large orders for foundry-led precision engineering work.

• Within this category, hollow bar revenue (which includes the Forever Pipe product) was steady at $5.6 million for the year, with second half sales improving on a weaker first half.

• Sales and marketing resources for the Forever Pipe product recently increased, with the expectation this will drive sales within the mining sector.

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8

Outlook

• FY22 challenges have been met and dealt with and the Company is in a strong position with an existing robust core business.

• VEEM Gyro product continues to improve and VEEM is the dominant player in the global marine market estimated at US$1.1bn for new builds and US$13.5bn for retrofits (current fleet).

• With the new senior staff now on board, more customers experiencing the benefits of the gyro and the quality and quantity of leads coming from many areas of the marine industry, VEEM is confident that gyro revenue will improve significantly over the coming months and years.

• VEEM is the premium supplier of fixed pitch propellers globally and revenue is expected to grow strongly in FY23 due to the increased capacity added in FY22 and the three new machines due for delivery in late 2022. Currently there are no signs of strong global demand abating.

• Defence revenue will remain strong with the Collins Class program. VEEM is well positioned to take advantage of further defence work that may result from the Federal Government’s drive for increased local content, including opportunities arising out of AUKUS.

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• The traditional engineering products and services business continues to underpin VEEM’s operations. Revenues from the traditional business are expected to continue.

9

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Q & A
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10

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VEEM LTD

APPENDICES

Corporate Overview

Corporate Snapshot
ASX Code	VEE
Share Price(18 August 2022)	$0.55
Market Capitalisation(18 August 2022)	$75m
Shares on Issue	136m

Substantial Shareholders
Miocevich Family	50.20%
Perennial Value Management	12.45%
Salter Brothers Emerging Companies	6.63%

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12-MONTH SHARE PRICE PERFORMANCE
$1.60 6
$1.40
5
$1.20
4
$1.00
$0.80 3
$0.60
2
$0.40
1
$0.20
$0.00 0
Volume Close
Millions
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12

FY21 Financial Results Reconciliation

	FY21 Audited Result A$mil. JobKeeper A$mil. FY21 Excluding JobKeeper A$mil. Revenue 59.5 - 59.5 EBITDA 10.2 1.5 8.7 Profit before Tax 5.9 1.5 4.4 Net Profit after Tax (NPAT) 4.9 1.1 3.8 Earnings Per Share (EPS)(cents) 3.78 0.83 2.95 Cash Flow From Operations 6.3 2.2 4.1

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VEEM LTD

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Contact

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