Verbrec : Chairman & MD AGM Address to Shareholders

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After a wide-ranging first quarter review of the business, and the environment in which it operates, we streamlined our operations into three distinct service offerings across the entire asset lifecycle: Engineering Services, Infrastructure Services and Training Services. The clear delineation of our service offerings has allowed us to focus on key growth initiatives both organic and by M&A. Our strategy of adding scale and geographic spread to these service offerings both organically and by M&A will continue.

Our Engineering Services division, with strengths across Digital Industry, Power, Pipelines and Asset Management is delivering repeat work for a Tier 1 client base.

Improved economic activity in the resources sectors driven by higher energy prices, sustainable iron ore prices, and the mini-boom associated with battery materials have all contributed to an uptick in demand for Engineering and Infrastructure Services. The record work in hand position is testament to some excellent business development work by our executive team. Confidence has returned to our key mining and oil & gas clients after FY21 lows, positioning Verbrec well into FY22.

Our Infrastructure Services division has grown significantly in size and capability following the acquisition of EIM. This division provides operations and maintenance services to asset owners of critical energy infrastructure via long dated operations and maintenance agreements and ad-hoc integrity services. Since the start of this financial year it has won several significant operations and maintenance contracts along with several brownfield asset modification projects, demonstrating its strong market position.

Our Training Services division has also grown significantly in size, capability and geographical footprint following the acquisition of Site Skills training. This division provides high risk and hazardous area training from locations throughout Australia. With a labour shortage in growth sectors such as mining, energy and infrastructure this division has an important role to play in

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Managing Director's Address to Annual General Meeting

I would first like to thank our shareholders for joining us today and extend my gratitude to my fellow Board members and all Verbrec Team members for their hard work and support this year.

Following my appointment as your Managing Director in October 2020, we have executed

1. number of strategic changes and with record work-in-hand, commercialization of StacksOnTM and a substantially reduced overhead cost base that ensures we are in the strongest position possible to deliver value for shareholders in future years.

Because of this strong work-in-hand our revenues have increased significantly, and we expect that to continue on in to the second half. As such we are currently forecasting FY22 revenues in the range of $110m to $125m with potential upside if some significant prospects actively being pursued are awarded to us in the near-term.

Before I go into the reasons why we expect a strong rebound, Iet me explain FY21's performance.

FY21 was challenging for many, us included, due to the lingering impacts of COVID-19 and extended lockdown periods in various parts of Australia. As previously reported, and as Phillip touched on, our FY21 results were also adversely affected by three poor performing legacy projects.

Two of these projects, both bid several years ago prior to the merger of OSD and LogiCamms, aimed at upgrading control systems for major water utility companies have each suffered significant delays and cost-overruns. As previously advised, we have outstanding multi-million dollar claims in relation to additional costs we have already incurred on one of these projects.

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These claims continue to be vigorously pursued with the proceeds to be recognized as revenue and margin when received.

A third, gas infrastructure project, was tendered far too aggressively in Q4FY20 when the uncertainties surrounding the impact of COVID-19 were at their greatest. During this half we renegotiated some commercial terms of this contract which has improved revenue and cash-flow, but it does continue to deliver poor margins and will continue to do so until it is completed at, or around, Christmas this year.

As Phillip mentioned, we successfully implemented a new IT system, this system is already delivering efficiency gains with improved project performance reporting and is expected to continue to deliver ongoing efficiency gains across the business for years to come. We now have one common system across the whole business that tracks schedule and productivity performance of our projects; tracks our pipeline of opportunities and manages our people and finances.

To improve project delivery, particularly as we experience growth, we undertook a thorough review of our processes and systems and bolstered the management team with the appointment of Matt Cooper as Chief Operating Officer in late FY21. More recently we strengthened local management in Western Australia and Queensland with the appointment of experienced industry professionals, Riaan Carstens as GM West and Iain Denholm as GM East.

Excluding the three poor-performing legacy projects, underlying gross margins were strong at 32.5% in FY21 compared to 31% in FY20. By renegotiating several historic office leases, we realized $1.2 million per annum in real estate overhead savings, bringing total annualized overhead savings since the merger of OSD and LogiCamms to $5.0 million.