VEEM’s Profit Surges 2H Amid $65m Submarine Contract Boost

• FY25 revenue declined 15% to $68.6 million
• Second half EBITDA rose 36%, NPAT doubled versus first half
• Secured six-year $65 million ASC Collins Class submarine contract extension
• Achieved approved supplier status with Huntington Ingalls for Virginia Class submarines
• Invested $3.9 million in capital and $4.1 million in R&D, supported by $3 million in defense grants

A Year of Two Halves

VEEM Limited (ASX – VEE), a specialist in marine propulsion and stabilisation systems, reported a mixed FY25 performance marked by a 15% decline in revenue to $68.6 million compared to the previous year. However, the company’s second half showed a notable rebound, with revenue increasing 4% over the first half, EBITDA climbing 36%, and net profit after tax doubling.

This turnaround was largely attributed to aggressive cost reduction initiatives implemented late in 2024, alongside operational efficiencies gained through automation and economies of scale. VEEM’s management highlighted these measures as key to restoring profitability momentum after a slower start to the year.

Defence Contracts Anchor Future Growth

The FY25 results were significantly impacted by the cyclical nature of defence contracts, particularly the Collins Class Submarine sustainment program managed by ASC Pty Ltd. Revenue from ASC dropped sharply by 60% year-on-year to $6.5 million. Yet, VEEM secured a crucial six-year contract extension worth $65 million with ASC, announced shortly after the fiscal year-end, which is expected to boost revenue notably in FY26.

Adding to its defence credentials, VEEM achieved approved supplier status with Huntington Ingalls Incorporated Newport News Shipbuilding (HII-NNS) for the Virginia Class Nuclear Powered Submarine program. This milestone opens the door to new contract opportunities in the US submarine industrial base, with requests for quotes anticipated in the first half of FY26.

Product Lines and Investment Drive Stability

VEEM’s propulsion segment, including fixed pitch propellers and shaftlines, maintained steady revenue at $35 million, nearly flat compared to the record FY24. Demand for its world-leading propellers remains strong, supported by new customer wins and expanded scopes with existing clients.

Gyrostabilizer sales declined due to the prior year’s accelerated Strategic Marine order but showed a strong second half recovery with a 90% increase over the first half. Engineering products and services also grew modestly by 4%, reflecting solid ongoing demand.

Capital expenditure of $3.9 million focused on robotics and product improvements, while $4.1 million was invested in research and development to sustain VEEM’s technological edge. Defence grants totaling $3 million further supported sovereign capacity building initiatives.

Financial Position and Outlook

Cash flow from operations fell 49% year-on-year to $4.3 million but improved 39% in the second half, underpinning the company’s ability to repay debt and reinvest. VEEM also increased its trade loan and overdraft facilities to enhance financial flexibility amid forecast growth.

Managing Director Mark Miocevich expressed cautious optimism, noting the stronger second half results and the company’s ongoing growth trajectory since its 2016 IPO. The combination of contract wins, supplier approvals, and operational efficiencies positions VEEM well for the year ahead, though the cyclical nature of defence contracts remains a factor to watch.

Bottom Line?

VEEM’s FY25 rebound and strategic contract wins set the stage for a potentially stronger FY26, but cyclical defence demand keeps investors alert.

Questions in the middle?

• How will the $65 million ASC contract extension translate into revenue timing and margins in FY26?
• What impact will the new supplier status with HII have on VEEM’s US defence market penetration?
• Can VEEM sustain its cost reduction gains and efficiency improvements beyond FY25?