VYSARN LIMITED — Annual Report 2020

Aug 27, 2020

ASX:VYS

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28 August 2020

VYSARN FINANCIAL RESULTS FOR FY2020

Hydrogeological drilling service provider Vysarn Limited (ASX:VYS) (Vysarn or the Company) announces its financial results for the twelve (12) months to 30 June 2020 (FY2020).

Summary of group results for FY2020:

• Revenue $19.30 million ($11.91 million from operations)

• EBITDA $6.03 million

• NPAT $4.84 million

• Net Tangible Assets $24.33 million

• Net Current Assets $7.10 million

• Cash and Cash Equivalents $9.71 million

• Net Operating Cashflow $1.99 million

Results Commentary

Since the Company’s inception in September 2019 Vysarn’s revenue has grown strongly with full year revenue from operations of $11.91 million. First half revenue from operations of $1.78 million reflected the Company’s start-up phase and second half revenue from operations of $10.13 million reflected the Company’s rapid establishment as a premier service provider to the mining industry. As anticipated, the majority of operational revenue was generated in the June quarter of 2020 as rig utilisation increased and operational systems, processes and workforces were bedded down. The Company continues to progress to a steady state of rig utilisation with seven (7) rigs utilised at year end.

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Other income of $7.38 million, which was primarily comprised of a $7.18 million gain on bargain purchase, resulting from the difference between the price paid for the assets, pursuant to the Asset Sale Agreement and the Market Value of same (refer to note 25 in the Appendix 4E), produced a total Company revenue of $19.29 million for the full financial year. Of further note included in Expenses are share based payments and transaction costs associated with the relisting of the Company’s securities in September 2019 amounting to $2.09 million.

As indicated in the first half presentation released to the ASX on 28 February 2020, maintainable corporate overheads (excluding interest and depreciation) were estimated to be approximately $360k per month for the second half. Pleasingly, maintainable corporate overheads settled at circa $315k per month which management anticipates will remain stable for the remainder of the calendar year and during the further ramp up of rig fleet utilisation.

Vysarn Limited | ABN: 41 124 212 175 | ACN: 124 212 175 | 108 Outram St, West Perth, WA 6005 | PO Box 1974, West Perth WA 6872 T +61 (0) 8 9486 7244 | F +61 (0) 8 9463 6373 | E info@vysarn.com.au | vysarn.com.au

Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) were $6.03 million and Net Profit After Tax (NPAT) was $4.84 million for the 12 months to 30 June 2020. NPAT included an income tax benefit of $2.36 million (refer to note 7 in the Appendix 4E).

The Company’s balance sheet shows Net Tangible Assets of $24.33 million and Net Current Assets of $7.10 million. Cash and Cash Equivalents at Balance Sheet date of 30 June 2020 was $9.71 million.

Of note within the Company’s first financial results performance after going through a significant start-up phase, the Company was able to generate net cash from operating activities of $1.99 million.

Operations Commentary

Since the reinstatement to the ASX in September 2019 the Company has quickly moved through the start-up phase and has scaled up to position itself as a premier service provider to the mining industry. The first financial year of operations encompassed key milestone such as:

• the purchase of the drilling assets and inventory from Perenti Ltd (previously Ausdrill);

• the establishment of Vysarn’s wholly owned subsidiary Pentium Hydro Pty Ltd;

• the hiring of a 55 person strong team across hydrogeological operations management and drilling contractors;

• the appointment of a group CEO and finance manager;

• nimble management of COVID-19 implications;

• accounting, inventory and business systems put in place;

• safety management systems put in place;

• the award of major contracts to provide water well construction services;

• the subsequent peak deployment of 8 out of 10 purchased drill rigs;

• the purchase of 2 more drill rigs out of New Zealand;

• the launch of Pentium Hydro’s ISO accreditation process; and

• completing a $4 million rights issue to strengthen the balance sheet and to provide optionality for the ongoing management of debt and growth initiatives.

During Vysarn’s first financial year the Company was able to win Master Service Agreements with Fortescue Metals Group, Roy Hill Iron Ore and Hancock Prospecting, as well as one off scope of work contracts with Iluka Resources, Newcrest Mining, AngloGold Ashanti and Atlas Iron. These contracts were supplemented with a multirig dry hire contract with Easternwell Minerals.

Execution of these contracts has enabled the bedding down of the hydrogeological drilling business and the quick establishment of a reputation within industry of being able to provide solutions to execute challenging scopes of work. This performance for clients has enabled the Company to renew contractual terms for our services moving forward into FY2021.

Safety for our staff and clients is the bedrock of the Company’s operations. A substantial amount of work was completed by our operations team in the writing, training and implementation of the group safety management systems. This work culminated in a Verification of Competency rate of more than 80% across all staff in FY2020 despite the rapid and ongoing growth in the workforce headcount. Lost Time Injuries were zero for the period.

Like all businesses globally and within Australia the spread of COVID-19 early in the calendar year 2020 proved challenging. While business conditions in the Australian resource sector remained resilient, the management of protecting staff health and the onerous logistical protocols in staff movements to remote locations added additional costs to the business. The collegiate response from the board, staff, contractors and clients to tackle the COVID-19 situation together was admirable and is one of the highlights of the past financial year.

On the back of COVID-19 and the subsequent global economic uncertainty, the board prudently conducted a rights issue to raise $4 million to strengthen the Balance Sheet. The rights issue was strongly supported by the Company’s shareholder base which has now provided Vysarn with multiple options in either preparing for further

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COVID-19 related shocks, debt management or funding a multitude of growth options. Consequently, the Balance Sheet is strong.

Organic growth options in the Company’s core business continued to present themselves in the financial year. As such, the board took the opportunity to purchase two second-hand dual rotary drill rigs out of New Zealand. While the procurement of new drill rigs is possible, the cost and lead time to bring new rigs to Australia is prohibitive at this juncture of the Company’s lifecycle.

Pentium Hydro started an ISO accreditation process in occupational health and safety management systems (ISO 45001:2018), quality management systems (ISO 9001:2015) and environmental management systems (ISO 14001:2015) in the financial year with completion expected by December 2020. This will enable the Company to position itself as a preferred contractor for all tiers of current and prospective clients across multiple industry sectors requiring hydrogeological drilling services.

Outlook

The hydrogeological drilling sector is looking promising for the foreseeable future and there continues to be strong demand for the Company’s assets and services. Management is of the view that one of the major impediments to production in the resource sector, particularly iron ore, is the abundance of ground water.

Management anticipates that subject to maintaining the Company’s current contracts and winning a range of upcoming tenders, that the majority of the drill rig fleet will be deployed and utilised within FY2021. The drill rigs purchased from New Zealand are expected to arrive in Fremantle, Western Australia in the first week of September 2020 and be prepared for rig readiness for first quarter calendar year 2021.

While the FY2020 EBITDA of $6.03 million was primarily contributed to by a gain on bargain purchase, management anticipates that subject to rig utilisation, the Company will exceed this financial performance from operational earnings in FY2021. Management also anticipate that a material outperformance of this EBITDA benchmark is possible if several earmarked multi-rig, multi-year contracts are won leading into the June half of FY2021.

Exclusive to drilling, the board has ascertained that there is a genuine business case for developing the current business into a vertically integrated whole of life water service provider. The board is currently reviewing several opportunities both organically and via acquisition. These opportunities encompass minor bolt-on services through to company transformational acquisitions.

Vysarn is well positioned entering the new financial year with a strong Balance Sheet, a strong management team and board, and a skilled workforce. The Company will continue to keenly focus on improving the operational and financial performance of the core business while seeking growth opportunities that deliver long term, sustainable value for shareholders.

This ASX announcement has been authorised for release by the Board of Vysarn Limited.

For further information:

James Clement Managing Director Vysarn Limited Email: james.clement@vysarn.com.au

IMPORTANT NOTICE AND DISCLAIMER

Summary Information

The following disclaimer applies to this announcement and any information contained in it (the Information ). The Information in this announcement is of general background and does not purport to be complete. It should be read in conjunction with the Company’s other periodic and continuous disclosure announcements lodged with ASX Limited, which are available at www.asx.com.au. You are advised to read this disclaimer carefully before reading or making any other use of this announcement or any Information contained in this announcement.

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Forward Looking Statements

This announcement contains statements, opinions, projections, forecasts and other material ("forward-looking statements") with respect to the financial condition, business operations and competitive landscape of the Company and certain plans for its future management. The words anticipate, believe, expect, project, forecast, estimate, likely, should, could, may, target, plan and other similar expressions are intended to identify forward-looking statements. Such forward-looking statements are not guarantees of future performance and include known and unknown risks, uncertainties, assumptions and other important factors which are beyond the Company's control and may cause actual results to differ from those expressed or implied in such statements. There can be no assurance that actual outcomes will not differ materially from these statements. Any forward looking statements contained in this announcement are qualified by this disclaimer. The past performance of the Company is not a guarantee of future performance. None of the Company, or its officers, employees, agents or any other person named in this announcement makes any representation, assurance or guarantee as to the accuracy or likelihood of fulfilment of any forward-looking statements or any of the outcomes upon which they are based.

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