VEEM (ASX:VEE) management outlined a “transitional” half-year shaped by a slower global marine market, delays in defense contracting and accreditation processes, and stepped-up investment in new product platforms, while reporting strong operating cash flow and a strengthened balance sheet following a capital raising.
Half-year financial snapshot
Chief Financial Officer Tino reported half-year revenue of AUD 23.4 million. EBITDA was negative AUD 0.2 million, which management said was within prior guidance of negative AUD 1 million to positive AUD 1 million. Cash at the end of the period was AUD 9.1 million, with net debt reduced to AUD 1.8 million. The company also disclosed AUD 8.8 million in undrawn facilities across an overdraft, trade loan, and undrawn loans intended for equipment financing.
Management also discussed a significant non-cash impairment tied to the gyro business. Mark said results included a writedown that “brought it down to AUD 19.3 as a write-off,” while Tino later specified a pre-tax non-cash impairment of AUD 24.8 million in relation to gyros, citing the lack of sales in the half as an impairment indicator. Tino added the company also wrote down AUD 600,000 of inventory related to Mark II gyro units it does not expect to use going forward.
Operating environment: marine slowdown and defense timing
Chief Executive Mark said the first half was a “slow start,” pointing to a global marine slowdown and what he described as legal and procedural delays affecting defense work. Propeller revenue, he said, was only down “a little” despite the marine slowdown, and VEEM held the decline to within 9%, which he said suggested market share gains. Mark noted some larger clients had reduced activity materially over the last year, and said he expected conditions to improve toward the end of the calendar year.
Defense revenue fell sharply in the period, with Tino stating ASC revenue was down 65% due to delayed delivery of orders as VEEM and ASC negotiated a new six-year contract. Mark said ASC had placed more than AUD 10 million worth of orders with VEEM, with deliveries expected to arrive in the third quarter of the financial year and into the next quarter of the following financial year.
New products: VEEM Extreme and Gyro Mark III
Management emphasized progress on two major product initiatives launched in October: the VEEM Extreme propulsion range and the Gyro Mark III. Mark described the period as transitional, with costs incurred to bring these products to market and to build production capability. He said VEEM Extreme is based not only on design changes but also on new materials and casting techniques that the company intends to patent. According to Mark, the material offers very high corrosion resistance and nearly double the strength of prior bronzes, but takes longer to machine, influencing capacity planning.
Mark said trials combining VEEM’s rudder and propeller showed about an 18% reduction in fuel burn compared with a “standard hand-finished commercial propeller” and a basic parallel plate rudder, and he believed additional gains could come from shaft and bracket work that was scheduled for testing before June 30. He said the company expects to offer a system that can deliver “a little over 20%” fuel reduction once validated. He also highlighted potential carbon footprint reductions and carbon credit generation as part of the value proposition.
On commercial rollout, Mark said VEEM had its first contract involving six vessels and rudders, and that Manly Ferries had signed up for six more boats for propellers, contingent on VEEM supplying rudders as well. He said VEEM was moving into production on those rudders imminently and would potentially produce further sets depending on results. Management also referenced interest from Sydney Pilots and Sydney Ferries, and said it was receiving global inquiries, including from the U.S. and Italy’s superyacht market, while noting the need to develop parametric design models for rudders and brackets to automate and scale the engineering process.
For the gyro business, Mark said sales were affected by both the marine market slowdown and customer hesitancy as the Mark III rolls out over the calendar year. He described the Mark III as designed to reduce through-life costs and improve reliability, including a mechanical oiling system for which VEEM has applied for a patent, and a move away from electric pumps that had been problematic. Mark said the Mark III approach removes seals that require regular replacement, and that major service costs even on smaller units can exceed AUD 20,000. He said VEEM has developed a retrofit kit priced around the cost of a major service, after which customers would largely only require filter changes and oil sampling, supported by telemetry monitoring.
Defense pipeline, U.S. opportunity, and capacity investments
Management said VEEM is working with a growing set of defense customers, including four international and seven Australian defense customers discussed in the presentation. Mark described protracted timelines for approvals, citing delays even after achieving “secret” accreditation, including additional steps for approvals tied to the Hunter Class program. He said that once underway, programs like Hunter Class could provide “good, steady work for 20 years,” though he suggested manufacturing may begin in the back half of the year and into 2027.
In the U.S., Mark said VEEM is in discussions with major contractors and subcontractors tied to the submarine program, including Northrop Grumman, and also cited early tender activity linked to an aircraft carrier program. He noted that high-quality non-ferrous foundry capacity is constrained globally and said that capability is of interest to U.S. defense customers. Management said a final audit is expected in April and that it hopes activity increases thereafter.
When asked about the potential size of the U.S. defense opportunity, Mark said a submarine can involve “10,000 castings,” calling the opportunity “pretty big,” while cautioning that information is difficult to obtain due to secrecy. Tino said internal “back-of-the-envelope” work suggested an equivalent of AUD 20 million to AUD 25 million as VEEM grows in the U.S. market, with “blue sky” scenarios reaching AUD 100 million, though he noted that would raise space and capacity constraints.
VEEM is also investing in capacity and automation. Mark referenced a facility expansion of about 1,000 square meters and three additional machines expected to arrive around April and be operating in May. He also cited ongoing automation efforts, including installation of a 3D sand printer to print molds and cores, and broader use of robotics. Management said overheads were reduced by about AUD 3.5 million on an annualized basis, largely from labor and other overhead rationalization, and said it expects to grow with automation rather than simply rebuilding headcount.
Outlook: “green shoots” and a transitional year
Looking ahead, management said it expects global demand for propellers to pick up in the second half of the financial year and beyond. Mark described VEEM Extreme as a potential “game changer,” asserting that if customers shift from traditional products to VEEM Extreme, the company would be selling higher-value products at higher margins. He also reiterated that defense remains a strategic focus, but that timelines have been slower than expected due to accreditation and government review processes, including impacts from a U.S. government shutdown.
In closing remarks, Mark reiterated that the year is transitional as VEEM moves from product launch to production readiness for VEEM Extreme and Gyro Mark III, while working through defense delays and a softer marine market. He said he expects conditions to normalize by the end of the calendar year and that the company expects to be “back on track” by 2027.
About VEEM (ASX:VEE)
VEEM Ltd engages in the manufacture and sale of marine propulsion and stabilization systems. It offers gyrostabilizers; CNC machined monobloc and fixed pitch propellers; and forever pipe, a piping solution for the processing industry. The company also provides conquest and shaft lines and marine ride control fins. in addition, it manufactures bespoke engineered products for marine, defense, and mining industries; and provides engineering services. The company was founded in 1968 and is headquartered in Canning Vale, Australia.
