All the expenses seem fairly stable except for COGS, which has depressed their EBIT/NPAT. The reason they gave is higher initial cost of production of the gyros which should come down in subsequent years. If that is the case, it should lift profit in "subsequent years"
Cost of sales
The Forecast Financial Information assumes that there will be no material change in the cost of purchasing raw materials and consumables, direct materials, direct labour and other manufacturing related expenses such as energy, consumables, and repairs. The increase from 50% of revenue in FY16 to 56% in FY17 is a function of the higher initial cost of production of the VEEM Gyros which the Company expects to reduce in subsequent years. VEEM assumes a gross margin realised for major manufacturing divisions based on historical trends plus a review of any expected changes in production costs that may have an impact on the forecast period. VEEM has made significant efforts in recent years to develop a global supply chain. Part of the reasoning for this is to create a natural hedge for sales denominated in USD. In relation to FY17 VEEM is not expected to be materially impacted by fluctuations in the AUD/USD exchange rate. Historically, the impact of fluctuations in currencies in which VEEM trades have not been material.
