VEEM LTD — Interim / Quarterly Report 2023

Feb 22, 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 otherwisestated.

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

Agenda

01 Executive Summary

02 Financial Results 03 Operational Performance 04 Outlook 05 Q&A

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1H FY23 Highlights

Revenue EBITDA EBITDA Margin $27.4m +4% $4.2m +47% 15.3% +430bp 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, (1H22 $26.3m) (1H22 $2.9m) (1H22 11.0%) su liers and staff. pp

EBIT PBT NPAT $2.3m $1.9m $1.8m (1H22 $0.6m) (1H22 $0.3m) (1H22 $0.3m)

Increased propeller capacity by over 25% with two new machines commissioned Operating Cashflow EPS Interim Dividend in FY22. Lead times did not reduce indicating strong demand. $1.4m +23% 1.35c 0.4c (1H22 $1.2m) (1H22 0.24c) (1H22 0.1c)

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4

Executive Summary

• 1H FY23 revenue $27.4m +4% on pcp. Material uplift in EBITDA margins (15.3% vs 11.0% in pcp), with overheads well managed, and higher input costs passed through to customers.

• Revenue from gyrostabilisers $1.7m, up slightly on pcp. Qualified leads now higher than ever, both in number of units and probable value. Maintained dominant position as the only major supplier in the large marine gyrostabiliser market.

• Propulsion sales increased 19% to $11.7m. Global demand for propellers is expected to remain strong and VEEM has recently installed three new machining centres which will significantly increase manufacturing capacity from March 2023.

• VEEM has a robust core foundry and engineering business, including its own products, which allows it to continue to invest and support the focus on driving the growth of the disruptive VEEM Gyro product into the global marine market.

• Cash flows from operations was $1.4m, up 23%. During the period VEEM drew down an additional $2m from its commercial facilities to fund capital equipment and product development (intangible assets). At 31 December 2022 VEEM had an undrawn overdraft facility of $3.3m.

• VEEM has maintained its dividend policy of paying 30% of NPAT. The dividend for 1H FY23 is 0.4 cps, up from 0.01 cps for 1H FY22.

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VEEM LTD

FINANCIAL RESULTS

1H FY23 Result

Profitability increase driven by propeller business

• 1H revenue +4% on pcp, with EBITDA stepping up materially on pcp. • Strong contribution from the propeller business with revenues up 23% • Successfully managed a tightening labour market and resultant rising costs. • Margins remained solid and overheads were well managed resulting in a material improvement in EBITDA and net profit after tax. • Customer Work in Progress increased by $2.5m to $9.2m during the period, highlighting activity levels increased far more than demonstrated only by the increase in sales.		1H FY23 A$mil.	1H FY22 A$mil.	% Change
	Revenue	27.4	26.3	4%
	EBITDA*	4.2	2.9	47%
	Profit before Tax	1.9	0.3	577%
	Net Profit after Tax (NPAT)	1.8	0.3	452%
	Earnings Per Share (EPS)(cents)	1.4	0.2	429%

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

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Balance Sheet

Capital investment to drive future profitability

• The Company held cash on hand of $1.4m at 31 December 2022 (30 June 2022: $2.6m) and has an undrawn overdraft facility of $3.3m.

• The working capital position remained steady with progress payments from customers covering part of the significant increase in WIP at 31 December 2022.

• During the period VEEM acquired $2.2m of plant and equipment and developed $1.4m of intangible assets.

• The Company drew down an additional $2m from its commercial facilities to fund part of the capital equipment and the ongoing product development (intangible assets). The balance of the capital equipment was financed by HP agreements.

	31 Dec 2022 A$mil.	30 Jun 2022 A$mil.	% Change
Current Assets	34.7	31.9	9%
Non-Current Assets	51.4	49.1	5%
Total Assets	86.0	81.1	6%
Current Liabilities	15.4	12.8	20%
Non-Current liabilities	25.5	24.6	4%
Total Liabilities	40.9	37.5	9%
Net Assets	45.2	43.6	4%
Retained earnings	33.6	32.1	5%
Total Equity	45.2	43.6	4%

8

Cash Flow

Solid cash flow from operations and investments in assets

• Cashflow from operations was $1.4m (2022: $1.2m). The increase in WIP deferred some receipts to the next period.

• During the period VEEM drew down an additional $2m of its commercial facilities to fund capital equipment and product development (intangible assets) of $2.4m.

• In addition to the above $2.4m, VEEM acquired $1.1m of plant and equipment under HP arrangements.

• At 31 December 2022 VEEM had an undrawn overdraft facility of $3.3m.

	1H FY23 A$mil.	1H FY22 A$mil.	% Change
Cash flow from operations	1.4	1.2	23%
Cash flow from investing activities	(2.4)	(3.4)	-28%
Cash flows from financing activities	(0.2)	4.3	-105%
Net (decrease)/increase in cash	(1.2)	2.3	-152%
Cash at end of period, net of overdraft	1.4	4.6	-69%

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VEEM LTD

OPERATIONAL RESULTS

Gyrostabilizers

• Revenue from gyrostabilisers was $1.7m for the period, up slightly on pcp. Current orders on hand total $4.8m.

• After-sales, installation and commissioning teams in Europe and the US were extremely busy with all yards now flat out post-covid.

• In November, VEEM exhibited at the world’s largest marine equipment exhibition (METSTRADE) in Amsterdam, the first time it has been run full-scale since 2019.

• Head of Sales and Business Development - Europe now in the job for a year, with qualified leads higher than ever, both in number of units and probable value.

• VEEM continued to invest in research and development, with a number of staff working on a smaller gyro model and continual development of the current gyro range.

• 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

• Propulsion sales increased 19% to $11.7m for the half-year and work in progress also increased $0.8m over the same period.

• VEEM continues to have the premium product in the market for highspeed, high-performance propellers.

• The two new machining centres installed in FY22 were at full availability for the period with sales of VEEM propellers alone (excludes shaftlines and Conquest) being a record $10.4m, up 23% on the prior comparative period.

• Despite this increase in capacity, lead times did not reduce indicating continued strong demand.

• Three new machines have now arrived and are all expected to be fully available and productive by the end of March 2023, hence a further significant increase in capacity.

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Defence

• Defence sales +18% to $8.1m mainly due to sales to ASC of $5.9m in relation to the Collins Class submarine full cycle docking program. Sales to Austal were lower at $1.6m with some large jobs in progress at 31 December 2022. Work in progress for defence customers also increased $1.9m over the period.

• Received an order during the period from BAE Systems Australia, prime contractor for the Hunter Class Frigate Program (HCFP), to manufacture two propeller blades and a hub under the demonstrator program. The value of the contract is $1.7 million, with successful completion of the task by Q2 2024 ensuring VEEM qualifies as a supplier to the HCFP.

• Success with this project could lead to the export of equipment for other naval shipbuilding programs around the world, including other T26 programs.

• BAE Systems Australia is expected to issue a ‘request for proposal’ for the propeller and brake blade manufacture for the first batch of three Hunter class frigates in the coming months. Contract award is anticipated in 2024/5.

• 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.

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Engineering Products and Services

• VEEM’s hollow bar product revenue was steady at $2.4m with a significant order received from Latrobe Magnesium for their Latrobe Valley Stage 1 Demonstration Plant for delivery over the next three years.

• Engineering products and services revenue, excluding hollow bar and defence, was down $1.4m to $3.6m with the prioritisation of defence work.

• Demand generally for foundry-led, precision engineered products remains strong, partly due to the closure of several Australian foundries in recent years.

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VEEM LTD

OUTLOOK

Outlook

Gyrostabilisers:

• Take-up rate of gyrostabilizers in the small boat recreational market, and VEEM’s increasing rates of qualified leads, provides confidence COVID impacts have passed.

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

Propulsion:

• Global demand for propellers is expected to remain strong.

• Recent installation of three new machining centres to significantly increase manufacturing capacity from March 2023, with sales of propellers to continue to increase in line with capacity.

• Margins protected against cost increases by regular pricing reviews.

Defence:

• Defence revenue expected to remain strong with deliveries under the upcoming Collins Class submarine full cycle docking to continue for at least the next quarter.

• 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 work on the Hunter demonstrator program and will pursue other options to supply to 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.

Engineering:

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

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• VEEM is working on a number of initiatives to minimise the impact of labour constraints.

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Q & A
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VEEM LTD

APPENDICES

Corporate Overview

Corporate Snapshot
ASX Code	VEE
Share Price(22 February 2023)	$0.64
Market Capitalisation (22 February 2023)	$87m
Shares on Issue	136m

Substantial Shareholders
Miocevich Family	50.20%
Perennial Value Management	13.87%
Salter Brothers Emerging Companies	7.74%

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VEE Share Price History
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3
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$- 0
Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23
Volume Close $
Vol. - Million
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VEEM LTD

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Contact

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