VEEM Ltd
Annual Report 2021

Plain-text annual report

ANNUAl RePORt 2021 veem ltd ACN 008 944 009 veem limited | 1 DIRECTORS’ REPORTCORPORAte iNfORmAtiON ABN 51 008 944 009 DIRECTORS Brad Miocevich Mark Miocevich Ian Barsden Peter Torre Michael Bailey COMPANY SECRETARY David Rich REGISTERED OFFICE 22 Baile Road CANNING VALE WA 6155 Telephone: + 61 8 9455 9355 PRINCIPAL PLACE OF BUSINESS 22 Baile Road Canning Vale, WA 6155 Telephone: + 61 8 9455 9355 SHARE REGISTRY Computershare Investor Services Pty Ltd Level 11, 172 St Georges Terrace PERTH WA 6000 Telephone: +61 8 9323 2000 Facsimile: +61 8 9323 2033 Non-Executive Chairman Managing Director Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director SOLICITORS Steinpreis Paganin Level 4, The Read Buildings 16 Milligan Street PERTH WA 6000 Telephone: +61 8 9321 4000 Facsimile: + 61 8 9321 4333 BANKERS ANZ Banking Corporation Level 7, 77 St Georges Terrace PERTH WA 6000 Telephone: +61 8 6298 3987 AUDITORS HLB Mann Judd Level 4, 130 Stirling Street PERTH WA 6000 Telephone: +61 8 9227 7500 SECURITIES EXCHANGE LISTING VEEM Ltd shares are listed on the Australian Securities Exchange (ASX: VEE) CONteNtS Corporate Information Chairman’s Letter Directors’ Report Auditor’s Independence Declaration Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder information 2 4 6 20 21 22 23 24 25 53 54 58 CHAiRmAN’S letteR Dear Shareholders, I am once again very proud to be able to present to you the VEEM Ltd Annual Report. 2021 saw us deliver our highest revenue and profits since listing in November 2016. However that is not the full story of why 2021 was a good year for VEEM. At VEEM we have always strived to innovate and improve on a continuous basis. Its in our DNA. In 2021 we spent $4.5 million on research and development. As you would expect, a large part of this was on developing and improving our gyro product range which continues to expand and evolve to ensure that we continue to be the global market leader in large vessel marine gyrostabilizers. What I am equally proud of is the less obvious R&D work that we do internally on our processes and procedures. Through this VEEM is able to reduce the time and materials required to produce a given product, reduce waste, increase recycling and reduce the cost of input materials. All these benefits serve to reduce production costs and increase capacity which translates to improved gross margins. Overall we view the R&D spend as an investment in the future sustainable profitability of VEEM and will continue to target ongoing development and improvement projects. Another very pleasing part of the 2021 story is the fact that all areas of our business showed growth in a year which began with much uncertainty due to COVID-19 and the unknown economic consequences. We know we are fortunate to be located in Western Australia which has managed to avoid the most serious impacts of COVID-19 so far. Our revolutionary marine gyrostabilizer business continued to surge ahead with sales increasing 54% to $7.4 million. Testing of the flagship VG520 (previously called the VG1000SD) went extremely well in trials in the Gulf of Mexico and off Fremantle, WA. Both trials had the units installed on Damen vessels which bodes well for the future given the frame agreement we signed with Damen in October 2020. VEEM has now received orders for gyrostabilizers from almost every major superyacht builder in Europe. As these units are installed and commissioned and the end customers experience the enhanced stability, we are extremely confident that designers and yards will rapidly get to a position where every large vessel is required to have a gyrostabilizer – a VEEM Marine gyrostabilizer. As many of you may have seen in the media, the global leisure marine market has been a major beneficiary of the restrictions in place around the world due to COVID-19. For VEEM, this has meant that the propeller market has grown very strongly. I am pleased to report that we did see this trend early and increased our capacity through internal process improvements as well as ordering two new machining centres. The internal changes had immediate effect in early 2021 leading to the 17% improvement in propulsion sales in FY2021. One of the new machines has just been installed with the second due at the end of 2021. Figure 1: MV Umbra, a 60m Damen YS5009 exploration vessel, carried out successful sea trials off Fremantle, WA, after a VEEM Marine VG520SD gyrostabilizer was installed. 4 | veem limited Chairman’s LetterVEEM has always strived to ensure it has in place robust systems and processes to manage operations. Therefore, I am very pleased to be able to report that in August 2021 VEEM achieved ISO 45001 accreditation. ISO 45001 is the world’s international standard for occupational health and safety and was developed to mitigate any factors that can cause employees and businesses irreparable harm. Finally, I would like to thank all staff and directors for their efforts during the year and congratulate them on the progress made. Figure 2: VEEM manufactures the highly sophisticated ride control for Austral’s LCS vessels. Brad Miocevich Non-Executive Chairman FY2021 saw the delivery of most of the submarine refit contract with ASC generating $12.4m of revenue. Defence will continue to be an ongoing key area for VEEM with the next submarine refit contract to commence delivery toward the end of FY2022. We believe we are well positioned to be a major contributor of sovereign capability to the defence industry under the federal government’s current strong push for increased Australian content on defence projects and have applied for several grants in this area. Once again our engineering products and services business was a solid contributor to revenue and profit as well as providing in-house innovation, capability and support for the marine and defence businesses. The growth of our own Forever Pipe product to $5.8m revenue in 2021 is testament to the ongoing benefit of this business. Figure 3: VEEM forever Pipe in-situ (green). veem limited | 5 Chairman’s Letter diReCtORS’ RePORt DIRECTORS The names of Directors who held office during or since the end of the year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. The Directors present their report together with the financial statements of the Company for the financial year ended 30 June 2021. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows: NON-EXECUTIVE CHAIRMAN Mr John Bradley Miocevich B.Comm, FAICD Brad has been a Director of VEEM Ltd since 1983. Combining trade qualifications with a Commerce Degree in Finance and Banking, Brad has the unique skills suitable for the management of an engineering company. With a focus on strategic planning, he was a member of the team responsible for the acquisition of several companies over the 23 years including S&S Foundry & Engineering and Timcast Foundry and Engineering. Taking on the role of Director Marine Propulsion in 2000, he has been the driving force in creating VEEM’s now very successful international propeller business. Brad provided the vision for VEEM’s highly automated manufacturing processes making VEEM the benchmark of propeller manufacturing worldwide. Brad brings to the Board expertise in finance, manufacturing engineering and marketing along with practical knowledge of the Company and its markets. In the 3 years immediately before the end of the financial year, Brad has not served as a Director of any other listed company. MANAGING DIRECTOR Mr Mark David Miocevich B.App.Sc (Mech Eng) FIE Aust Mark has been a director and senior manager of VEEM for over 33 years. Commencing as Production Director from 1983 and until 1995 he was responsible for the implementation of the Quality Assurance systems in 1987, the integration of S&S Foundry & Engineering into the company in 1989, and defining the Company management model based on the Australian Business Excellence framework guideline in 1994. From 1995 until present he has been the Managing Director of VEEM and for a period during that time, the Managing Director of GA Perry and a Director of Thomassen Services Australia. He was responsible for the integration of Timcast Foundry and Engineering into VEEM during 2002. He brings to the Board intimate knowledge of the Company, its systems and strategic plan. In the 3 years immediately before the end of the financial year, Mark has not served as a Director of any other listed company. Figure 4: VEEM Marine propellers ensure efficient cruising for the legendary adventure vessel True North. 6 | veem limited Chairman’s Letter NON- EXECUTIVE DIRECTOR Mr Ian Henry Barsden CA COMPANY SECRETARIES FINANCE AND ADMINISTRATION MANAGER AND JOINT COMPANY SECRETARY Mrs Tracy Pauline Caudwell AGIA Cert.Bus.Stud, Assoc Dip Acct, B.Acct Ian is a member of the Chartered Accountants Australia and New Zealand and is a former partner of a mid-tier accounting firm. Ian brings over 33 years’ experience in the accounting profession, advising and consulting to a wide variety of businesses and industries as to business structuring, taxation and financial management. Ian has provided advisory services to VEEM as a consultant since 1980. Tracy joined VEEM in June 2005. Tracy has over 34 years’ experience in the finance field and is responsible for managing the administration, accounting and finance department providing the management team and Board of Directors with accurate Key Performance Indicators and financial performance. In the 3 years immediately before the end of the financial year, Ian has not served as a Director of any other listed company. CHIEF FINANCIAL OFFICER AND JOINT COMPANY SECRETARY INDEPENDENT NON-EXECUTIVE DIRECTOR Mr Peter Patrick Torre B.Bus (Accounting), CA, AGIA Peter was appointed as a Director of the Company on 12 April 2018. He is a Chartered Accountant, a Chartered Secretary and a member of the Australian institute of Company Directors. He was previously a partner of an internationally affiliated firm of Chartered Accountants. Peter is the Company Secretary of several ASX listed companies. Peter is the principal of Torre Corporate, a specialist corporate advisory firm providing corporate secretarial services to a range of listed companies. Peter served as Company Secretary of the Company from September 2016 to November 2019. In the 3 years immediately before the end of the financial year, Peter has served as a Director of Mineral Commodities Ltd (1 April 2010 to present), Volt Power Group Limited (28 April 2017 to present), Zenith Energy Limited (7 March 2019 to 28 August 2020) and Connexion Telematics Ltd (2 October 2020 to present). INDEPENDENT NON-EXECUTIVE DIRECTOR Mr Michael Robert Bailey MSc; CEng; MRINA Mike brings 50 years’ experience in areas of naval architecture, marine engineering, and project and company management. He has operated in the defence and offshore oil and gas sectors in Europe, Asia and Australia with multinational and private companies and as a consultant. Mike also held the Business Development role in VEEM Engineering in the 1990’s. He has, since 2000, been instrumental in the establishment and operations of the highly successful Australian Marine Complex - Common User Facility. In the 3 years immediately before the end of the financial year, Mike has not served as a Director of any listed company. Mike has served as a director of AMC Management (WA) Pty Ltd, Facility Manager of the Australian Marine Complex - Common User Facility. Mr David James Rich BCom, FCA, GAICD, AGIA, Grad.Dip.CSP David is an experienced public company CFO and Company Secretary with over 34 years commercial experience including the last 24 years as CFO of ASX listed companies. Over his career David has worked in senior management for companies within the technology, manufacturing and oil and gas industries involving international interests and operations including in Australia, Europe, Asia, Africa and the USA. Figure 5: A VEEM Marine VG520SD being installed into MV Umbra veem limited | 7 Chairman’s Letter INTERESTS IN THE SHARES OF THE COMPANY AND RELATED BODIES CORPORATE The following relevant interests in shares of the Company or a related body corporate were held by the Directors as at the date of this report. Directors John Bradley Miocevich Mark David Miocevich Ian Henry Barsden Peter Patrick Torre Michael Robert Bailey FULLY PAID ORDINARY SHARES Number 80,000,0001 80,000,0001 53,571 60,000 90,000 (i) Mr Brad Miocevich and Mr Mark Miocevich have a relevant interest in VEEM Corporation Pty Ltd ATF the Miocevich Family Trust which holds 80,000,000 fully paid ordinary shares in the Company. SHARES UNDER OPTION OR ISSUED ON EXERCISE OF OPTIONS At the date of this report there were no unissued ordinary shares or interests of the Company under option. PRINCIPAL ACTIVITIES The principal activities of the Company during the course of the year were: • Production of propulsion and stabilization systems; and • Manufacturing bespoke products and services for the marine, defence and mining industries. Figure 6: A Damen engineer at the controls of the VEEM Marine VG520SD gyrostabilizer on board MV Leonardo 8 | veem limited DIRECTORS’ REPORTFigure 7: MV Leonardo, an offshore supply vessel owned by Naviera Integral with the roll reduction chart showing the massive impact of the VEEM Marine VG520SD gyrostabilizer OPERATIONS GYROSTABILIZERS The sales of VEEM Gyros increased 54% in FY2021 to $7.4 million. With an order book of $1.5 million and the value of leads more than double that of 30 June 2020, VEEM is confident that the strong increases in sales will continue into FY2022. A market study was carried out during the year with the potential gyro market size identified as US$14.6bn with US$1.1bn being new builds and the balance retro-fits. The scope for growth in this market is huge across commercial, superyachts and defence. During the year VEEM continued to develop all aspects of its gyrostabilizer product offering. The sales team capacity and capability were increased and a senior manager was appointed to head up the after-sales area. After-sales will become an increasingly important function as the number of VEEM gyrostabilizers in operation increases. Further to this, VEEM now has an experienced senior technician based in Europe where many of the units are located. Engineering development work has been focussed on integrating and optimising gyros into different configuration of vessels, developing a larger gyro based on the VG520/1000 and on after-sales servicing. The engineering team was strengthened later in the year to prepare for the development of smaller gyrostabilizers. REVIEW OF FINANCIAL AND OPERATING PERFORMANCE FINANCIAL PERFORMANCE The Company reported Net Profit After Tax (NPAT) for FY2021 of $4.91 million (2020: $2.5 million) underpinned by revenue of $59.5 million (2020: $44.4 million). Earnings before interest, tax, depreciation and amortisation (EBITDA) was up 36% to $10.2 million (2020: $7.5 million). Cash flow from operations was $6.3 million (2020: $6.0 million) which, when compared to EBITDA, reflects the high level of progress payments on hand at 30 June 2020 that were applied to deliveries during FY2021. Jobkeeper income of $1.5 million (2020: $1.5 million) received in the first three months of the year contributed to the strong EBITDA and NPAT results. Pleasingly the revenue increases were generated across all markets with the ASC submarine refit contract and increased sales of gyrostabilizers being the major contributors to the growth. Details are set out below for each major market. Employee costs rose during the year, largely through increases in numbers of staff. This included senior people in procurement, gyrostabilizer sales and after-sales and engineering to ensure the growth in the business is managed efficiently. Travel and sales and marketing costs were lower in FY2021 due to the impact of COVID-19 on travel in general and trade shows in particular. Net assets increased by $4.0 million to $36.6 million. This increase included a deliberate build-up in gyrostabilizer component inventory ahead of the build plan for FY2022 and an increase in intangible assets, being the continued gyrostabilizer development work undertaken during the year by our engineering team. As at 30 June 2021 VEEM had a healthy cash balance of $2.2 million with an unused overdraft facility of $3.4 million. veem limited | 9 DIRECTORS’ REPORT The gyro assembly area is running well and build efficiencies are evident as the throughput increased during FY2021. We are now building to a production plan based on forecast probable sales and inquiry levels. The move to building to a plan is a natural maturation of the manufacturing production process and should also appeal to the retrofit market as it will provide inventory available for short delivery and installation periods. In October 2020 VEEM signed a three year supply agreement with Damen Shipyards, one of Europe’s largest shipyards producing 175 vessels per annum. All three VG520/1000SD (previously called VG1000SD) VEEM Gyros built and sold to date have been installed on Damen FCS vessels. Two of these were sold in FY2021. The second VG520/1000SD was a retrofit installed on a Naviera Integral offshore oil field workboat in the Gulf of Mexico (Damen FCS5009). The Naviera Integral gyro was the first VG520SD to be commissioned and during the sea trials roll motion data was recorded with roll reduction measurements exceeding customer expectations. The third VG520SD VEEM Gyro has been installed on a privately owned Damen FCS vessel in Western Australia. Commissioning and sea trials are imminent. The sales of the three VEEM Gyros for installation on Damen workboats and significant leads from other commercial players has indicated the rate of takeup within the commercial market will be more rapid than originally expected. Figure 8: Sportfishing superyacht, MV Lanakai, has two VG52SD VEEM Marine gyrostabilisers on board 10 | veem limited PROPULSION Propeller and shaftline sales were up 17% to $16.4 million (2020: $14.0 million). This increase in sales was achieved through VEEM increasing its capacity in the second half of the year in order to fulfil rising orders due to the increased global demand for marine leisure vessels. This high demand has continued into FY2022 and VEEM is now receiving the first of two new machining centres ordered in FY2021 to increase capacity further. The second new machine is due in late November 2021. VEEM continues to lead the world in propeller design and manufacture. VEEM propellers are sold worldwide to premium boatbuilders and the Company expects this to continue as it continues to improve its product offering and generate internal production efficiencies that allow the pricing to stay competitive. Sales of shaftlines continued to grow steadily as VEEM seeks to establish its shaftlines as a premium option for boatbuilders. The Company is continuing to develop its product offering in this area. DEFENCE During the year VEEM delivered almost all of the submarine components for the Collins Class submarine refit contract with ASC with sales totalling $12.4m including spares. VEEM also secured an initial order and milestone payment for the next submarine refit due to commence deliveries late in FY2022. The manufacturing of highly specialised marine ride control fins for Austal Ships generated $9.4 million during the year, in line with the prior year. VEEM’s other defence work was steady throughout the year, with potential for further work as the federal government seeks to increase Australia’s sovereign capability through grant programs and increased requirements for Australian content in its defence contracts. VEEM’s local manufacturing capability and track record positions the Company well to capitalise on the government initiatives in this area. One example of this is VEEM’s receipt of an order from BAE Systems Maritime Australia for the manufacture of a pilot propeller blade for the Hunter Class Frigate Program. FOREVER PIPE VEEM’s “Forever Pipe”, a bimetal, centrifugally cast, high- wearing hollow bar saw sales increase 43% to $5.8 million during the year as customers realised the significant improvements in safety and maintenance costs that can be gained from the VEEM-developed product. During the year VEEM achieved a breakthrough in the development of forever pipe bends and T-pieces and patents have been applied for. VEEM expects the take up of forever pipe to continue as this new product is rolled out. The first export orders of “Forever Pipe” were shipped and this should provide further opportunities for increased sales. DIRECTORS’ REPORT ENGINEERING ON-DEMAND VEEM’s traditional engineering on-demand business continued to be a strong contributor to profits and margins with revenue of $8.0 million for the year. Demand within Australia continues to be strong for balancing and other precision engineering services with a number of new customers placing orders during the year. It is important to note that while this is not a high-growth market for VEEM, it provides a reliable ongoing cash flow and the engineering skills and capacity maintained by the Company are utilised in the marine propulsion, stabilization, forever pipe and defence areas of the business. This domestic capability also provides VEEM with the ability to manufacture the majority of components in-house should there be supply chain issues. COVID-19 During the prior year there were some impacts in European and North American marine markets due to uncertainty and lockdowns resulting from the spread of COVID-19. VEEM’s defence business was already contracted for and was not negatively impacted. During FY2021 and into FY2022, although COVID-19 has spread and caused many issues around the world, the shipyards of Europe in particular have generally remained open and hence the demand for VEEM’s marine products has been strong. The curtailment of travel has also seen leisure marine spending significantly increase, particularly in North America, and this has driven propeller sales. Additional commercial propeller growth was evident during FY2021 which is particularly pleasing as this type of work does not follow the same demand cycles of leisure marine. VEEM has been impacted somewhat by the effect that COVID-19 has had on global freight. VEEM utilises air and sea freight for both receiving materials and components from overseas and delivering sales goods to overseas customers. Sea freight had some impacts initially, but has since returned to reliable, albeit extended schedules. Air freight did incur some disruptions but didn’t have a material impact and has now returned to a reliable, albeit more expensive schedule. Production and delivery of key components from our overseas suppliers have mostly returned to pre-COVID-19 schedules. VEEM has increased its inventory levels on some key items to ensure a buffer in the case of disruptions. VEEM remains vigilant in monitoring the national and global progression of COVID-19 and potential impacts on all aspects of business. VEEM is aware that the operating environment could change rapidly having a material impact on profitability and cash flow. Figure 9: A Damen FCS vessel which has a VEEM Marine gyrostabilizer as an option for customers. OUTLOOK VEEM sees a very positive outlook for all the markets into which it delivers. Gyro sales are expected to continue to grow rapidly given the current strong level of orders, leads and enquiries and the huge potential market. VEEM’s strategy of building to a production plan based on sales forecasts should appeal to the retrofit market in particular as it will provide inventory available for short delivery and installation periods. The positive results from the Gulf of Mexico sea trials and the Damen product launch of the FCS7011 later this quarter are expected to drive further interest from the commercial sector. The positive influence of the Damen relationship is already starting to show. Commercial retrofit and luxury superyacht new build markets are expected to be the major growth areas with defence expected to take longer to implement new technologies. VEEM will continue to add to its European-based staff in the coming months to further enhance shipyards and owners’ knowledge and experience of VEEM Gyros. The after-sales area of the market will continue to increase as more VEEM gyros are in service. Propulsion revenue is expected to continue to grow due to increased demand globally. Many ship yards report being booked out to FY2023-FY2024. VEEM has additional machining capacity being installed at present and another increase due in November 2021 which will increase capacity by 25% to meet demand. Two new key superyacht builders have added VEEM as a primary supplier of propellers. Propulsion products are an area of innovation for VEEM with a focus on implementing identified production efficiency gains enabling VEEM to make the world-leading propellers at lower prices while maintaining gross margins. veem limited | 11 DIRECTORS’ REPORT SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Other than disclosed elsewhere in this report, there have been no significant changes in the state of affairs of the Company to the date of this report. SIGNIFICANT EVENTS AFTER BALANCE DATE No matters or circumstances have arisen since the end of the financial year which have significantly affected or may significantly affect the operating of the Company, the results of those operations, or state of affairs of the Company in future financial years apart from those listed below: 1. On 24 August 2021 the Company declared an unfranked ordinary dividend of $585,000 representing $0.0045 per share. 2. On 14 July 2021 the Company advised the ASX that its Incentive Option Plan had been expanded to the Incentive Performance Rights and Option Plan and that the Company had issued 150,000 Performance Rights under the Plan to its Chief Financial Officer, Mr David Rich. The issue was undertaken under the Company’s placement capacity pursuant to ASX Listing Rule 7.1 given the Plan is yet to be approved by shareholders of the Company. Details of the Plan and the issue are included in the ASX announcement on 14 July 2021. 3. On 26 July 2021 VEEM announced that BAE Systems Maritime Australia, head contractor for the Hunter Class Frigate Program (HCFP), had placed an order with VEEM to manufacture a pilot propeller blade for the HCFP. The order enables VEEM to demonstrate it has the manufacturing capability to join the HCFP supply chain. As a world leader in premium commercial propellers that has delivered similar blades to defence clients globally, VEEM is very confident it can meet the requirements of the HCFP. Contract award for the propeller and brake blade manufacture for the first batch of three Hunter class frigates is anticipated in 2022. FY2022 will see a reduction in defence revenue with most of the current ASC contract having been delivered in FY2021. VEEM has the initial order for the next submarine refit with deliveries expected to commence in April 2022 leading to a rise in revenue in FY2023. VEEM continues to quote on, and win, other defence-related contracts where casting and precision engineering is required and this is expected to grow. Deliveries to Austal for the LCS ride control will continue through to the end of 1H 2022. Other Austal ride control and propulsion work is expected to be ongoing. The federal government’s increased drive for local content, on naval vessels in particular, is expected to drive growth through BAE Systems Australia and others. BAE Systems Australia has placed an order for a pilot propeller blade as part of qualification for the Hunter Class Frigate Program. VEEM’s Forever Pipe product is expected to continue to increase its presence in domestic and overseas markets with an expanded product range. The new techniques of manufacturing bends and T-pieces allow a full piping system able to be externally monitored for wear enhancing safety, increasing the operating envelope of the system and lowering costs significantly. This is expected to drive enquiries and subsequently sales around the world as the product is rolled out. VEEM continues to bid on, and win, work within the engineering products and services market across the country where utilisation of the Company’s foundry and precision machining capability enables VEEM to provide specialist solutions for customers. The local 24/7 Engineering on Demand division is very busy and this is expected to continue. Maintaining the engineering capability and expertise also supports the marine and defence market offerings. The outlook remains, as previously mentioned, subject to the future impacts of the COVID-19 pandemic. STRATEGY VEEM’s strategy and focus is to become a market leader in the provision of gyrostabilization to superyachts and commercial craft while growing its position as a premier supplier of world leading fixed pitch propeller technology. Since the end of the financial year, VEEM has launched the “VEEM Marine” brand to further enhance the cross-selling opportunities in these markets. VEEM will also continue to manufacture bespoke engineered products and services for the marine, defence and mining and energy industries. Figure 10: Princess Yachts demands the performance that only VEEM Marine propellers can deliver. 12 | veem limited DIRECTORS’ REPORT LIKELY DEVELOPMENTS AND EXPECTED RESULTS The Company will continue with its strategy as set out above. ENVIRONMENTAL LEGISLATION The Company is not subject to any significant environmental legislation. DIVIDENDS The remuneration report details the remuneration arrangements for KMP who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company, directly or indirectly, including any Director (whether executive or otherwise) of the Company. KEY MANAGEMENT PERSONNEL The Key Management Personnel set out below were the only key management personnel of the Company during or since the end of the financial year. Dividends paid to members during the financial year were as follows: Directors • • A final ordinary dividend of $292,500 was paid on 25 September 2020. John Bradley Miocevich Mark David Miocevich An interim ordinary dividend of $559,000 was paid on 19 April 2021. Ian Henry Barsden Chairman (Non-Executive) Managing Director Non-Executive Director Since the end of the financial year the Directors have recommended the payment of a final unfranked ordinary dividend of $585,000 (0.45 cents per share) to be paid on or around 21 September 2021. The recommendation is based on 30% of the net profit after tax excluding JobKeeper, less the interim dividend of $559,000 already paid. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS The Company has agreed to indemnify all the Directors of the Company and the Chief Financial Officer for any liabilities to another person (other than the Company or related body corporate) that may arise from their position as Directors or officers of the Company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. During the financial year the Company paid a premium in respect of a contract ensuring the Directors and officers of the Company and its controlled entities against any liability incurred in the course of their duties to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. REMUNERATION REPORT - AUDITED This report, which forms part of the Directors’ report, outlines the remuneration arrangements in place for the key management personnel (“KMP”) of VEEM Ltd for the financial year ended 30 June 2021. The information provided in this remuneration report has been audited as required by Section 308(3C) of the Corporations Act 2001. Peter Patrick Torre Michael Robert Bailey Independent Non-Executive Director Independent Non-Executive Director Executive David James Rich Brett Wayne Silich Chief Financial Officer and Company Secretary Global Commercial Manager (Appointed 3 May 2021) Except as noted, the named persons held their current positions for the whole of the financial year and to the date of this report. Figure 11: A new installation of a VEEM Marine VEEMStar 5-blade propeller in Italy veem limited | 13 DIRECTORS’ REPORT REMUNERATION PHILOSOPHY The performance of the Company depends upon the quality of the Directors and executives. The philosophy of the Company in determining remuneration levels is to set competitive remuneration packages to attract and retain high calibre employees. The Board considers advice from external shareholders as well as the fees paid to non-executive Directors of comparable companies when undertaking the annual review process. Each Director receives a fee for being a Director of the Company. Given there are no committees currently in place, no additional fees are paid. REMUNERATION COMMITTEE The Company did not have a separate Remuneration and Nomination Committee during the year. The full Board fulfilled the role typically undertaken by a Remuneration Committee and was responsible for determining and reviewing compensation arrangements for the Directors. The Board assesses the appropriateness of the nature and amount of remuneration of Directors and executives on a periodic basis by reference to relevant employment market conditions with an overall objective of ensuring maximum stakeholder benefit from the retention of a high-quality Board and executive team. REMUNERATION STRUCTURE In accordance with best practice corporate governance, the structure of non-executive Director and executive remuneration is separate and distinct. USE OF REMUNERATION CONSULTANTS Independent external advice is sought from remuneration consultants as required. A Benchmarking Report was procured during the financial year to ensure the level of remuneration for the Company’s Managing Director was in line with market and commensurate with the role being undertaken. Changes to the Managing Director’s remuneration resulting from the review were made in July 2021. The Board is currently using the Benchmarking Report as part of its review of the remuneration of the Non- Executive Directors. NON-EXECUTIVE DIRECTOR REMUNERATION The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. The ASX Listing Rules specify that the aggregate remuneration of non-executive Directors shall be determined from time to time by a general meeting. The Constitution of the Company as at the time of listing in October 2016 provides that the aggregate remuneration of non-executive Directors be set at $400,000. The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst Directors is reviewed annually leading up to the Company’s Annual General Meeting. 14 | veem limited SENIOR MANAGER AND EXECUTIVE DIRECTOR REMUNERATION Remuneration consisted of reasonable fixed remuneration only during the year. Subsequent to year end the Company expanded its Incentive Option Plan to the Incentive Performance Rights and Option Plan and issued 150,000 Performance Rights under the Plan to its Chief Financial Officer, Mr David Rich. The issue was undertaken under the Company’s placement capacity pursuant to ASX Listing Rule 7.1 given the Plan is yet to be approved by shareholders of the Company. The key terms of the Performance Rights issued to Mr Rich are as follows: • • • • • 50,000 Performance Rights which vest on 12 months from date of issue and upon the 30-day Volume Weighted Share Price of the Company being $1.50 or above at any time up to expiry. 50,000 Performance Rights which vest on 24 months from date of issue and upon the 30-day Volume Weighted Share Price of the Company being $2.00 or above at any time up to expiry. 50,000 Performance Rights which vest on 36 months from date of issue and upon the 30-day Volume Weighted Share Price of the Company being $2.50 or above at any time up to expiry. All Performance Rights have an accelerated vesting condition on a change of control event at any time up to expiry. All Performance Rights expire 3 years and 1 month from date of issue, being 14 August 2024. FIXED REMUNERATION Fixed remuneration is reviewed annually by the Board. The process consists of a review of relevant comparative remuneration in the market and internally and, where appropriate, external advice on policies and practices. The Board has access to external, independent advice where necessary. Senior managers are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and fringe benefits such as motor vehicles and expense payment plans. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Company. The fixed remuneration component is detailed in Key Management Personnel remuneration tables for the years ended 30 June 2021 and 30 June 2020. DIRECTORS’ REPORT 2020 ANNUAL GENERAL MEETING The Remuneration Report for the year ended 30 June 2020 was approved by in excess of 75% of shareholders at the Annual General Meeting. PERFORMANCE ON SHAREHOLDER WEALTH In considering the Company’s performance and benefits for shareholder wealth, the Board have regarded the following indices in respect of the current and previous four financial years: EPS (cents per share) Dividends (cents per share) Net profit ($) Share price ($) 2021 3.78 0.66 2020 1.9 0.57 2019 1.97 0.41 2018 1.67 1.61 2017 3.21 3.08 4,911,175 2,470,261 2,554,705 2,170,717 3,848,750 1.33 0.4 0.53 0.47 0.64 EMPLOYMENT CONTRACTS Details of employment contracts with executive KMP as at the date of this report: Name Term of agreement and termination provisions Base salary including superannuation Termination benefit M. Miocevich Managing Director This agreement has no set term. Termination of the agreement is 1 months’ notice by the Executive or 3 months’ notice by the Company and includes a 6 month restraint of trade. D. Rich Chief Financial Officer This agreement has no set term. Termination of the agreement is 1 months’ notice by the Executive or the Company and includes a 6 month restraint of trade. B. Silich Global Commercial Manager This agreement has no set term. Termination of the agreement is 1 months’ notice by the Executive or the Company and includes a 12 month restraint of trade. Base: $496,432 per annum plus $23,568 superannuation Base: $338,306 per annum plus $23,568 superannuation Base: $300,000 per annum plus $30,000 superannuation 3 Months salary 3 Months salary. 12 months salary in the event of a change of control and diminution in duties. None Executive remuneration consisted only of fixed remuneration during the year to 30 June 2021. The remuneration has been set at moderate levels for the Managing Director. This is cognisant of the stage of development as a listed company and as the Company moves to establish itself into new markets. The Company continues to assess the structure of executive remuneration to ensure it appropriately incentivises key management. In July 2021 the Board commenced with a variable remuneration component aligned to shareholder wealth in the periods to come through the issue of performance rights to the Chief Financial Officer. Details of this are set out above. veem limited | 15 DIRECTORS’ REPORT REMUNERATION OF KEY MANAGEMENT PERSONNEL Key Management Personnel remuneration for the years ended 30 June 2021 and 30 June 2020 30 June 2021 Short-term employee benefits Post- employment benefits Long term benefits Share based payments Salary & fees Bonus Non- monetary benefits Other Superannu- ation Long service leave Share options Total Relative proportions of remuneration of KMP that are linked to performance Fixed remunera- tion Remunera- tion linked to perfor- mance 30 June 2021 $ $ $ $ $ $ $ $ % % Directors Bradley Miocevich* 118,356 Mark Miocevich 427,760 54,794 60,000 54,794 715,704 Ian Barsden Peter Torre Michael Bailey Total Director remuneration Executive David Rich 290,091 Brett Silich** 42,149 Total Executive remuneration 332,168 Total 1,047,872 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 11,244 - 21,506 7,129 5,206 - 5,206 - - - 43,162 7,129 21,694 5,638 4,004 769 25,698 6,407 - - - - - - - - - 129,600 100% 456,395 100% 60,000 100% 60,000 100% 60,000 100% 765,995 317,423 100% 46,922 100% 364,273 68,860 13,536 - 1,130,268 - - - - - - - *Mr B Miocevich received an additional amount of $9,600 (including superannuation) in July and August 2021 for services provided in relation to the direct project management of an engineering project. This additional work was approved in advance by the Board. **Mr B Silich commenced on 3 May 2021 16 | veem limited DIRECTORS’ REPORTShort-term employee benefits Post- employment benefits Long term ben- efits Share based payments Relative proportions of remuneration of KMP that are linked to performance Salary & fees Bonus Non- monetary benefits Other Superannu- ation Long service leave Share options Total Fixed remuneration Remuneration linked to performance 30 June 2020 $ $ $ $ $ Directors Bradley Miocevich* 166,575 Mark Miocevich 385,000 Ian Barsden Peter Torre Michael Bailey Total Director remuneration Executive 54,794 60,000 54,794 721,163 David Rich** 173,467 Total 894,630 - - - - - - - - - - - - - - - - - - - - - - - - $ - 15,825 23,915 6,416 5,206 - 5,206 - - - 50,152 6,416 11,765 2,891 61,917 9,307 $ $ % % - - - - - - - - 182,400 415,331 100% 100% 60,000 100% 60,000 100% 60,000 100% 777,731 188,123 100% 965,854 - - - - - - *Mr B Miocevich received an additional $10,400 per month between 1 January 2020 and 30 June 2020 for services provided in relation to the direct project management of an engineering project. This additional work was approved in advance by the Board. **Mr D Rich commenced on 18 November 2019. No member of key management personnel appointed during the period received a payment as part of his or her consideration for agreeing to hold the position. No cash bonuses were granted during 2021 or 2020. EMPLOYEE SHARE OPTION PLAN There were no employee share options granted as compensation in the current or prior financial year. FULLY PAID ORDINARY SHARES Balance at beginning of year Granted as compensation Received on exercise of options Net change other Balance at end of year Balance held nominally 30 June 2021 Number Number Number Number Number Number Directors Bradley Miocevich Mark Miocevich 1 80,000,000 1 80,000,000 Ian Barsden Peter Torre 53,571 60,000 Michael Bailey 90,000 Executive David Rich 210,916 Brett Silich - - - - - - - - - - - - - - - - - - - - - - - 1 80,000,000 1 80,000,000 53,571 60,000 90,000 210,916 - - - - - - - - veem limited | 17 DIRECTORS’ REPORTBalance at beginning of year Granted as compensation Received on exercise of options Net change (on-market) Balance at end of year Balance held nominally 30 June 2020 Number Number Number Number Number Number Directors Bradley Miocevich 80,000,0001 Mark Miocevich 80,000,0001 Ian Barsden Peter Torre Michael Bailey Executive David Rich 53,571 60,000 75,000 62,301 - - - - - - - - - - - - - - - - 15,000 80,000,0001 80,000,0001 53,571 60,000 90,000 148,615 210,916 - - - - - - 1. Mr Brad Miocevich and Mr Mark Miocevich have a relevant interest in VEEM Corporation Pty Ltd ATF the Miocevich Family Trust which holds 80,000,000 fully paid ordinary shares in the Company. The Company has two lease agreements with Voyka Pty Ltd, an entity controlled by an entity related to Mr Mark Miocevich and Mr Brad Miocevich. The Company pays Voyka Pty Ltd current monthly rent of $143,783 monthly excluding GST which is exclusive of any outgoings including rates, taxes, insurance premiums and maintenance costs. The leases end in 2029 and are on commercial terms. END OF REMUNERATION REPORT DIRECTORS’ MEETINGS The number of meetings of Directors held during the year and the number of meetings attended by each Director were as follows: Number of meetings held: 12 Meetings Held Eligible to Attend Meetings Attended 12 12 12 12 12 12 12 11 11 12 Number of meetings attended: John Bradley Miocevich Mark David Miocevich Ian Henry Barsden Peter Patrick Torre Michael Robert Bailey 18 | veem limited DIRECTORS’ REPORT PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied for leave of court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. NON-AUDIT SERVICES Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in Note 21 to the financial statements. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are of the opinion that the services do not compromise the auditor’s independence as all non-audit services have been reviewed to ensure that they do not impact the impartiality and objectivity of the auditor and none of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110: Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board. AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES Section 307C of the Corporations Act 2001 requires our auditors, HLB Mann Judd, to provide the Directors of the Company with Independence Declaration in relation to the audit of the annual report. This Independence Declaration is set out on page 20 and forms part of this Directors’ report for the year ended 30 June 2021. Signed in accordance with a resolution of the Directors. Mark David Miocevich Managing Director Perth, 24 August 2021 veem limited | 19 DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of VEEM Limited for the year ended 30 June 2021, I declare that to the best of my knowledge and belief, there have been no contraventions of: a) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) any applicable code of professional conduct in relation to the audit. Perth, Western Australia 24 August 2021 N G Neill Partner 20 | veem limited Page 15 (cid:3) Auditor’s report STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2021 Notes 2021 ($) 2020 ($) Continuing operations Revenue Government subsidies Foreign exchange losses (net) Changes in inventories of finished goods and work in progress Raw materials and consumables purchases Employee benefits expense Depreciation and amortisation expense Repairs and maintenance expenses Occupancy expense Borrowing costs expense Other expenses Profit before income tax expense Income tax expense Net profit for the year Other comprehensive income, net of income tax Total comprehensive income for the year Basic earnings per share (cents per share) 2 2 2 3 5 59,538,617 1,698,565 (389,523) 2,523,494 (28,224,607) (20,111,147) (3,637,309) (1,705,408) (1,189,472) (720,179) (1,874,867) 5,908,164 (996,989) 4,911,175 44,368,072 1,574,528 (34,111) (184,725) (16,499,237) (17,214,112) (3,394,935) (1,545,466) (1,117,472) (871,828) (1,840,950) 3,239,764 (769,503) 2,470,261 - - 4,911,175 2,470,261 3.78 1.90 The above Statement of Profit or Loss and Other Comprehensive invoice should be read in conjunction with the accompanying notes. Page 16 veem limited | 21 FINANCIAL STATEMENTS STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2021 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other assets Current tax assets Total current assets Non-current assets Property, plant and equipment Deferred tax assets Intangible assets Right-of-use-asset Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings – current Provisions Lease liabilities - current Total current liabilities Non-current liabilities Borrowings – non current Deferred tax liabilities Provisions Lease liabilities – non current Total non-current liabilities Total liabilities Net assets Equity Issued capital Retained earnings Total equity 2021 ($) 2020 ($) Notes 7 8 9 10 3 11 3 12 13 14 15 17 16 15 3 17 16 18 2,233,076 9,820,535 12,992,181 2,682,958 522,162 28,250,912 12,917,940 1,301,610 15,705,046 12,108,464 42,033,060 70,283,972 7,494,592 1,469,153 1,842,135 1,312,232 12,118,112 5,701,585 4,129,227 154,135 11,558,461 21,543,408 33,661,520 3,618,166 9,471,613 8,239,066 1,093,899 1,162,575 23,585,319 13,649,662 1,590,945 13,326,680 13,657,103 42,224,390 65,809,709 5,400,652 1,896,831 1,107,730 1,218,474 9,623,687 7,016,666 3,595,700 100,929 12,909,950 23,623,245 33,246,932 36,622,452 32,562,777 5,140,616 31,481,836 36,622,452 5,140,616 27,422,161 32,562,777 The above Statement of Financial Position should be read in conjunction with the accompanying notes. 22 | veem limited Page 17 FINANCIAL STATEMENTS STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2021 Issued capital ($) Retained earnings ($) Total equity ($) Notes Balance at 1 July 2019 5,140,616 25,771,095 30,911,711 Adjustment on initial application of AASB16 - (76,895) (76,895) Balance at 1 July 2019 post initial adaption of AASB16 5,140,616 25,694,200 30,834,816 Profit for the year Other comprehensive income, net of income tax Total comprehensive income for the year Dividend paid - - - - 6 2,470,261 - 2,470,261 2,470,261 - 2,470,261 (742,300) (742,300) Balance as at 30 June 2020 5,140,616 27,422,161 32,562,777 Profit for the year Other comprehensive income, net of income tax Total comprehensive income for the year Dividend paid - - - - 6 4,911,175 - 4,911,175 4,911,175 - 4,911,175 (851,500) (851,500) Balance as at 30 June 2021 5,140,616 31,481,836 36,622,452 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. Page 18 veem limited | 23 FINANCIAL STATEMENTS STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2021 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Government subsidies received Interest paid Interest received Income tax refunds received GST paid Net cash flows from operating activities Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangible assets Proceeds from sale of property, plant and equipment Net cash (outflow) from investing activities Cash flows from financing activities Repayment of borrowings Dividends paid Payments of lease liabilities Net cash (outflow) from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effect of exchange rate fluctuations on cash held Cash and cash equivalents at the end of the year Notes 2021 ($) 2020 ($) 59,059,289 (54,145,627) 2,215,878 (720,179) 4,310 466,286 (587,242) 6,292,715 (714,373) (2,840,416) 6,787 (3,548,002) (1,945,703) (851,500) (1,257,731) (4,054,934) (1,310,221) 3,618,166 (74,869) 2,233,076 45,540,638 (39,159,807) 992,000 (871,828) - 538,515 (1,076,793) 5,962,725 (1,607,609) (964,457) - (2,572,066) (1,876,069) (742,300) (1,053,284) (2,671,653) 719,006 2,874,087 25,073 3,618,166 7 7 7 7 The above Statement of Cash Flows should be read in conjunction with the accompanying notes. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (a) BASIS OF PREPARATION These financial statements are general purpose financial statements, which have been prepared in accordance with the requirements of the Corporations Act 2001, Accounting Standards and Interpretations and comply with other requirements of the law. The accounting policies detailed below have been consistently applied to all of the years presented unless otherwise stated. For the purpose of preparing the financial statements, the Company is a for-profit entity. The financial statements have been prepared on a historical cost basis. Historical cost is based on the fair values of the consideration given in exchange for goods and services. The Company is a listed public Company, incorporated in Australia and operating in Australia selling into domestic and global markets. The entity’s principal activities are described in the Directors’ Report. Going concern This report has been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlements of liabilities in the ordinary course of business. (b) ADOPTION OF THE REVISED STANDARDS Standards and Interpretations applicable to 30 June 2021 In the year ended 30 June 2021, the Directors have reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to the Company and effective for the reporting period beginning on or after 1 July 2020. As a result of this review, the Directors have determined that there is no material impact of the Standard and Interpretations issued on the Company and, therefore, no change is necessary to its accounting policies. New Standards and Interpretations in issue not yet adopted The Directors have also reviewed all of the new and revised Standards and Interpretations in issue not yet adopted for the year ended 30 June 2021. As a result of this review, the Directors have determined that there is no material impact of the Standard and Interpretations in issue not yet adopted on the Company and, therefore, no change is necessary to its No other new standards, amendments to standards or interpretations are expected to affect the Company's financial accounting policies. statements. (c) STATEMENT OF COMPLIANCE The financial report was authorised for issue by the Board of VEEM Ltd on 24 August 2021. The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS). (d) SIGNIFICANT ACCOUNTING JUDGMENTS AND KEY ESTIMATES The preparation of the financial report requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates. Leases The Company has leases for the main warehouse and related facilities, an office and production building. The lease liabilities are secured by the related underlying assets. In applying AASB16 for the first time in the previous financial year, the Company used the following practical expedients: • The use of a single discount rate to a portfolio of leases with similar characteristics. • The exclusion of initial direct costs for the measurement of the right-of-use-asset at the date of initial application. • The use of hindsight in determining the lease term where the contract contains options to extend or terminate. 24 | veem limited Page 19 Page 20 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (a) BASIS OF PREPARATION These financial statements are general purpose financial statements, which have been prepared in accordance with the requirements of the Corporations Act 2001, Accounting Standards and Interpretations and comply with other requirements of the law. The accounting policies detailed below have been consistently applied to all of the years presented unless otherwise stated. For the purpose of preparing the financial statements, the Company is a for-profit entity. The financial statements have been prepared on a historical cost basis. Historical cost is based on the fair values of the consideration given in exchange for goods and services. The Company is a listed public Company, incorporated in Australia and operating in Australia selling into domestic and global markets. The entity’s principal activities are described in the Directors’ Report. Going concern This report has been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlements of liabilities in the ordinary course of business. (b) ADOPTION OF THE REVISED STANDARDS Standards and Interpretations applicable to 30 June 2021 In the year ended 30 June 2021, the Directors have reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to the Company and effective for the reporting period beginning on or after 1 July 2020. As a result of this review, the Directors have determined that there is no material impact of the Standard and Interpretations issued on the Company and, therefore, no change is necessary to its accounting policies. New Standards and Interpretations in issue not yet adopted The Directors have also reviewed all of the new and revised Standards and Interpretations in issue not yet adopted for the year ended 30 June 2021. As a result of this review, the Directors have determined that there is no material impact of the Standard and Interpretations in issue not yet adopted on the Company and, therefore, no change is necessary to its accounting policies. No other new standards, amendments to standards or interpretations are expected to affect the Company's financial statements. (c) STATEMENT OF COMPLIANCE The financial report was authorised for issue by the Board of VEEM Ltd on 24 August 2021. The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS). (d) SIGNIFICANT ACCOUNTING JUDGMENTS AND KEY ESTIMATES The preparation of the financial report requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates. Leases The Company has leases for the main warehouse and related facilities, an office and production building. The lease liabilities are secured by the related underlying assets. In applying AASB16 for the first time in the previous financial year, the Company used the following practical expedients: • The use of a single discount rate to a portfolio of leases with similar characteristics. • The exclusion of initial direct costs for the measurement of the right-of-use-asset at the date of initial application. • The use of hindsight in determining the lease term where the contract contains options to extend or terminate. Page 20 veem limited | 25 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) Amortisation of product development Product development is amortised based on units of production as the Board has determined that this appropriately apportions the costs of development across the units produced to meet customer orders and building of inventory to meet future orders. Product development costs continue to be monitored for are any indicators that these costs may be impaired or whether the amortisation rate needs to be accelerated. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable that sufficient future tax profits will be available to utilise those temporary differences. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits. Inventories Management estimates the net realisable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realisation of these inventories may be affected by future technology or other market- driven changes that may reduce future selling prices. Capitalisation of internally developed products Distinguishing the research and development phases of new products and determining whether the recognition requirements for the capitalisation of development costs are met requires judgement. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired. (e) SEGMENT REPORTING Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of VEEM Ltd. The Board has determined the operating segments based on the reports reviewed by the Board of directors that are used to make strategic decisions. The entity does not have any operational segments with discrete financial information. The Board of Directors review internal management reports on a monthly basis that are consistent with the information provided in the statement of profit or loss and other comprehensive income, statement of financial position and statement of cash flows. As a result, no reconciliation is required because the information as presented is what is used by the Board to make strategic decisions. (f) FOREIGN CURRENCY TRANSLATION Both the functional and presentation currency of VEEM Ltd is Australian dollars. Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance date. All exchange differences in the financial report are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. (g) REVENUE RECOGNITION Revenue from contracts with customers is measured at fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties. Contract liabilities are recognised where applicable in relation to sales. 26 | veem limited Page 21 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) Point in time recognition - sale of goods – propulsion & stabilization Revenue is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisfied: • • • • • the Company has transferred to the buyer the significant risks and rewards of ownership of the goods; the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the Company; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Over time recognition - Sale of goods and rendering of services - mining & industrial engineering, propulsion & stabilization and defence In determining whether performance obligations are satisfied over time the Company considers the following: Legal control is often retained by the customer; • • VEEM products and services are highly specialised and often do not have an alternate use; and • Contracts are established with customers so that VEEM has an enforceable right to payment for performance completed to date, including profit margin. Revenue is recognised by reference to the stage of completion of the performance obligation. The stage of completion of the performance obligation is determined as follows: • Contract income is recognised by reference to the total actual costs incurred at the end of the reporting period relative to the proportion of the total costs expected to be incurred over the life of the performance obligation; • Servicing fees are recognised by reference to the proportion of the total cost of providing the service for the product sold; and • Revenue from time and material contracts are recognised at the contractual rates as labour hours are delivered and direct expenses are incurred. Interest income Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Company and the amount of revenue can be reliably measured. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that assets’ net carrying amount on initial recognition. (h) GOVERNMENT GRANTS Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Company will comply with all attached conditions. Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate. Government grants are presented as other income in the statement of profit or loss and other comprehensive income. Page 22 veem limited | 27 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (i) LEASES Where the Company is a lessee, the Company recognises a right-of-use asset and a corresponding liability at the date which the lease asset is available for use by the Company (i.e., commencement date). Each lease payment is allocated between the liability and the finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a consistent period rate of interest on the remaining balance of the liability for each period. The lease liability is initially measured at the present value of the lease payments that are not paid at commencement date, discounted using the rate implied in the lease. If this rate is not readily determinable, the Company uses its incremental borrowing rate. Lease payments included in the initial measurement if the lease liability consist of: • • • • • Fixed lease payments less any lease incentives receivable; Variable lease payments that depend on an index or rate, initially measured using the index or rate at commencement date; Any amounts expected to be payable by the Company under residual value guarantees; The exercise price pf purchase options, if the Company is reasonably certain to exercise the options; and Termination penalties of the lease term reflects the exercise of an option to terminate the lease. Extension options are included in a number of property leases across the Company. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option. Extension options are only included in the lease term if, at commencement date, it is reasonably certain that the options will be exercised. Subsequent to initial recognition, the lease liability is measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The lease liability is remeasured (with a corresponding adjustment to the right-of-use asset) whenever there is a change in the lease term (including assessments relating to extension and termination options), lease payments due to changes in an index or rate, or expected payments under guaranteed residual values. Right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before commencement date, less any lease incentives received and any initial direct costs. These right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses. Where the terms of a lease require the Company to restore the underlying asset, or the Company has an obligation to dismantle and remove a leased asset, a provision is recognised and measured in accordance with AASB 137. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset. Right-of-use assets are depreciated on a straight-line basis over the term of the lease (or the useful life of the leased asset if this is shorter). Depreciation starts on commencement date of the lease. Where leases have a term of less than 12 months or relate to low value assets, the Company has applied the optional exemptions to not capitalise these leases and instead account for the lease expense on a straight-line basis over the lease term. (j) INCOME TAX The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary difference and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance date. Deferred income tax is provided on all temporary differences at the balance date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. 28 | veem limited Page 23 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) Deferred income tax liabilities are recognised for all taxable temporary differences except: • when the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or • when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except: • when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. The carrying amount of deferred income tax assets is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance date. Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. (k) OTHER TAXES Revenues, expenses and assets are recognised net of the amount of GST except: • when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables, which are stated with the amount of GST included. • The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (l) IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS The Company assesses at each balance date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets and the asset's value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount. Page 24 veem limited | 29 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at revalued amount (in which case the impairment loss is treated as a revaluation decrease). An assessment is also made at each balance date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. (m) CASH AND CASH EQUIVALENTS Cash comprises cash at bank and in hand. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. (n) TRADE AND OTHER RECEIVABLES Trade receivables are measured on initial recognition at fair value and are subsequently measured at amortised cost using the effective interest rate method, less any allowance for impairment. Trade receivables are generally due for settlement within periods ranging from 15 days to 60 days. Impairment of trade receivables is continually reviewed and those that are considered to be uncollectible are written off by reducing the carrying amount directly. An allowance account is used when there is objective evidence that the Company will not be able to collect all amounts due according to the original contractual terms. Factors considered by the Company in making this determination include known significant financial difficulties of the debtor, review of financial information and significant delinquency in making contractual payments to the Company. The impairment allowance is set equal to the difference between the carrying amount of the receivable and the present value of estimated future cash flows, discounted at the original effective interest rate. Where receivables are short-term discounting is not applied in determining the allowance. The amount of the impairment loss is recognised in the statement of profit or loss and other comprehensive income within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the statement of profit or loss and other comprehensive income. (o) INVENTORIES Raw material, stores and work in progress (i) Raw materials, stores and work in progress are stated at the lower of cost and net realisable value. Cost comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs are assigned to individual items of stock mainly on the basis of average cost. Contract work in progress (ii) Contract work in progress is stated at cost plus attributable profit to date (based on percentage of completion of each contract) less progress billings. Cost includes all costs directly related to specific contracts and an allocation of overhead expenses incurred in connection with the Company’s contract operations. Where a loss on completion is indicated that loss is brought to account in the current year. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. 30 | veem limited Page 25 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 FOR THE YEAR ENDED 30 JUNE 2021 FOR THE YEAR ENDED 30 JUNE 2021 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (p) DERECOGNITION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (p) DERECOGNITION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (p) DERECOGNITION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES Financial assets Financial assets Financial assets A financial asset (or, where applicable, a part of a financial asset or part of a Company of similar financial assets) is de- A financial asset (or, where applicable, a part of a financial asset or part of a Company of similar financial assets) is de- A financial asset (or, where applicable, a part of a financial asset or part of a Company of similar financial assets) is de- recognised when: recognised when: recognised when: • • • • • • • • • the rights to receive cash flows from the asset have expired; the rights to receive cash flows from the asset have expired; the rights to receive cash flows from the asset have expired; the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or full without material delay to a third party under a ‘pass-through’ arrangement; or full without material delay to a third party under a ‘pass-through’ arrangement; or the Company has transferred its rights to receive cash flows from the asset and either: the Company has transferred its rights to receive cash flows from the asset and either: the Company has transferred its rights to receive cash flows from the asset and either: - - - - - - has transferred substantially all the risks and rewards of the asset; or has transferred substantially all the risks and rewards of the asset; or has transferred substantially all the risks and rewards of the asset; or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. control of the asset. control of the asset. When the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained When the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained When the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Company’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the of the Company’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the of the Company’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration received that the Company could be required to repay. consideration received that the Company could be required to repay. consideration received that the Company could be required to repay. When continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar When continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar When continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Company’s continuing involvement is the amount of the transferred provision) on the transferred asset, the extent of the Company’s continuing involvement is the amount of the transferred provision) on the transferred asset, the extent of the Company’s continuing involvement is the amount of the transferred asset that the Company may repurchase, except that in the case of a written put option (including a cash-settled option or asset that the Company may repurchase, except that in the case of a written put option (including a cash-settled option or asset that the Company may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the Company’s continuing involvement is limited to the similar provision) on an asset measured at fair value, the extent of the Company’s continuing involvement is limited to the similar provision) on an asset measured at fair value, the extent of the Company’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. lower of the fair value of the transferred asset and the option exercise price. lower of the fair value of the transferred asset and the option exercise price. Financial liabilities Financial liabilities Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the When an existing financial liability is replaced by another from the same lender on substantially different terms, or the When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss. in profit or loss. in profit or loss. (q) PROPERTY, PLANT AND EQUIPMENT (q) PROPERTY, PLANT AND EQUIPMENT (q) PROPERTY, PLANT AND EQUIPMENT Plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Such cost Plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Such cost Plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation. equipment as a replacement only if it is eligible for capitalisation. equipment as a replacement only if it is eligible for capitalisation. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows: Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows: Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows: Motor vehicles Motor vehicles Motor vehicles Plant and equipment Plant and equipment Plant and equipment Computer equipment Computer equipment Computer equipment 3-10 years 3-10 years 3-10 years 5-30 years 5-30 years 5-30 years 3-5 years 3-5 years 3-5 years The assets' residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each The assets' residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each The assets' residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end. financial year end. financial year end. Impairment Impairment Impairment The carrying values of plant and equipment are reviewed for impairment at each balance date, with recoverable amount The carrying values of plant and equipment are reviewed for impairment at each balance date, with recoverable amount The carrying values of plant and equipment are reviewed for impairment at each balance date, with recoverable amount being estimated when events or changes in circumstances indicate that the carrying value may be impaired. being estimated when events or changes in circumstances indicate that the carrying value may be impaired. being estimated when events or changes in circumstances indicate that the carrying value may be impaired. The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in use. In assessing The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in use. In assessing The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. current market assessments of the time value of money and the risks specific to the asset. current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, recoverable amount is determined for the cash- For an asset that does not generate largely independent cash inflows, recoverable amount is determined for the cash- For an asset that does not generate largely independent cash inflows, recoverable amount is determined for the cash- generating unit to which the asset belongs, unless the asset's value in use can be estimated to approximate fair value. An generating unit to which the asset belongs, unless the asset's value in use can be estimated to approximate fair value. An generating unit to which the asset belongs, unless the asset's value in use can be estimated to approximate fair value. An impairment exists when the carrying value of an asset or cash-generating unit exceeds its estimated recoverable amount. impairment exists when the carrying value of an asset or cash-generating unit exceeds its estimated recoverable amount. impairment exists when the carrying value of an asset or cash-generating unit exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount. veem limited | 31 Page 26 Page 26 Page 26 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 FOR THE YEAR ENDED 30 JUNE 2021 FOR THE YEAR ENDED 30 JUNE 2021 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (r) INTANGIBLE ASSETS De-recognition and disposal Intangible assets acquired separately Internally generated intangible assets INTANGIBLE ASSETS INTANGIBLE ASSETS For plant and equipment, impairment losses are recognised in the statement of profit or loss and other comprehensive income. An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised. Intangible assets acquired separately are recorded at cost less accumulated amortisation and impairment. Amortisation is charged on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method is reviewed at the end of each annual reporting period, with any changes in these accounting estimates being accounted for on a prospective basis. For plant and equipment, impairment losses are recognised in the statement of profit or loss and other comprehensive income. For plant and equipment, impairment losses are recognised in the statement of profit or loss and other comprehensive income. De-recognition and disposal De-recognition and disposal An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal. An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised. (r) (r) Intangible assets acquired separately Intangible assets acquired separately Intangible assets acquired separately are recorded at cost less accumulated amortisation and impairment. Amortisation is charged on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method is Intangible assets acquired separately are recorded at cost less accumulated amortisation and impairment. Amortisation is reviewed at the end of each annual reporting period, with any changes in these accounting estimates being accounted for charged on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method is on a prospective basis. reviewed at the end of each annual reporting period, with any changes in these accounting estimates being accounted for on a prospective basis. Internally generated intangible assets Internally generated intangible assets Expenditure on research activities is recognised as an expense in the period in which it is incurred. Where no internally generated intangible asset can be recognised, development expenditure is recognised as an expense in the period as Expenditure on research activities is recognised as an expense in the period in which it is incurred. Where no internally incurred. generated intangible asset can be recognised, development expenditure is recognised as an expense in the period as incurred. An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated: An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated: • The technical feasibility of completing the intangible asset so that it will be available for use or sale; • • The intention to complete the intangible asset and use or sell it; • • The ability to use or sell the intangible asset; • How the intangible asset will generate probable future economic benefits; • • • How the intangible asset will generate probable future economic benefits; The availability of adequate technical, financial and other resources to complete development and to use or sell the • intangible asset; and • The ability to measure reliably the expenditure attributable to the intangible asset during its development. • The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately. Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately. The following useful lives are used in the calculation of amortisation: The following useful lives are used in the calculation of amortisation: The technical feasibility of completing the intangible asset so that it will be available for use or sale; The intention to complete the intangible asset and use or sell it; The technical feasibility of completing the intangible asset so that it will be available for use or sale; The ability to use or sell the intangible asset; The intention to complete the intangible asset and use or sell it; The ability to use or sell the intangible asset; The availability of adequate technical, financial and other resources to complete development and to use or sell the intangible asset; and The availability of adequate technical, financial and other resources to complete development and to use or sell the The ability to measure reliably the expenditure attributable to the intangible asset during its development. intangible asset; and The ability to measure reliably the expenditure attributable to the intangible asset during its development. • • • • How the intangible asset will generate probable future economic benefits; • Expenditure on research activities is recognised as an expense in the period in which it is incurred. Where no internally generated intangible asset can be recognised, development expenditure is recognised as an expense in the period as incurred. The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately. An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated: The following useful lives are used in the calculation of amortisation: • Patents Product Development Expenditure Software Patents Patents Product Development Expenditure Product Development Expenditure Software Software 10 – 20 years Units of production 10 years 10 – 20 years 10 – 20 years Units of production Units of production 10 years 10 years Right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets Right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in and restoring the site or asset. the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Company expects to obtain ownership of the leased asset at the end Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful of the lease term, the depreciation is over its estimated useful life. Right-of-use assets are subject to impairment or adjusted life of the asset, whichever is the shorter. Where the Company expects to obtain ownership of the leased asset at the end for any remeasurement of lease liabilities. of the lease term, the depreciation is over its estimated useful life. Right-of-use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The Company has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss The Company has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with as incurred. terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. 32 | veem limited Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Company expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of-use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The Company has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. Page 27 Page 27 Page 27 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (s) TRADE AND OTHER PAYABLES Trade payables and other payables are carried at amortised cost and represent liabilities for goods and services provided to the Company prior to the end of the financial year that are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase of these goods and services. Trade and other payables are presented as current liabilities unless payment is not due within 12 months. (t) BORROWINGS Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs. Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. (u) PROVISIONS Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are not recognised for future operating losses. When the Company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of profit or loss and other comprehensive income net of any reimbursement. Provisions are measured at the present value or management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as an interest expense. Onerous contracts Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the Company has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the contract. Warranties Provisions for the expected cost of warranty obligations under local sale of goods legislation are recognised at the date of sale of the relevant products, at the Directors’ best estimate of the expenditure required to settle the Company’s obligation. Lease restoration provision A provision has been made for the present value of anticipated costs for future restoration of leased premises. The provision includes future cost estimates associated with the end of the lease term. The calculation of this provision requires assumptions such as application of end dates and cost estimates. The provision recognised for each site is periodically reviewed and updated based on the facts and circumstances available at the time. Changes to the estimated future costs for sites are recognised in the statement of financial position by adjusting the asset and the provision. Reductions in the provision that exceed the carrying amount of the asset will be recognised in profit or loss. Page 28 veem limited | 33 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (v) EMPLOYEE LEAVE BENEFITS Wages, salaries, annual leave and sick leave Liabilities accruing to employees in respect of wages and salaries, annual leave and sick leave expected to be settled within 12 months of the balance date are recognised in other payables in respect of employees’ services up to the balance date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non- accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. Liabilities accruing to employees in respect of wages and salaries, annual leave, long service leave and sick leave not expected to be settled within 12 months of the balance date are recognised in non-current liabilities in respect of employees’ services up to the balance date. They are measured as the present value of the estimated future outflows to be made by the Company. Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the balance date. Consideration is given to expected future wage and salary levels, experience of employee departures, and period of service. Expected future payments are discounted using market yields at the balance date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. (w) DIVIDENDS Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period. (x) EARNINGS PER SHARE Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share are calculated, where applicable, as net profit attributable to members of the parent, adjusted for: • • • costs of servicing equity (other than dividends); the after-tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. 34 | veem limited Page 29 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 2: REVENUE AND EXPENSES Revenue from contracts with customers Sales revenue • • Revenue – point in time Revenue – over time Other revenue Other subsidies • • • • JobKeeper subsidy Cashflow boost subsidy (COVID-19) Apprentice subsidies Government subsidies 2021 ($) 2020 ($) 6,834,216 52,620,604 59,454,820 83,797 59,538,617 1,535,250 50,000 113,315 - 1,698,565 4,322,844 40,033,292 44,356,136 11,936 44,368,072 1,517,250 50,000 4,778 2,500 1,574,528 During the year, the Company recognised revenue of $7,778,743 (2020: $8,257,380) in relation to the prior year’s work in progress. The Company has progress billings at 30 June 2021 of $8,263,159 (2020: $11,565,195), refer to Note 9. The Company has contract assets, being work in progress (recognised over time) at 30 June 2021 of $8,451,146 (2020: $9,592,427). The Company will recognise revenue from contracts with customers based on the following performance: - - the completion of the contracted work-scope following factory acceptance testing in accordance with contract terms and conditions; and when applicable, completion of contracted milestones and transfer of title generally based on: milestone 1 - material acquisition, and/or milestone 2 - completion of casting metal pour, and/or milestone 3 - factory acceptance testing (FAT) The majority of customer contracts are from the private sector and this accounted for approximately 78% (2020: 68%) of the revenue during FY2021. Sales to government instrumentalities accounted for 21% (2020: 22%). Sales to quasi-government instrumentalities accounted for 1% (2020: 10%). The geographic distribution of sales for FY2021 was approximately 69% (2020: 64%) derived from customers within Australia and the remaining 31% (2020: 36%) were derived predominantly from customers in the USA, Netherlands, UK, Italy and NZ. Contracts are received and executed generally within 12 months and hence are considered short term contracts. Period contracts (those that extend greater than 1 year) with customers are executed by discrete purchase orders for required shipments and hence still fall within the definition for short term contracts. The majority of sales are generated by direct contracts with customers. During the year sales agents were utilised in Europe, the USA, Middle East, Asia and South America (gyrostabilizers only) to introduce enquiries and leads. Contracts are then established directly between VEEM Ltd and the customer. Distributors are utilised for propeller sales in the USA, France, Italy and Australasia, where the distributors purchase from and contract directly with VEEM Ltd. Page 30 veem limited | 35 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 2: REVENUE AND EXPENSES (cont’d) Other expenses Insurance Advertising and marketing Travel Bank Charges Safety and first aid Motor vehicle expenses Accounting and secretarial Employee related expenses Loss on disposal property, plant and equipment Other general expenses NOTE 3: INCOME TAX Income tax recognised in profit or loss The major components of tax expense are: Current tax expense Deferred tax expense relating to the origination and reversal of temporary differences Total tax expense The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in the financial statements as follows: Accounting profit before income tax Income tax expense calculated at FY2021 30% (FY2020 27.5%) Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: 2021 ($) 2020 ($) 465,562 226,218 - 55,295 83,767 61,957 177,615 88,574 15,632 700,247 1,874,867 343,857 387,125 166,998 86,990 83,540 92,916 165,405 102,164 - 411,955 1,840,950 2021 ($) 2020 ($) 174,129 822,860 996,989 - 769,503 769,503 5,908,164 1,772,449 3,239,764 890,935 • Prior year overprovision of income tax • Change in tax rate • Effect of expenses that are not deductible in determining taxable profit • Effect of concessions – research and development 14,878 232,531 704,264 (1,727,133) - - 941,448 (1,062,880) Income tax (benefit)/expense reported in the statement of profit or loss and other comprehensive income 996,989 769,503 The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities with turnover greater than $50 million on taxable profits under Australian tax law. In the prior year the tax rate was 27.5% as the turnover was less than $50 million. 36 | veem limited Page 31 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 3: INCOME TAX (cont’d) Current tax receivables comprise: Income tax receivable/(payable) Deferred tax assets comprise: Annual leave payable Provisions Accrued expenses Unrealised foreign exchange (gain) / loss Black hole expenditure and borrowing costs Timing difference between Right of Use assets and Lease liabilities Unclaimed research and development concessions Deferred tax liabilities comprise: Depreciable property, plant and equipment Patents Reconciliation of deferred tax assets/ (liabilities): 30 June 2021 Accrued expenses Annual leave payable Provisions Property, plant and equipment Unrealised foreign exchange (gain) / loss Black hole expenditure and borrowing costs Patents Unclaimed research and development concessions Timing difference between Right of Use assets and Lease liabilities 2021 ($) 2020 ($) 522,162 1,162,575 537,134 356,223 159,902 (11,409) 813 258,947 - 379,294 332,381 88,618 (6,296) 86,489 157,369 553,090 1,301,610 1,590,945 4,113,886 15,341 4,129,227 3,563,643 32,057 3,595,700 Opening balance Change in Tax Rate ($) 88,618 379,294 332,381 (3,563,643) (6,296) 86,489 (32,057) 553,090 ($) 8,056 34,481 30,216 (323,968) (572) 7,863 (2,914) 50,281 Charged to income ($) 63,228 123,359 (6,374) (226,275) (4,541) (93,539) 19,630 (603,371) Closing balance ($) 159,902 537,134 356,223 (4,113,886) (11,409) 813 (15,341) - 157,369 14,306 87,272 258,947 (2,004,755) (182,251) (640,611) (2,827,617) Page 32 veem limited | 37 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 3: INCOME TAX (cont’d) 30 June 2020 Accrued expenses Annual leave payable Provision for long service leave Property, plant and equipment Unrealised foreign exchange (gain) / loss Black hole expenditure and borrowing costs Patents Unclaimed research and development concessions Accrued revenue Provision for restoration Timing difference between Right of Use assets and Lease liabilities Opening balance Charged to income Closing balance ($) 73,450 312,138 281,292 (2,937,567) 5,471 184,014 (64,666) 1,006,944 (96,329) - - (1,235,253) ($) 15,168 67,156 23,334 (626,076) (11,767) (97,525) 32,609 (453,854) 96,329 27,755 157,369 (769,502) ($) 88,618 379,294 304,626 (3,563,643) (6,296) 86,489 (32,057) 553,090 - 27,755 157,369 (2,004,755) NOTE 4: SEGMENT REPORTING Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of Directors of VEEM Ltd. The Board has determined the operating segments based on the reports reviewed by the Board of directors that are used to make strategic decisions. The entity does not have any operational segments with discrete financial information. The Board of Directors review internal management reports on a monthly basis that are consistent with the information provided in the statement of profit or loss and other comprehensive income, statement of financial position and statement of cash flows. As a result, no reconciliation is required because the information as presented is what is used by the Board to make strategic decisions. The Company has two customers where the revenue from those customers was in excess of 10% of the Company’s revenue. Customer A generated 21% (2020: 10%) and Customer B generated 16% (2020: 22%) of the Company’s revenue for the year. Although the Company is managed as a single business segment, sales revenue of $59,454,820 can be broken down into the following sales categories. Propulsion and stabilization consist of the manufacture of new propellers, shaft lines, gyrostabilizers and marine ride control fins. The sales in this category were $33,260,193. Defence related sales for FY2021 totalled $23,469,731 with $8,947,791 of those sales being both within the defence and propulsion/stabilization categories. Sales of engineering products and services (non-defence) for FY2021 were $11,672,687. 38 | veem limited Page 33 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 5: EARNINGS PER SHARE Basic earnings per share Basic earnings per share There are no diluted earnings per share. 2021 Cents per share 3.78 2020 Cents per share 1.90 Basic earnings per share The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share is as follows: Earnings Earnings from continuing operations Weighted average number of ordinary shares for the purpose of basic earnings per share 2021 ($) 2020 ($) 4,911,175 2,470,261 2021 Number 2020 Number 130,000,000 130,000,000 Page 34 veem limited | 39 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 7: CASH AND CASH EQUIVALENTS (cont’d) Reconciliation of profit for the year to net cash flows from operating activities Loss on sale or disposal of non-current assets, property, plant & equipment Net profit for the year Depreciation and amortisation expense Provision for employee leave benefits Foreign exchange loss (Increase)/decrease in assets: Trade and other receivables Inventories Increase/(decrease) in liabilities: Trade and other payables Current and deferred tax GST payable Net cash inflow from operating activities 2021 ($) 2020 ($) 4,911,175 3,637,309 15,594 787,610 562,773 2,470,261 3,394,935 - 84,852 34,111 (1,902,662) (4,753,115) (2,686,075) 2,799,482 1,565,406 1,463,276 5,349 6,292,715 (1,364,146) 1,308,018 (78,713) 5,962,725 Changes in liabilities arising from financing activities Balance as at 30 June 2019 Net cash from (used in) financing activities Lease liability recognised on adoption of AASB 16 Acquisition of plant and equipment by means of hire purchase Balance as at 30 June 2020 Bank loans ($) Hire Purchase Lease liability ($) Total ($) liability ($) 7,000,000 2,213,780 400,000 (1,276,069) - - 575,786 (1,053,284) 15,181,708 - 9,213,780 (1,929,353) 15,181,708 575,786 7,400,000 1,513,497 14,128,424 23,041,921 - - - NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 6: DIVIDENDS Fully franked dividends paid Unfranked dividends paid Total dividends paid Balance of franking account at period end adjusted for franking credits arising from the payment of provision for income tax and dividends recognised as receivables, franking debits arising from payment of proposed dividends and franking credits that may be prevented from distribution in a subsequent financial year. The dividends paid in 2020 were franked at a tax rate of 27.5%. NOTE 7: CASH AND CASH EQUIVALENTS Cash at bank Cash on hand 2021 ($) 2020 ($) - 851,500 851,500 742,300 - 742,300 - - 2021 ($) 2020 ($) 2,232,276 800 2,233,076 3,617,366 800 3,618,166 Cash at bank earns interest at floating rates based on daily bank deposit rates. Reconciliation to the Statement of Cash Flows: For the purposes of the statement of cash flows, cash and cash equivalents comprise cash on hand and at bank and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows: Cash and cash equivalents Non-cash financing and investing activities 2021 ($) 2020 ($) 2,233,076 3,618,166 Net cash from (used in) financing activities (900,000) (1,045,703) (1,257,731) (3,203,434) Acquisition of plant and equipment by means of hire purchase - 202,944 202,944 Balance as at 30 June 2021 6,500,000 670,738 12,870,693 20,041,431 The Company purchased assets with a value of $202,944 which were financed through hire purchase. Cash balances not available for use All cash balances are available for use. 40 | veem limited Page 35 Page 36 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 7: CASH AND CASH EQUIVALENTS (cont’d) Reconciliation of profit for the year to net cash flows from operating activities Net profit for the year Depreciation and amortisation expense Loss on sale or disposal of non-current assets, property, plant & equipment Provision for employee leave benefits Foreign exchange loss (Increase)/decrease in assets: Trade and other receivables Inventories Increase/(decrease) in liabilities: Trade and other payables Current and deferred tax GST payable Net cash inflow from operating activities 2021 ($) 2020 ($) 4,911,175 3,637,309 15,594 787,610 562,773 2,470,261 3,394,935 - 84,852 34,111 (1,902,662) (4,753,115) (2,686,075) 2,799,482 1,565,406 1,463,276 5,349 6,292,715 (1,364,146) 1,308,018 (78,713) 5,962,725 Changes in liabilities arising from financing activities Balance as at 30 June 2019 Net cash from (used in) financing activities Lease liability recognised on adoption of AASB 16 Acquisition of plant and equipment by means of hire purchase Balance as at 30 June 2020 Bank loans ($) Hire Purchase liability ($) Lease liability ($) Total ($) 7,000,000 400,000 - 2,213,780 (1,276,069) - - (1,053,284) 15,181,708 9,213,780 (1,929,353) 15,181,708 - 575,786 - 575,786 7,400,000 1,513,497 14,128,424 23,041,921 Net cash from (used in) financing activities (900,000) (1,045,703) (1,257,731) (3,203,434) Acquisition of plant and equipment by means of hire purchase - 202,944 - 202,944 Balance as at 30 June 2021 6,500,000 670,738 12,870,693 20,041,431 Page 36 veem limited | 41 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 8: TRADE AND OTHER RECEIVABLES Trade receivables (i) GST recoverable Other receivables Government Covid-19 Stimulus (JobKeeper) 2021 ($) 2020 ($) 9,561,199 253,688 5,648 - 9,820,535 8,664,713 218,368 13,282 575,250 9,471,613 (i) the average credit period on sales of goods and rendering of services is 15-60 days Aging of past due but not impaired 60 – 90 days 90 – 120 days Total 2021 ($) 2020 ($) 486,113 130,508 616,621 331,671 109,979 441,650 42 | veem limited Page 37 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 8: TRADE AND OTHER RECEIVABLES (cont’d) Expected credit losses The Company applies the AASB 9 simplified model of recognising lifetime expected credit losses for all trade receivables as these items do not have a significant financing component. In measuring the expected credit losses, the trade receivables have been assessed on a collective basis as they possess shared credit risk characteristics. They have been grouped based on the days past due and also according to the geographical location of customers. The expected loss rates are based on the payment profile for sales over the past 48 months before 30 June 2021 and 30 June 2020 respectively as well as the corresponding historical credit losses during that period. The historical rates are adjusted to reflect current and forwarding looking macroeconomic factors affecting the customer’s ability to settle the amount outstanding. Trade receivables are written off when there is no reasonable expectation of recovery. Failure to make payments within 180 days from the invoice date and failure to engage with the Company on alternative payment arrangements are considered indicators of low reasonable expectation of recovery. Where commercially sensible and available, VEEM Ltd takes out credit insurance against its overseas receivables. On the above basis, a provision for expected credit losses as at 30 June 2021 is not required as it is not material to the financial statements (30 June 2020: Nil). NOTE 9: INVENTORIES Work in progress – over time Work in progress – point in time Less: progress billings Goods for resale, raw materials and stores 2021 ($) 2020 ($) 8,451,146 711,362 9,162,508 (8,263,159) 899,349 12,092,832 12,992,181 9,592,427 786,039 10,378,466 (11,565,195) (1,186,729) 9,425,795 8,239,066 There were no inventory write-downs charged to cost of sales during the year (2020 $Nil). During the year, the Company recognised revenue of $7,778,743 (2020: $9,127,147) in relation to the prior years’ work in progress. Included in goods for resale, raw materials and stores inventories are inventories carried at net realisable value with a carrying value of $348,643 (2020 $5,557,322). NOTE 10: OTHER ASSETS Prepayments Supplies paid in advance 2021 ($) 2020 ($) 499,266 2,183,692 2,682,958 537,261 556,638 1,093,899 Page 38 veem limited | 43 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 11: PROPERTY, PLANT AND EQUIPMENT As at 30 June 2020 Cost Accumulated depreciation Closing carrying amount Year ended 30 June 2021 Opening carrying amount Additions Disposals Depreciation charge Closing carrying amount As at 30 June 2021 Cost Accumulated Depreciation Carrying amount Plant and Equipment ($) Motor Vehicles ($) Capital Work in Progress ($) Computer Equipment ($) Total ($) 37,436,529 (24,286,771) 13,149,758 660,720 (491,299) 169,421 68,278 - 68,278 1,596,359 (1,334,154) 262,205 39,761,886 (26,112,224) 13,649,662 13,149,758 616,077 (49,085) (1,509,870) 12,206,880 169,421 53,580 - (36,857) 186,144 68,278 145,463 - - 213,741 262,205 128,856 - (79,886) 311,175 13,649,662 943,976 (49,085) (1,626,613) 12,917,940 37,976,862 (25,769,982) 12,206,880 714,300 (528,156) 186,144 213,741 - 213,741 1,725,215 (1,414,040) 311,175 40,630,118 (27,712,178) 12,917,940 NOTE 12: INTANGIBLE ASSETS As at 30 June 2020 Cost Accumulated amortisation Closing carrying amount Year ended 30 June 2021 Opening carrying amount Net additions Amortisation charge Closing carrying amount As at 30 June 2021 Cost Accumulated amortisation Carrying amount Other Intellectual Property ($) Product Development ($) Total ($) 905,005 (361,153) 543,852 13,894,902 (1,112,074) 12,782,828 14,799,907 (1,473,227) 13,326,680 543,852 41,420 (179,311) 405,961 12,782,828 2,799,002 (282,745) 15,299,085 13,326,680 2,840,422 (462,056) 15,705,046 946,425 (540,464) 16,693,904 (1,394,819) 405,961 15,299,085 17,640,329 (1,935,283) 15,705,046 No impairment loss was recognised in the 2021 financial year (2020: $Nil). 44 | veem limited Page 39 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 13: RIGHT-OF-USE ASSETS As at 30 June 2020 Cost Accumulated depreciation Carrying amount Opening balance Depreciation Closing balance As at 30 June 2021 Cost Accumulated depreciation Carrying amount NOTE 14: TRADE AND OTHER PAYABLES (CURRENT) Trade payables (i) Annual leave payable GST payable Other creditors Premises $ 15,486,397 (1,829,294) 13,657,103 Total $ 15,486,397 (1,829,294) 13,657,103 2021 ($) 2020 ($) 13,657,103 (1,548,639) 12,108,464 Premises $ 15,486,397 (3,377,933) 12,108,464 15,205,743 (1,548,640) 13,657,103 Total $ 15,486,397 (3,377,933) 12,108,464 2021 ($) 2020 ($) 4,326,074 1,790,447 296,376 1,081,695 7,494,592 3,081,871 1,379,248 255,745 683,788 5,400,652 (i) Trade payables are non-interest bearing and are normally settled on 30-day terms. Information regarding the interest rate, foreign exchange and liquidity risk exposure is set out in Note 17. NOTE 15: BORROWINGS Current Commercial facility (a) Hire purchase liability Less: Unexpired charges Non-current Commercial facility (a) Hire purchase liability Less: Unexpired charges 2021 ($) 2020 ($) 1,200,000 295,552 (26,399) 1,469,153 5,300,000 423,735 (22,151) 5,701,584 900,000 1,041,420 (44,589) 1,896,831 6,500,000 553,270 (36,604) 7,016,666 (a) The Company has a Commercial Facility with a limit of $7,550,000. The Commercial Facility is repayable by 1 July 2023. $50,000 of principal was payable monthly until 31 December 2020, thereafter $100,000 of principal is payable each calendar month with the remaining facility amount owing payable on the expiry date. The loan facility is reduced by the principal component of each repayment. Interest at the base rate plus 1.95% per annum is charged monthly and a line fee of 0.75% per annum of the Facility Limit is payable quarterly in arrears. The interest rate is currently at 2.01% (June 2020: 1.89%). The facility is reviewed on an annual basis. At 30 June 2021, the Company had no (2020: nil) available undrawn committed borrowing facilities under the Commercial Facility in respect of which all conditions precedent had been met. veem limited | 45 Page 40 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 FOR THE YEAR ENDED 30 JUNE 2021 FOR THE YEAR ENDED 30 JUNE 2021 NOTE 15: BORROWINGS (cont’d) NOTE 15: BORROWINGS (cont’d) NOTE 15: BORROWINGS (cont’d) The Company has an Overdraft Facility with a limit of $3,400,000. Interest at the base rate less 0.75% per annum is The Company has an Overdraft Facility with a limit of $3,400,000. Interest at the base rate less 0.75% per annum is charged monthly. The facility is reviewed on an annual basis. At 30 June 2021, the Company had available $3,400,000 of The Company has an Overdraft Facility with a limit of $3,400,000. Interest at the base rate less 0.75% per annum is charged monthly. The facility is reviewed on an annual basis. At 30 June 2021, the Company had available $3,400,000 of undrawn overdraft facilities. In addition, there is an Electronic Payments Facility with a limit of $300,000. At 30 June 2021, charged monthly. The facility is reviewed on an annual basis. At 30 June 2021, the Company had available $3,400,000 of undrawn overdraft facilities. In addition, there is an Electronic Payments Facility with a limit of $300,000. At 30 June 2021, the Company had available $300,000 under this facility. The Company complied with all banking covenants during the undrawn overdraft facilities. In addition, there is an Electronic Payments Facility with a limit of $300,000. At 30 June 2021, the Company had available $300,000 under this facility. The Company complied with all banking covenants during the financial year. the Company had available $300,000 under this facility. The Company complied with all banking covenants during the financial year. financial year. The bank overdraft and commercial facility are secured by a registered first mortgage over the assets and undertakings The bank overdraft and commercial facility are secured by a registered first mortgage over the assets and undertakings of the Company. The bank overdraft and commercial facility are secured by a registered first mortgage over the assets and undertakings of the Company. of the Company. Financing facilities available Financing facilities available Financing facilities available At balance date, the following financing facilities had been negotiated and were available: At balance date, the following financing facilities had been negotiated and were available: At balance date, the following financing facilities had been negotiated and were available: 2021 ($) 2021 ($) 2021 ($) 2020 ($) 2020 ($) 2020 ($) Total facilities Total facilities Total facilities • Overdraft Facility • Overdraft Facility • Overdraft Facility • Commercial Facility • Commercial Facility • Commercial Facility • Electronic Payments facility • Electronic Payments facility • Electronic Payments facility • Commercial Card Facility • Commercial Card Facility • Commercial Card Facility Facilities used at balance date Facilities used at balance date Facilities used at balance date • Overdraft Facility • Overdraft Facility • Overdraft Facility • Commercial Facility • Commercial Facility • Commercial Facility • Commercial Card Facility • Commercial Card Facility • Commercial Card Facility Facilities unused at balance date Facilities unused at balance date Facilities unused at balance date • Overdraft Facility • Overdraft Facility • Overdraft Facility • Commercial Facility • Commercial Facility • Commercial Facility • Electronic Payments facility • Electronic Payments facility • Electronic Payments facility • Commercial Card Facility • Commercial Card Facility • Commercial Card Facility Total facilities Total facilities Total facilities • Facilities used at balance date • Facilities used at balance date • Facilities used at balance date • Facilities unused at balance date • Facilities unused at balance date • Facilities unused at balance date 3,400,000 3,400,000 3,400,000 6,500,000 6,500,000 6,500,000 300,000 300,000 300,000 50,000 50,000 50,000 10,250,000 10,250,000 10,250,000 - - - 6,500,000 6,500,000 6,500,000 47,969 47,969 47,969 6,547,969 6,547,969 6,547,969 3,400,000 3,400,000 3,400,000 - - - 300,000 300,000 300,000 2,031 2,031 2,031 3,702,031 3,702,031 3,702,031 6,547,969 6,547,969 6,547,969 3,702,031 3,702,031 3,702,031 10,250,000 10,250,000 10,250,000 3,400,000 3,400,000 3,400,000 7,400,000 7,400,000 7,400,000 300,000 300,000 300,000 50,000 50,000 50,000 11,150,000 11,150,000 11,150,000 - - - 7,400,000 7,400,000 7,400,000 47,226 47,226 47,226 7,447,226 7,447,226 7,447,226 3,400,000 3,400,000 3,400,000 - - - 300,000 300,000 300,000 2,774 2,774 2,774 3,702,774 3,702,774 3,702,774 7,447,226 7,447,226 7,447,226 3,702,774 3,702,774 3,702,774 11,150,000 11,150,000 11,150,000 The carrying value of plant and equipment held under hire purchase contracts at 30 June 2021 is $670,738 (2020: The carrying value of plant and equipment held under hire purchase contracts at 30 June 2021 is $670,738 (2020: $4,073,063). Additions during the year include $202,944 (2020: $575,786) of plant and equipment held under hire The carrying value of plant and equipment held under hire purchase contracts at 30 June 2021 is $670,738 (2020: $4,073,063). Additions during the year include $202,944 (2020: $575,786) of plant and equipment held under hire purchase contracts. $4,073,063). Additions during the year include $202,944 (2020: $575,786) of plant and equipment held under hire purchase contracts. purchase contracts. NOTE 16: LEASE LIABILITIES NOTE 16: LEASE LIABILITIES NOTE 16: LEASE LIABILITIES 30 June 2021 30 June 2021 30 June 2021 Current liabilities Current liabilities Non-current liabilities Current liabilities Non-current liabilities Non-current liabilities Reconciliation Reconciliation Reconciliation Balance at 1 July 2020 Balance at 1 July 2020 Principal repayments Balance at 1 July 2020 Principal repayments Principal repayments Closing balance Closing balance Closing balance The average lease term to expiry is 8 years. The average lease term to expiry is 8 years. The average lease term to expiry is 8 years. 46 | veem limited Page 41 Page 41 Page 41 Premises Premises $ Premises $ $ 1,312,232 1,312,232 11,558,461 1,312,232 11,558,461 11,558,461 12,870,693 12,870,693 12,870,693 Premises Premises Premises $ $ $ 14,128,424 14,128,424 (1,257,731) 14,128,424 (1,257,731) (1,257,731) 12,870,693 12,870,693 12,870,693 Total Total $ Total $ $ 1,312,232 1,312,232 11,558,461 1,312,232 11,558,461 11,558,461 12,870,693 12,870,693 12,870,693 Total Total Total $ $ $ 14,128,424 14,128,424 (1,257,731) 14,128,424 (1,257,731) (1,257,731) 12,870,693 12,870,693 12,870,693 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 16: LEASE LIABILITIES (cont’d) Underlying assets serve as security for the related lease liabilities. A maturity analysis of future minimum lease payments is presented below: Lease payments due 30 June 2021 Net present values Interest Lease payments <1 year $ 1,312,232 423,552 1,735,784 1-5 years $ 6,215,113 1,191,923 7,407,036 >5 years $ 5,343,348 274,306 5,617,654 Total $ 12,870,693 1,889,781 14,760,474 Total cash outflow relating to leases for the period ended 30 June 2021 was $1,725,397 of which $1,257,731 related to principal payments, $467,666 related to interest. NOTE 17: PROVISIONS Current Employee benefits Advertising and Marketing After-sales costs Non-Current Commissioning costs Lease Restoration Employee benefits (i) Balance at beginning of year Net movements Balance at the end of year - Current 2021 ($) 2020 ($) 1,124,204 10,000 707,931 1,842,135 53,206 100,929 154,135 1,107,730 - - 1,107,732 - 100,929 100,929 2021 ($) 2020 ($) 1,107,730 16,473 1,124,203 1,022,878 84,852 1,107,730 (i) The provision for employee benefits represents long service leave entitlements accrued. Provision for Restoration Balance at beginning of year Net movements Balance at the end of the year - Non-current NOTE 18: ISSUED CAPITAL 100,929 - 100,929 - 100,929 100,929 2021 ($) 2020 ($) 130,000,000 (2020: 130,000,000) Ordinary shares issued and fully paid 5,140,616 5,140,616 Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. There were no movements in ordinary shares on issue during the year (2020:Nil) Page 42 veem limited | 47 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 18: ISSUED CAPITAL (cont’d) Share options During the year the Company had a share-based payment Incentive Option Scheme which provided that the Board of the Company may, from time to time, in its absolute discretion, make an offer to any Eligible Participant to apply for Options, upon the terms set out in the Incentive Option Plan and upon such additional terms and conditions as the Board determined. In exercising that discretion, the Board may have regard to the following (without limitation): (i) (ii) (iii) (iv) The Eligible Participant’ s length of service with the Company; The contribution made by the Eligible Participant to the Company; The potential contribution of the Eligible Participant to the Company; or Any other matter the Board considers relevant. No options to subscribe for the Company's shares were granted during the period. There were no options on issue at balance date. Subsequent to year end, equity instruments were issued under this plan – refer Note 22. NOTE 19: FINANCIAL INSTRUMENTS Capital risk management The Company manages its capital to ensure it will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Company consists of debt, cash and cash equivalents and equity attributable to equity holders of the Company, comprising issued capital and retained earnings. The Company is not subject to externally imposed capital requirements. Operating cash flows are used to maintain and expand operations, as well as to make routine expenditures such as tax, dividends and general administrative outgoings. Gearing levels are reviewed by the Board on a regular basis in line with its target gearing ratio, the cost of capital and the risks associated with each class of capital. Categories of financial instruments Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Borrowings – Bill Facility Hire purchase liability Lease liability Financial risk management objectives 2021 ($) 2020 ($) 2,233,076 9,820,535 3,618,166 9,471,613 7,494,592 6,500,000 719,288 12,870,693 5,400,652 7,400,000 1,513,497 14,128,424 The Company is exposed to market risks (including foreign currency risk, fair value risk and interest rate risk), credit risk and liquidity risk. 48 | veem limited Page 43 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 19: FINANCIAL INSTRUMENTS (cont’d) Foreign currency risk management The Company undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. A large portion of the USD and GBP exposures are reduced by the Company’s operations having a natural hedge with materials purchased and sold in the same currency, with the major exposure being to the US Dollar exchange rate. The Company’s exposure is to US Dollar (USD), Euro (EUR), and Great British Pound (GBP) debtors and creditors currency fluctuations. USD • • EUR • • GBP • • Impact of a 5% increase to profit or loss Impact of a 5% decrease to profit or loss Impact of a 5% increase to profit or loss Impact of a 5% decrease to profit or loss Impact of a 5% increase to profit or loss Impact of a 5% decrease to profit or loss Cash ($) Receivables ($) Payable ($) Total Asset /(Liability) ($) 1,394,051 1,859,988 76,572 211,167 311,723 3,979 27,592 680,905 612,572 3,177,730 (158,886) 158,886 518,911 (25,946) 25,946 95,925 4,796 (4,796) The Company’s sensitivity to foreign exchange has not changed significantly from the prior year. Propeller sales are denominated 32% in USD, 10% in GBP and 6% in EUR hence increases in propeller sales will increase exposure to USD exchange rate movements As all gyrostabilizer sales are in USD, and only part of the costs provides a natural hedge, the exposure to USD will increase in line with gyrostabilizer revenue increases. The Company’s activities expose it primarily to the financial risk of changes in foreign currency exchange rates. To negate some of this risk the Company has embarked on a global supply program for the procurement of all appropriate goods that form part of its manufactured products. This includes, but is not limited to, the supply of sub-components, individual parts and consumable products used in production and stock items. The Company also considers forward contracts and other derivative financial instruments as a way to manage currency risk. At 30 June 2021 there were no forward contracts in place (2020: Nil). The Company also manages market risk generally by keeping abreast of factors affecting its market on a continual basis. Business improvement practices continually evolve. Interest rate risk management The Company is exposed to interest rate risk as it borrows funds at both fixed and floating interest rates. The risk is managed by the Company by maintaining an appropriate mix between fixed and floating rate borrowings. The Company’s exposures to interest rate risk on financial assets and financial liabilities are detailed in the interest rate risk sensitivity analysis section of this note. Interest rate risk sensitivity analysis The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments at the balance date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. A 50 basis point increase or decrease has been used when reporting sensitivity to interest rate risk as this represents management’s assessment of the change in interest rates. If interest rates had been 50 basis points higher or lower throughout the year, and all other variables were held constant, the Company’s net profit would increase by $36,000 and decrease by $36,000 (2020: $4,401) respectively. This is completely attributable to the Company’s exposure to interest rates on its variable rate borrowings. The Company’s sensitivity to interest rates has remained relatively steady during the current period as interest rates have only increased slightly which was offset by the Company having less variable rate debt instruments. Page 44 veem limited | 49 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 19: FINANCIAL INSTRUMENTS (cont’d) Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties, and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company only transacts with entities that are rated the equivalent of investment grade and above. This information is supplied by independent rating agencies where readily available and, if not available, the Company uses publicly available financial information and its own trading record to rate its major customers. The Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by management annually. The Company does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. Where commercially sensible and available, VEEM Ltd takes out credit insurance against its overseas receivables. The carrying amount of financial assets recorded in the financial statements, net of any allowance for losses, represents the Company’s maximum exposure to credit risk without taking account of the value of any collateral obtained. Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board of Directors, who have built an appropriate liquidity risk management framework for the management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in note 15 is a listing of additional undrawn facilities that the Company has at its disposal as part of its management of liquidity risk. The following table details the Company’s expected contractual maturity for its non-derivative financial liabilities. These have been drawn up based on undiscounted contractual maturities of the financial liabilities based on the earliest date the Company can be required to repay. The tables include both interest and principal cash flows. 30 June 2021 Non-interest bearing – Trade and other payables Fixed interest rate – Hire purchase liabilities Fixed interest rate – Lease liabilities Variable interest rate – Bill facility and bank overdraft 30 June 2020 Non-interest bearing - Trade and other payables Fixed interest rate – Hire purchase liabilities Fixed interest rate – Lease liabilities Variable interest rate – Bill facility and bank overdraft Fair value measurement % 4.4 3.45 2.01 % 4.4 3.45 1.89 1 year or less $ 1–5 years $ 7,494,592 295,552 1,735,784 1,200,000 10,725,928 1 year or less $ 5,400,652 1,041,420 1,218,474 900,000 8,560,546 - 423,735 7,407,036 5,300,000 13,130,771 1–5 years $ - 553,270 5,827,659 6,500,000 12,880,929 5+ years $ - - 5,617,653 - 5,617,653 5+ years $ - - 7,082,321 - 7,082,321 The directors consider that the carrying value of the financial assets and liabilities as recognised in the financial statements approximate their fair values. Hire purchase commitments The Company has hire purchase contracts for various items of plant and machinery. These contracts have terms of renewal but no purchase options and escalation clauses. Renewals are at the option of the specific entity that holds the lease. 50 | veem limited Page 45 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 19: FINANCIAL INSTRUMENTS (cont’d) Future minimum payments under hire purchase contracts together with the present value of the net minimum contract payments are as follows: Hire purchase commitments payable - within one year - after one year but not more than five years Minimum hire purchase payments Less: Unexpired charges Present value of net minimum lease payments Represented by: Current Non-current Capital commitments 2021 ($) 2020 ($) 295,552 423,735 719,287 (48,550) 670,737 269,153 401,584 670,737 1,041,420 553,270 1,594,690 (81,193) 1,513,497 996,831 516,666 1,513,497 At 30 June 2021 the Company had $3,972,965 of capital commitments (2020: $128,034). NOTE 20: RELATED PARTY DISCLOSURE The Company’s related parties include key management personnel and their related entities as described below. The aggregate compensation for Directors and other key management personnel of the Company are set out below: Short-term employee benefits Other long-term benefits Key management personnel transactions 2021 ($) 2020 ($) 1,047,872 82,396 1,130,268 894,631 71,223 965,854 The Company has two lease agreements with Voyka Pty Ltd, an entity controlled by an entity related to Mr Mark Miocevich and Mr Brad Miocevich. The Company pays Voyka Pty Ltd current monthly rent of $143,783 monthly excluding GST which is exclusive of any outgoings including rates, taxes, insurance premiums and maintenance costs. The leases end in 2029 and are on commercial terms. There was one related party of Mr Brad Miocevich employed in the business during the year on normal commercial terms. Lumos Marketing, which is owned by a related party of Mr Mark Miocevich, provided $68,303 of marketing services to the Company on normal commercial terms. NOTE 21: AUDITOR’S REMUNERATION The auditor of VEEM Limited is HLB Mann Judd. Audit or review of the financial statements Tax compliance services Other services 2021 ($) 2020 ($) 83,500 39,900 1,500 124,900 65,975 30,200 - 96,175 Page 46 veem limited | 51 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2021 NOTE 22: SUBSEQUENT EVENTS No matters or circumstances have arisen since the end of the financial year which have significantly affected or may significantly affect the operating of the Company, the results of those operations, or state of affairs of the Company in future financial years apart from those listed below: 1. On 24 August 2021 the Company declared an unfranked ordinary dividend of $585,000 representing $0.0045 per share. 2. On 14 July 2021 the Company advised the ASX that its Incentive Option Plan had been expanded to the Incentive Performance Rights and Option Plan and that the Company had issued 150,000 Performance Rights under the Plan to its Chief Financial Officer, Mr David Rich. The issue was undertaken under the Company’s placement capacity pursuant to ASX Listing Rule 7.1 given the Plan is yet to be approved by shareholders of the Company. Details of the Plan and the issue are included in the ASX announcement on 14 July 2021. 3. On 26 July 2021 VEEM announced that BAE Systems Maritime Australia, head contractor for the Hunter Class Frigate Program (HCFP), had placed an order with VEEM to manufacture a pilot propeller blade for the HCFP. The order enables VEEM to demonstrate it has the manufacturing capability to join the HCFP supply chain. As a world leader in premium commercial propellers that has delivered similar blades to defence clients globally, VEEM is very confident it can meet the requirements of the HCFP. Contract award for the propeller and brake blade manufacture for the first batch of three Hunter class frigates is anticipated in 2022. 52 | veem limited Page 47 FINANCIAL STATEMENTS DIRECTORS’ DECLARATION 1. In the opinion of the Directors of VEEM Limited (the‘Company’): a. the accompanying financial statements and notes are in accordance with the Corporations Act 2001 including: i. ii. giving a true and fair view of the Company’s financial position as at 30 June 2021 and of its performance for the year then ended; and complying with Australian Accounting Standards, the Corporations Regulations 2001, professional reporting requirements and other mandatory requirements. b. c. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. the financial statements and notes thereto are in accordance with International Financial Reporting Standard s issued by the International Accounting Standards Board. 2. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with Section 295A of the Corporations Act 2001 for the financial year ended 30 June 2021. This declaration is signed in accordance with a resolution of the board of Directors. Mark David Miocevich Managing Director Dated this 24 August 2021 Page 48 veem limited | 53 FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT To the members of VEEM Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of VEEM Limited (“the Company”) which comprises the statement of financial position as at 30 June 2021, the statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Company is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the Company’s financial position as at 30 June 2021 and of its financial performance for the year then ended; and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Company in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (“the Code”) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report. PPaaggee 4477 54 | veem limited FINANCIAL STATEMENTS Key Audit Matter How our audit addressed the key audit matter Carrying amount of the intangible asset (product development expenditure) Note 12 of the financial report The Company has an intangible asset in relation to capitalised expenditure on the development of gyroscopic stabilizers. The development expenditure of $15.3 million is considered to be a key audit matter, given the size of the balance, as well as the specific criteria that have to be met for capitalisation. In addition, determining whether there is any indication of impairment requires management judgment and assumptions which are affected by future market or economic developments. Revenue recognition Note 2 of the financial report The Company has two distinct categories of revenue being revenue with performance obligations recognised at a point in time and revenue obligations recognised over time. performance with We focused on this area as a key audit matter due to the number and type of estimation events that may occur over the course of a contract life, leading to complex and judgemental revenue recognition and the direct impact on profit. Our procedures included but were not limited to the following: - We assessed the recognition criteria for this intangible asset by challenging the key assumptions used and estimates made in capitalising development costs, including management’s assessment of the the stage of development phase and the accuracy of costs included; the project in - We considered management’s assessment of whether any indicators of by impairment understanding the business rationale for projects and performing reviews for indicators of impairment; present were - We ensured management applied an appropriate amortisation method and amortisation period to this finite life intangible; and - We assessed the adequacy of the Company’s disclosures in the financial report. Our procedures included but were not limited to the following: - We examined and tested the Company’s key controls over revenue and related work-in-progress; - We assessed a sample of the Company’s key contracts to determine if we concurred with management’s assessment of performance obligations, the transaction price and any contract liabilities that may arise, the allocation of to transaction price, and when the recognise revenue, either at a point in time, or over time; - For a sample of contracts designated for over time recognition, we assessed the of accuracy and methodology recognising profit at the stage of completion at balance date; - We substantiated revenue transactions on a sample basis by agreeing the transaction to the customer’s contract, purchase order, sales invoice, delivery docket, customer certification report, and bank receipt, where relevant; PPaaggee 4488 veem limited | 55 FINANCIAL STATEMENTS tested - We the appropriateness of progress claims on a sample basis; and - We assessed the adequacy of the Company’s disclosures in the financial report. Information other than the financial report and auditor’s report thereon The directors are responsible for the other information. The other information comprises the information included in the Company’s annual report for the year ended 30 June 2021, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Company to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: - Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. - Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. - PPaaggee 4499 56 | veem limited FINANCIAL STATEMENTS - - Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the remuneration report We have audited the Remuneration Report included within the directors’ report for the year ended 30 June 2021. In our opinion, the Remuneration Report of VEEM Limited for the year ended 30 June 2021 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. HLB Mann Judd Chartered Accountants Perth, Western Australia 24 August 2021 N G Neill Partner PPaaggee 5500 veem limited | 57 FINANCIAL STATEMENTS SHAREHOLDER INFORMATION Additional information required by the Australian Securities Exchange Ltd Listing Rules and not disclosed elsewhere in this report. This information is current as at 10 September 2021. TWENTY LARGEST SHAREHOLDERS Rank Name Units % Units VEEM CORPORATION PTY LTD NATIONAL NOMINEES LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED BOND STREET CUSTODIANS LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED UBS NOMINEES PTY LTD CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMS PTY LTD BNP PARIBAS NOMINEES PTY LTD BOND STREET CUSTODIANS LIMITED ANACACIA PTY LTD BOND STREET CUSTODIANS LIMITED HONNE INVESTMENTS PTY LIMITED BNP PARIBAS NOMINEES PTY LTD 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 WEEWAC PTY LTD 16 17 17 19 20 BOND STREET CUSTODIANS LIMITED BOND STREET CUSTODIANS LIMITED BOND STREET CUSTODIANS LIMITED ACRES HOLDINGS PTY LTD REDBROOK NOMINEES PTY LTD Totals: Top 20 holders of ordinary fully paid shares Total Remaining Holders Balance Total Shares on Issue DISTRIBUTION OF EQUITY SECURITY HOLDERS 80,000,000 13,388,196 6,330,293 4,000,000 3,058,669 3,000,002 1,235,296 1,226,947 1,171,904 1,041,670 600,000 520,850 500,000 456,068 410,000 340,000 312,510 312,510 285,000 275,000 118,464,915 11,535,085 130,000,000 61.54 10.30 4.87 3.08 2.35 2.31 0.95 0.94 0.90 0.80 0.46 0.40 0.38 0.35 0.32 0.26 0.24 0.24 0.22 0.21 91.13 8.87 Range 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 Over Rounding Total Total holders 155 240 116 208 35 Units 88,759 695,502 944,589 7,419,549 120,851,601 754 130,000,000 % Units 0.07 0.54 0.73 5.71 92.96 -0.01 100.00 58 | veem limited shareholders SHAREHOLDER INFORMATION report. This information is current as at 10 September 2021. TWENTY LARGEST SHAREHOLDERS Additional information required by the Australian Securities Exchange Ltd Listing Rules and not disclosed elsewhere in this MARKETABLE PARCELS Number of shareholders holding less than a marketable parcel of ordinary shares is 35. Rank Name Units % Units VOTING RIGHTS Shareholder Information SHAReHOldeRS Every ordinary shareholder present in person or by proxy at meetings of shareholders shall have one vote for every share held. Option holders and Rights holders have no voting rights until the options or rights are exercised. SUBSTANTIAL SHAREHOLDERS The following shareholders are considered substantial shareholders: • • VEEM Corporation Pty Ltd ATF The Miocevich Family Trust 61.54% of the issued ordinary shares Perennial Value Management Limited 11.78% of the issued ordinary shares RESTRICTED SECURITIES There are no restricted securities. SHARE BUY BACKS There is no current on market share buyback. UNLISTED SECURITIES Total holders CORPORATE GOVERNANCE STATEMENT The Company’s 2021 Corporate Governance Statement is available on the Company’s website at www.veem.com.au. The unlisted securities of the Company as at 10 September 2021 comprise 150,000 performance rights. These are held by Mr David Rich, the Company's Chief Financial Officer and Company Secretary. The performance rights do not carry a right to vote at a general meeting of shareholders. VEEM CORPORATION PTY LTD NATIONAL NOMINEES LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED BOND STREET CUSTODIANS LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED UBS NOMINEES PTY LTD CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMS PTY LTD BNP PARIBAS NOMINEES PTY LTD BOND STREET CUSTODIANS LIMITED ANACACIA PTY LTD BOND STREET CUSTODIANS LIMITED HONNE INVESTMENTS PTY LIMITED BNP PARIBAS NOMINEES PTY LTD 15 WEEWAC PTY LTD BOND STREET CUSTODIANS LIMITED BOND STREET CUSTODIANS LIMITED BOND STREET CUSTODIANS LIMITED ACRES HOLDINGS PTY LTD 1 2 3 4 5 6 7 8 9 10 11 12 13 14 16 17 17 19 20 REDBROOK NOMINEES PTY LTD Totals: Top 20 holders of ordinary fully paid shares Total Remaining Holders Balance Total Shares on Issue DISTRIBUTION OF EQUITY SECURITY HOLDERS 80,000,000 13,388,196 6,330,293 4,000,000 3,058,669 3,000,002 1,235,296 1,226,947 1,171,904 1,041,670 600,000 520,850 500,000 456,068 410,000 340,000 312,510 312,510 285,000 275,000 118,464,915 11,535,085 130,000,000 61.54 10.30 4.87 3.08 2.35 2.31 0.95 0.94 0.90 0.80 0.46 0.40 0.38 0.35 0.32 0.26 0.24 0.24 0.22 0.21 91.13 8.87 Range 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 Over Rounding Total 155 240 116 208 35 754 Units 88,759 695,502 944,589 7,419,549 120,851,601 130,000,000 % Units 0.07 0.54 0.73 5.71 92.96 -0.01 100.00 veem limited | 59 22 Baile Rd, Canning Vale WA 6155 Telephone: +61 8 9455 9355 Email: Website: veem@veem.com.au www.veem.com.au /veem_ltd @ veemltd 60 | veem limited DIRECTORS’ REPORT

Continue reading text version or see original annual report in PDF format above