VEEM LTD — Interim / Quarterly Report 2023

Jun 25, 2023

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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. 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.

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Agenda

01 Trading Update Highlights

02 Executive Summary

03 Operational Update 04 FY23 Capital Investment

05 Outlook

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3

Trading Update

• VEEM expects its activity level (Sales + change in WIP) for FY23 to be ~$60m with EBITDA and profit to be ahead of analyst forecasts of $8.3m and $2.9m respectively.

• Gyro sales for the year are expected to be $5m (included in the $60m activity above) with orders in hand of $11m including the orders under the recently announced exclusivity agreement with Strategic Marine.

• VEEM has 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. Refer ASX release of 26 June 2023.

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• Three new propeller machining centres, associated equipment and tooling were installed and commissioned with May recording a record month for propeller sales ($2.3m) and June continuing the stepped up production levels.

• Revenue from the submarine program is expected to be over $6m for 2HFY23 taking the full year revenue for submarines alone to $12m.

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4

Executive Summary

• VEEM has had a highly productive half-year to 30 June 2023, particularly the last quarter, providing good momentum into FY24.

• Three new propeller machining centres, associated equipment and tooling were installed and commissioned with May recording a record month for propeller sales ($2.3m) and June continuing the stepped up production levels.

• Trevor Raman was appointed Operations Manager for the traditional manufacturing facilities in April and this, along with a number of other staff changes, has seen increased overall hours and productivity in May and June to date.

• VEEM expects its activity level (Sales + change in WIP) for FY23 to be ~$60m with EBITDA and profit to be ahead of analyst forecasts of $8.3m and $2.9m respectively.

• Gyro sales for the year are expected to be $5m (included in the $60m activity above) with orders in hand of $11m including the orders under the recently announced exclusivity agreement with Strategic Marine.

• The initial casting for the Hunter Class Frigate demonstration propeller blade was successfully poured and VEEM continued to deliver submarine components to ASC for the Collins Class FCD.

• During the period VEEM has increased its marketing and brand-building efforts for its marine products with a focus on digital and social media.

• VEEM has invested over $5.5m in capital and development expenditure during the half-year to June 2023 including two of the three machining centres and associated equipment noted *

• above .

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• The first of the three machining centres was included in capital expenditure in the half year to 31 December 2022.

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VEEM LTD

OPERATIONAL UPDATE

Gyrostabilizers

• Revenue from gyrostabilisers is expected to be $5m for the year with 2HFY23 being $3m, almost double 1HFY23. Orders on hand are $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 with the products to capitalise on this.

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Propulsion

• Three new propeller machining centres and associated equipment and tooling were installed and commissioned with May recording a record month for propeller sales ($2.3m) and June continuing the stepped up production levels.

• With the increased production VEEM has put in place a specific $2m propeller trade facility to finance the trade cycle of props 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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Defence

• VEEM continues to be a reliable, local source of highly sophisticated critical components for the Collins Class submarines. Revenue from the submarine program is expected to be over $6m for 2HFY23 taking the full year revenue for submarines alone to $12m.

• In May VEEM successfully poured the first blade casting as part of 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 of 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 subs.

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Engineering Products and Services

• VEEM’s hollow bar product revenue for 2HFY23 is expected to be ~$3.2m which is a 30% increase over the first half 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 to date have seen increased hours worked through a number of initiatives to improve recruitment and retention of staff.

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VEEM LTD

FY23 CAPITAL & DEVELOPMENT INVESTMENT

FY23 Capital & Development Investment

• 2HFY23 saw a total of $5.5m of investment in plant and equipment and engineering development including:

• two 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 HP.

• This new equipment has already started to contribute to improved financial performance in the last few months of FY23.

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

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• The first of the three machining centres was included in capital expenditure in the half year to 31 December 2022.

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VEEM LTD

OUTLOOK

Outlook

Gyrostabilisers:

• The agreement with Strategic Marine highlights the commercial market for gyrostabilizers is becoming better educated at the operational, HSE and commercial benefits of gyros for crew transfers.

• Continued investments into marketing, smaller models and further development of the current large gyros will lead to significant revenue growth and profits in coming years.

Propulsion:

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

• Recent increases in production output 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 other options to leverage off the high-level qualifications with BAE/Kongsberg/Navy to supply other defence programs including overseas T26 programs.

• VEEM is also active and well positioned to take advantage of further defence work opportunities that may arise out of AUKUS and other defence programs with BAE being the prime contractor for the British AUKUS submarine - the base model for Australia’s new submarines.

Engineering:

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

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

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VEEM LTD

APPENDIX

Corporate Overview

Corporate Snapshot
ASX Code	VEE
Share Price(23 June 2023)	$0.41
Market Capitalisation (23 June 2023)	$55m
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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