VEEM LTD — Annual Report 2023

Aug 23, 2023

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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. Forward-looking 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 PRODUCT ADVICE

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

Agenda

1. FY23 Highlights

2. Executive Summary

3. Financial Results

4. Operational Performance

5. Outlook

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1. Q&A

3

FY23 Highlights

Revenue Total Activity[1] EBITDA[2] $59.6m +10% Revenue, EBITDA and NPAT down on the prior year due to raw materials and $63.5m $10.0m +64% freight cost increases, general staff shortages and COVID impact on customers, su liers and staff. pp EBITDA Margin[2] EBIT[2] NPAT[2] 16.8% +552bp $5.9m +186% $4.1m +226% Increased propeller capacity by over 25% with two new machines commissioned Operating Cashflow in FY22. Lead times did not reduce indicating strong demand.[2] EPS[2] Final Dividend[2] $6.1m +143% 3.03cps +226% 0.51c

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1. Total Activity = Sales + change in WIP

2. Includes receipt of a government grant of $0.5m which is considered non-recurring.

4

Executive Summary

• VEEM’s revenue for the year was $59.6m (up 10% on FY22) with total activity (Sales + change in WIP) for FY23 of $63.5m.

• EBITDA and NPAT were $10.0m and $4.1m, up 64% and 226% respectively on FY22. Cashflow from operations was $6.1m, up 143% on FY22. These amounts include a government grant of $0.5m.

• Gyro sales for the year were $5.0m with orders in hand of $11m.

• VEEM signed an exclusivity agreement with Strategic Marine for fast crew boats servicing offshore energy in SE Asia. Strategic have committed to purchase a further 12 gyros over the next three years.

• Three new propeller machining centres, associated equipment and tooling were installed and commissioned with May and June 2023 each recording a new record for propeller sales.

• Revenue from the submarine program was $12.3m for the year with total defence spending of $17.0m.

• VEEM has invested over $9.6m in capital and development expenditure during FY23 including the three machining centres and associated equipment noted above.

• EPS of 3.03 cents per share, up 226% on the prior period.

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VEEM LTD

FY23 Result

Profitability increase driven by propeller and defence businesses

• Customer Work in Progress increased by $3.9m which, when added to revenue, demonstrates $63.4m of activity over FY23.

• • Three new propeller machining centres, associated equipment and tooling were installed and commissioned increasing capacity materially.

• • Overall propulsion sales were up 19% on FY22 with VEEM’s own propeller products up 23%.

• • ASC revenue was up 72% on the prior year with a large portion of a full cycle docking being delivered.

• • Hollow bar revenue was up 11% on FY22. Margins remained solid and overheads were well managed resulting in a material improvement in EBITDA and net profit after tax.

• • Successfully managed a tightening labour market and resultant rising costs.

• • Grant funds of $0.5m were received in FY23 (nonrecurring).

	FY23 A$mil.	FY22 A$mil.	% Change
Revenue	59.6	54.2	10%
EBITDA*	10.0	6.1	64%
Profit before Tax	4.9	1.4	249%
Net Profit after Tax (NPAT)	4.1	1.3	226%
Earnings Per Share (EPS)(cents)	3.03	0.93	226%

*EBITDA is earnings before interest, tax, depreciation and amortisation.

7

Balance Sheet

Capital investment to drive future profitability

• The Company held cash on hand of $2.4m at 30 June 2023 (30 June 2022: $2.6m) and had an undrawn overdraft facility of $3.4m.

• A $2m trade facility was set up to facilitate the propeller business and was drawn to $1.7m at year end.

• The working capital position remained relatively steady with progress payments from customers covering part of the significant increase in WIP.

• VEEM has invested over $9.6m in capital and development expenditure during FY23 including the three new propeller machining centres, associated equipment and tooling.

• $4.4m of the capital purchases above were funded through HP arrangements and $2m was drawn from the commercial facility.

	FY23 A$mil.	FY22 A$mil.	% Change
Current Assets	35.0	31.7	11%
Non-Current Assets	56.5	49.1	15%
Total Assets	91.5	80.8	13%
Current Liabilities	16.8	12.6	33%
Non-Current liabilities	27.9	24.6	13%
Total Liabilities	44.7	37.2	20%
Net Assets	46.8	43.6	7%
Retained earnings	35.4	32.1	10%
Total Equity	46.8	43.6	7%

8

Cash Flow

Solid cash flow from operations and investments in assets

• Cashflow from operations was $6.1m (2022: $2.5m). The increase in WIP deferred some receipts to the next period. • The investment of $5.2m is the portion of the $9.6m of capital and development expenditure not funded by HP arrangements. • As part of the funding for the $5.2m above, VEEM drew down an additional $2m of its commercial facilities during the year. $1.2m of commercial facilities were repaid. • A $2m trade facility was set up to facilitate the propeller business and was drawn to $1.7m at year end. • At year end VEEM had an undrawn overdraft facility of $3.4m.		FY23 A$mil.	FY22 A$mil.	% Change
	Cash flow from operations	6.1	2.5	143%
	Cash flow from investing activities	(5.2)	(4.8)	8%
	Cash flows from financing activities	(1.2)	2.6	-145%
	Net (decrease)/increase in cash	(0.2)	0.3	-183%
	Cash at end of period, net of overdraft	2.4	2.6	-8%

9

Cash Flow

Investing

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• Development costs: $3,413k
• Property plant & equip. : $1,773k
Statutory EBITDA $9,954k
Less AASB 16 leases - $2,048k
Adjusted EBITDA $7,906k
Net Borrowings
• Net bank borrowing proceeds $2,492k
• Repayment of HPs $1,327k
Working capital
• Primarily increase in work in
progress partly offset by other
working capital balances.
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VEEM LTD

Gyrostabilisers

• Revenue from gyros was $5m for the year with 2HFY23 being $3m, almost double 1HFY23. Orders on hand at 30 June were $11m including the Strategic Marine orders per below.

• Exclusivity agreement signed with Strategic Marine for fast crew boats in SE Asia. Strategic have committed to purchase 12 gyros over the next three years. This agreement underscores the value of a gyro in a workboat environment in terms of safety, efficiency, productivity, operability and financially. Refer to the ASX release of 26 June 2023.

• During the period VEEM has increased its marketing and brand-building efforts for its marine products with a focus on digital and social media. As an example see Nautistyles on Instagram and youtube.

• VEEM has continued to invest in the development of its gyro product over the period including a smaller gyro design.

• During the period VEEM focused on its service techs visiting customers (post-COVID) to ensure that the gyros were commissioned efficiently and the customers were satisfied.

• High rates of qualified leads, evidence of take-up in the small boat recreational market (smaller than VEEM’s products) and continual product development provide confidence that wide adoption of the technology is well on the way and VEEM is the only manufacturer in the large gyro market with the products to capitalise on this.

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12

Propulsion

• Three new propeller machining centres and associated equipment and tooling were installed and commissioned with May and June 2023 each recording a record for propeller sales.

• With the increased production VEEM has put in place a specific $2m propeller trade facility to finance the trade cycle of propellers from purchase of metals through to receipts from customers.

• In addition to the machining centres and associated equipment, VEEM has also invested in a large 3D printer, large laser scanner and process improvement to bring further efficiencies to the propeller manufacturing process. Further equipment is on order for 1HFY24.

• Despite this increase in capacity, strong demand has kept pressure on lead times.

• VEEM continues to develop its processes and pursue new initiatives in relation to the propeller business where it can leverage its reputation and client base as the premium product in the market for high-speed, high-performance propellers.

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13

Defence

• VEEM continues to be a reliable, local source of highly sophisticated critical components for the Collins Class submarines. Revenue from the submarine program was $12.3m for the year.

• VEEM is currently manufacturing blades and hubs for the Hunter Class Frigate Program (HCFP) demonstrator program for BAE Systems Australia. The value of the demonstrator contract is $1.7 million, with successful completion of the task by Q2 2024 ensuring VEEM qualifies as a supplier to the HCFP. VEEM is one of only two suppliers globally to be able to produce this level of precision.

• Success with this project and subsequent high-level defence supplier qualification is expected to lead to further Australian defence work as well as the potential to export equipment for other naval shipbuilding programs around the world, including other Type 26 frigate programs.

• VEEM also continues to be awarded contracts for numerous other defence projects including army vehicles and naval projects such as patrol boats (eg. Austal’s ECCPB).

• VEEM continues to monitor developments with AUKUS and other defence initiatives to ensure it is in the best position to win its share of the local precision manufacturing work programs. BAE systems is the prime contractor for the new British AUKUS submarines which are to be used as the template for the new Australian submarines.

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14

Engineering Products and Services

• VEEM’s hollow bar product revenue for FY23 was $6.2m which is an 11% increase over FY22 due to strong demand and increased capacity.

• Delivery commenced for the Latrobe Magnesium’s Latrobe Valley Stage 1 Demonstration Plant which will continue over the next three years.

• Demand generally for foundry-led, precision engineered products remains strong.

• May and June 2023 saw increased hours worked through a number of initiatives to improve recruitment and retention of staff. These have been maintained into FY24.

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15

FY23 Capital & Development Investment

• FY23 saw a total of $9.6m of investment in plant and equipment and engineering development including:

• Three new propeller machining centres, associated equipment and tooling

• Large 3D printer

• Large laser Scanner

• Product Development including gyro engineering related to product improvement and a small gyro design

• All significant external equipment purchases and some internally generated plant and equipment are financed by hire purchase arrangements ($4.4m) with a further $2m of commercial debt drawn down.

• This new equipment started to contribute to improved financial performance in the last quarter of FY23 and into FY24.

• Some new equipment related to improving propeller manufacturing efficiency has been ordered for delivery in 1HFY24.

• VEEM’s R&D expense for the year was $2.8m.

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VEEM LTD

Outlook

Gyrostabilisers:

• Strategic Marine agreement, recent leads and enquiries highlight the commercial market for gyrostabilisers is becoming better educated at the operational, HSE and commercial benefits of gyros for crew transfers.

• With continued investment into marketing, smaller models and further development of large gyros VEEM expects to see solid revenue growth in coming years.

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Propulsion:

• Global demand for VEEM’s propellers is expected to remain strong.

• Recent increases in production output are expected to continue.

• New equipment on order expected to further increase efficiencies and margins.

• Margins protected against cost increases by regular pricing reviews.

• Potential for further expansion of VEEM’s propulsion business in several areas.

Defence:

• Defence revenue expected to remain strong with deliveries under the next Collins Class submarine full cycle docking to commence in FY24.

• Other defence work for a number of different prime contractors, including Austal, is also expected to continue with the building of patrol boats and other platforms.

• VEEM will continue to deliver on the Hunter demonstrator program and will pursue options to leverage off the high-level qualifications with BAE/Kongsberg/Navy to supply other defence programs including overseas T26 programs.

• VEEM is active and well positioned to take advantage of further defence work opportunities that may arise out of AUKUS and other defence programs.

Engineering:

• Demand for the traditional engineering products and services is expected to continue.

• VEEM will continue to focus on recruitment and maintenance of labour resources through a number of initiatives.

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Q & A
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VEEM LTD

Corporate Overview

Corporate Snapshot
ASX Code	VEE
Share Price(23 August 2023)	$0.64
Market Capitalisation(23 August 2023)	$87m
Shares on Issue	136m

Substantial Shareholders	%
Miocevich Family	50.20%
Perennial Value Management	14.95%
Salter Brothers Emerging Companies	5.64%

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Contact

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VEEM LTD

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