Varroc Engineering Ltd Management Discussions

Economic Environment

Global Economic Overview1

The world economy demonstrated resilience in CY 2024, growing at 3.3%, while navigating a complex environment characterised by divergent trends across regions and chronic structural issues. The global economy was characterised by uneven growth, with advanced economies witnessing uneven growth performances, while emerging markets, especially in South Asia, exhibited relative strength. Geopolitical uncertainties and changing trade patterns magnified the underlying vulnerabilities, leading to increased instability and potential economic disruptions.

Global inflationary pressures showed signs of easing, while certain services markets continued to show resistance due to price stickiness. Global CPI inflation declined from 6.6% in CY 2023 to 5.7% in CY 2024. Central banks across the world attempted to balance disinflationary gains against persisting macroeconomic uncertainties and thus adopted piecemeal approach to monetary policy. Geopolitical crises, such as rising trade barriers and strategic competition, further challenged global integration, causing companies to focus on supply-chain resilience and regionalisation.

The US economy grew at 2.8% supported by strong consumer demand, continued innovation and a tight labour market. Europes economies witnessed subdued growth as major economies like Germany and France battled political and economic uncertainties. Geopolitical turmoil in the Middle-East and Eastern Europe continues to impact the region in exacerbating issues such as persistently high energy prices, competition from Chinese exports and supply chain disruptions. In contrast, Emerging and Developing Asia showcased an impressive growth of 5.3% driven by rapid industrialisation, technological advancements and infrastructural investments.

Overall, the year highlighted the widening gap between economies harnessing technological innovation and those, hindered by structural constraints and political volatility.

Outlook

Despite rising uncertainties around world trade order, global economy is projected to witness modest growth of 2.8% in CY 2025 and 3% in CY 2026. Disinflationary trends are expected to persist with the average CPI inflation projected at 4.3% for the CY 2025. This will allow the central banks more freedom to adopt softer monetary policies to drive economic activity. The continued expansion of energy production in the US and other OPEC nations continue to exert downward pressure on prices, providing additional impetus to disinflation.

Trade policy uncertainty emanating from the US continues to weigh on investor sentiment leading to increasing long-term bond yields and driving capital outflow from the economy. Global economies are expected to counter the impact of tariffs through enhanced cooperation and realignment of supply chain. In a fragmented economic landscape, the emergence of trade blocs might provide new opportunities for facilitator economies to thrive within the evolving trade dynamics.

India Economic Overview 2

Indias economy demonstrated great resilience in the context of challenging global economic conditions with a growth rate of 6.5% in FY 2024-25. The growth was supported by the rise in exports and robust rural demand. Headline Consumer Price Index (CPI) inflation averaged at 4.7% for the year, staying within the Reserve Bank of Indias (RBI) target band of 2-6%.

The Government of Indias key programmes, such as the Production Linked Incentive (PLI) scheme and a higher infrastructure outlay of C10.2 trillion, are aimed at stimulating business activities across the country. India managed to maintain its fiscal deficit in the range of 4.4% to 4.5% of GDP, providing the government with greater leeway to increase expenditure and boost domestic demand.

The RBI implemented prudent monetary measures to counter liquidity stress in the banking sector, including a C1.5 trillion liquidity injection. The RBI also reduced interest rates from 6.5% to 6.25% in February and further to 6% in April, aiming to increase liquidity and stimulate private sector investment.

Although growth slowed from 9.2% in FY 2023-24 to an estimated 6.5% in FY 2024-25, India continues to rank as one of the worlds fastest-growing large economies supported by strong domestic demand and focused economic policies.

Outlook

The manufacturing sector, after a second quarter slowdown and moderate recovery, is expected to rebound, driven by positive investor sentiment. Investment activity is also expected to remain buoyant driven by the accommodative stance of the RBI. The income tax relief for salaried individuals, announced in the Union Budget FY 2025-26, is projected to enhance discretionary spending thereby boosting demand for white goods and mobility. The passing of core inflation shocks along with the accelerated urbanisation in tier 3 and 4 cities is also expected to drive consumption in the economy.

A favourable policy environment and elevated domestic demand is expected to attract increased FDIs, amid an uncertainglobaleconomiclandscape.Withtheprojections for global growth and trade volume dampening, Indian manufacturers might shift focus to reviving domestic demand. Given the strong growth of emerging and developing Asia, regional trade partnerships can play a key role in helping India navigate the challenging trade environment.

Indias real GDP growth (in %)

Industry Overview

Global Automotive Industry3

As global supply chain challenges showed signs of easing, car sales reached 74.6 million units in 2024, representing a 2.5% increase year-on-year. During the year, regional markets experienced growth divergence owing to localised factors.

China remained the largest contributor to global car sales accounting for ~31% of the total global sales. Governments tax incentives succeeded in driving a strong recovery in car sales in the final quarter of 2024, leading to nearly 23 million units sold marking a 2.6% year-on-year increase.

Europe sold 16.1 million cars, growing by 3.9% y-o-y, driven by strong exports. In contrast, growth within the EU itself was much more subdued, as is evident in the new car registrations rising only 0.8% y-o-y to around 10.6 million units.

North America showed resilience in 2024, despite increased economic and political uncertainty, registering a 3.8% growth. The US, the regions largest market, saw a 3.1% rise, bringing total sales to 12.7 million units. The final quarter saw a sales boost amid concerns over the new administrations promise to eliminate federal incentives.

Asia experienced mixed response. Japan saw a 7% decline in car sales in 2024 due to the gradual withdrawal of subsidies and the persistently weak Yen drove demand slowdown and increased the cost of imports. South Korea, another key automotive producer also witnessed a 5.1% decline driven by political uncertainty and inflation concerns.

Indias two-wheeler segment witnessed modest recovery, with demand supported by a festive season and improving rural sentiment. Two-wheeler exports also rebounded, benefiting from stabilised global freight costs and stronger trade flows. Meanwhile, the three-wheeler market achieved record sales levels, driven by surging demand for last-mile connectivity and the increasing popularity of electric three-wheelers in urban logistics.

Outlook

The implementation of additional tariffs on automotives by the US is expected to have a notable impact on the domestic price of vehicles, causing a slowdown in demand. Further, with dwindling exports across sectors, other economies are expected to witness appreciation of their local currencies. This will in turn reduce their export competitiveness. As a result, production of automobiles is expected to experience a decline in the short-term. Although, a respite from tariffs, in the form of subsidies for auto component imports has opened horizons for shifting of some manufacturing units to the US.

Tailwinds are represented by the growing demand for Electric Vehicles (EVs) and Hybrid Electric Vehicles (HEVs), prompting Original Equipment Manufacturers (OEMs) to undertake major investments to increase EV manufacturing capacity by 2030, most of which will be dedicated to the manufacture of new electric vehicle models. One of the major drivers of this growth is the projected fall in lithium-ion battery prices. By 2025, the price of lithium-ion batteries is projected to drop below $100 per kilowatt-hour, spurred by improved manufacturing processes, increased economies of scale and stabilised raw material prices.4

Indian Automotive Industry5

India is the worlds third-largest passenger vehicle market, following China and the US, with a third position in light vehicle sales and fourth position in light vehicle manufacturing. During FY2024-25, the Indian automotive sector grew by 7.3% in domestic sales while exports accelerated 19.2%, marking strong global demand and increasing competitiveness in India. Sales of passenger vehicles increased to an unprecedented high of 4.3 million units, although witnessing only a modest increase of 2% due to high base effect of the previous year. The growth was led by utility vehicles that now comprise 65% of PV sales. Passenger vehicle exports also recorded an all-time high figure of 0.77 million units, increasing 14.6%, driven by demand from Latin America and African region.

Two-wheeler sales rose by 9.1% to 19.6 million units, driven by strong rural demand and launch of new models, with electric two-wheelers now accounting for more than 6% of sales. Two-wheeler exports surged by 21.4% reaching 4.2 million units. Three-wheeler sales reached an all-time high of 741,420 units, growing 6.7% y-o-y, driven by growth in passenger sub-segments and increasing demand for last-mile mobility, while exports increased 2.3%.

The adoption of electric mobility across both categories continues to accelerate, with electric two-wheelers gaining traction in urban and semi-urban markets due to affordability, incentives and improved charging infrastructure. Electric three-wheelers witnessed strong growth, transforming the shared mobility landscape in many cities. OEM-led innovations, supportive government policies and increasing consumer awareness are collectively driving a shift towards cleaner and more efficient transport solutions

Commercial vehicles sales saw a marginal decline of 1.2%. However, bus sales received a boost from infrastructure projects and exports grew by 23%. Combined EV registrations totalled 1.97 million units (16.9% increase), driven by high growth in electric two and three wheelers with the help of government programmes such as PM E-DRIVE and PM e-Sewa. Overall, the industrys momentum is driven by robust demand, investment in infrastructure, facilitating policies and a transition toward green mobility.

Outlook

The automotive sector enters FY 2026 with guarded optimism. Two-wheeler demand is likely to gain from increased Minimum Support Prices (MSP), driving rural consumption. However, persistent financing issues may temper growth. The rise in the adoption of electric vehicles is expected to impact the market share of low-end two-wheelers, as consumers move towards eco-friendly mobility solutions.

Commercial vehicle sales are expected to experience moderate growth, depending on the tempo of infrastructure activity and the ease of credit availability. In passenger vehicles, new model launches, festive and wedding season demand and aggressive discount campaigns are expected to drive sales. Auto dealers are optimistic that consistent product supply, targeted advertising and continuing government incentives will contribute to industry momentum.

With just 38 vehicles per 1,000 people, the penetration rate is low, but its growth prospects are high, drawing global automotive manufacturers to the sector. The light vehicle production capacity in the country is anticipated to grow to 10 million by 2031, indicating the long-term growth potential of the industry.6

Global Auto-Components Industry7

Global auto-components industry is valued at over $2.1 trillion in 2024.8 The market is witnessing transformative growth driven by new technologies and alternative powertrains. The enhanced demand for Advanced Driver Assistance Systems (ADAS), infotainment and connectivity solutions across vehicle categories is projected to drive the automotive electronics market to grow to ~$500 Bn by FY2030.

Besides electronification, the industry is also experiencing elevated demand for electrification. In 2025, BEVs, HEVs and PHEVs collectively form ~36% of the new light vehicle sales- a share projected to surge to ~79% by 2035.

Evolving geopolitics is shifting the existing global supply chains and forging new trade partnerships. The impact of tariffs is expected to put pressure on exporters like China which will look toward opportunities for reshoring.

India Auto-Components Industry9

Indias auto components industry has served as a backbone in fuelling the growth of the countrys manufacturing, delivering a Compound Annual Growth Rate (CAGR) of approximately 8% from FY14 to a market size of about $75 billion in the year 2024. The sector provides employment opportunities for more than 5 million individuals each year and contributes significantly to Indias manufacturing GDP.10

A key enabler of this long-term growth has been the industrys shift toward localisation, with domestic suppliers now meeting 70% of the domestic automobile industrys needs. Over the past decade, the industry has evolved its export profile, from basic commodity components to complex, technology intensive parts. This has helped to boost Indias international competitiveness, with international OEMs and Tier-1 vendors sourcing more from Indian suppliers. Exports have recorded strong growth as a result of the concerted industry efforts, friendly government policies and a focused thrust on export competitiveness.

Despite these achievements, Indias contribution to the worlds auto component trade is still at around 2%, underlining a massive untapped opportunity. By taking advantage of structural shifts like higher electronification, vehicle electrification and supply chain diversification, India has the potential to emerge as a top global supplier. With the right strategy and support, the sector aims to achieve $100 billion in exports, cementing Indias status as a leading global supplier.

Key Growth Drivers

Demand for Connectivity and Safety Features

Demand for connectivity features including IoT and cloud connected vehicles and advanced safety features have grown in recent years.

Rise in Discretionary Income

Recent policy measures in India and rapid technological advancement worldwide have contributed to a noticeable rise in discretionary spending, driven by factors like rising disposable incomes, increasing influence of younger demographics and expanding credit access.

Localisation

OEMs are focusing on localising production, developing cost efficiencies and forming partnerships to accelerate innovation.

New Product Offerings

The auto-components industry has continually expanded its product offerings on the back of strong innovation leading to demand expansion.

Rising Exports

India has focused on driving export growth through targeted policy initiatives promoting local manufacturing and simplifying business environment.

Demand for Sustainable Solutions

Circular economy initiatives are gaining ground in the automotive sector, as manufacturers ramp up the use of recycled plastics and bio-based composites in vehicle manufacturing sector.

Company Overview

Varroc Engineering Ltd is a global tier-1 automotive component group. It was incorporated in 1988. The group manufactures and supplies E-mobility solutions, Body systems solutions, Lighting solutions, HMI solutions, ICE powertrain and Advanced electronics to leading OEMs with end-to-end capabilities across design, development and manufacturing for two-wheeler, three-wheeler, passenger vehicles, commercial vehicle, and off-highway vehicle worldwide. Its strong aftermarket division serves customers in over 27 countries.

With robust R&D capabilities and global technological collaborations, Varroc develops products that drive major trends in automotive mobility- making it safer, smarter, more sustainable and increasingly connected. Based in Aurangabad, India, Varroc has 37 manufacturing plants, 7 R&D labs and more than 6,100 employees. With more than three decades of dedication to excellence, Varroc is a preferred partner for global automotive OEM leaders. The Company has filled more than 125 patents. The Company is a listed entity with the BSE and NSE in India.

Technology

The automotive sector is swiftly transitioning towards electrification, with electric and hybrid vehicles gaining popularity worldwide. Vehicles are becoming increasingly software-defined, enabling over-the-air updates, personalised features and seamless integration with connected ecosystems. Adoption of ADAS, AI-powered safety features and autonomous driving technologies are making vehicles safer and smarter. Connectivity througRs. 5G and vehicle-to-everything (V2X) communication is transforming automobiles into interactive, data-driven platforms.

Technology for Two-Wheelers

The two-wheeler segment is rapidly evolving with advanced safety systems such as ABS, traction control and rider assistance, becoming standard. Electric two-wheelers are witnessing a surge, driven by improvements in battery technologies such as solid-state and lithium-sulphur types that offer longer range, faster charging and enhanced safety. Connectivity is a major trend, with IoT-enabled dashboards, GPS, real-time diagnostics and mobile app integration becoming standard. Safety is enhanced through advanced ABS, traction control and collision detection systems. Artificial intelligence is enhancing riding experience and predictive maintenance, while design innovations focus on both aesthetics and sustainability.

Technology for Four-Wheelers

Four-wheelers are advancing with high-performance electric vehicles offering extended range and ultra-fast charging capabilities. Software-defined vehicles support continuous updates and feature enhancements, while semi-autonomous driving features such as adaptive cruise control, lane-keeping assistance and automated emergency braking systems are becoming mainstream. Enhanced connectivity enables real-time navigation, predictive maintenance and seamless integration with smart city infrastructure, thereby enriching driving experiences.

Product Portfolio Expansion

The Company is expanding its product portfolio by developing innovative, cost-effective proprietary solutions, investing in R&D, moulding strategic technology partnerships. By leveraging accredited research facilities, it focuses on next-generation automotive technologies aimed at improving overall safety, connectivity and efficiency. During the fiscal year, the Companys overseas business added two new products, the interior ambient lighting and front & rear drive inverters for EVs. In India, company also added technological advanced products both in ICE and EV vehicle with products like Integrated Starter Generator (ISG) and Battery Management System (BMS) respectively.

Business Review

The company operates through two distinct business , Business I and Business II, each offering a wide range of products and services tailored to evolving market needs. Business I focuses on

1. E-Mobility Solutions:- Varroc is driving the future of electric mobility with high-performance, energy-efficient solutions for 2W and 3W EVs. With expertise in traction motors, controllers, and DC-DC converters, we optimize battery efficiency for greater range

2. ICE Powertrain:- Our portfolio includes transmission gears, crankshafts, camshafts, connecting rods, generators, and motors, catering to two-wheelers, commercial vehicles, and off-highway applications.

3. Body System Solutions:- We provide painted parts, molded components, and functional polymers for 2W, 3W, 4W, and commercial vehicles. We have 13 locations in India, 2 R&D center and 1 tool room.

4. Lighting solutions:- Our expertise spans LED, Matrix, and Xenon technologies, focusing on lightweight, energy-efficient designs that enhance safety and aesthetics for botRs. 2 Wheeler and 4 Wheeler

5. HMI Solutions:- Our customizable TFT displays, smart TCU for real-time tracking and remote diagnostics, iTPMS for optimal tire pressure, and high-precision sensors and switches ensure a seamless, responsive, and intelligent riding experience.

6. Aftermarket Division:- State of the art 160,000 sq ft warehouse with over 8000 SKUs, 40 Product lines, 700+ distributors across 30 counties. In aftermarket we supply Electrical, Electronics, Lighting, Metallic, Polymer parts, Engine Parts, Lubricants, Consumables and Accessories.

The manufacturing of Business-I is mainly concentrated in India across 8 states witRs. 27 locations.

Business II in focused mainly into Electronics and Lighting systems serving global OEMs with a strong presence in Europe and Asia.

1. Electronics solutions:- Manufacturing Facility in Romania, China, India & Vietnam with R&D Centres in Poland, Germany, China & India. Its focus area is on ADAS, Driver Monitoring Systems, Surround View Systems, Telematics, Advanced Infotainment systems & other 4W electronics product lines. These can be further categorised in various electronics product group i.e.

a. EMS:- EMS includes:-

i. High Voltage Electronics PCBA

ii. Low Voltage Electronics PCBA

b. ADAS:- Level 0 to level 2 that can be achieved by using 1 Video 1 Radar & 1 Video 3 Radar fusion

c. Fleet Management Solutions:- Fleet Management solutions enabled through regular & video telematics

d. Advanced Infotainment system:- Entertainment, communication, and navigation features in a vehicle along with

i. Surround View System

ii. Cabin Monitoring System

iii. Telematic Control Unit

2. Global Lighting Solutions:- Three manufacturing facilities located in Italy, Romania and Vietnam

• R&D Centers in Poland, Italy, China and Vietnam

• Global supplier of exterior lighting systems for 2W and 4W PV OEMs

SWOT Analysis

Strengths

The Company enjoys cost-competitive manufacturing in India underpinned by vertical integration of electrical production and DSIR-accredited R&D facilities. Its overseas presence in Europe and Asia for market access amplifies its strength, while the IoT-enabled testing infrastructure enhances quality and efficiency. Dominant capabilities for EV components like traction motors and battery management systems complement global electrification trends. Strategic alliances with OEMs and Tier-1 suppliers strengthens its position in high-growth markets like two-wheelers and sustainable mobility.

Weaknesses

Reversibility to cyclical automotive demand makes it vulnerable to market fluctuations and excessive debt tightens financial flexibility. Inadequate localisation of key EV components, like battery cells enhances import dependence. Difficulty in operations in Europe, with increased labour costs and regulatory complexities, squeezes margins. Local distributor and counterfeit competition in international markets reduce brand equity.

Opportunities

The growing adoption of EVs across Europe and India present opportunities in traction motors, controllers and telematics solutions. Indias Product Linked Incentives (PLI) scheme is encouraging domestic manufacturing of high-tech components, strengthening the supply chain and reducing import dependence. Aligning with global OEM needs, a shift toward premium and connected vehicle segments offer further growth potential. Innovation in sustainable materials and circular economy operations can lower both production costs and environmental footprints. Strategic partnerships with European automakers would help improve export competitiveness in high-value markets.

Threats

Geopolitical tensions and trade restrictions upset supply chains, as evident in Red Sea routing delays and tariff wars. Tougher emission regulations in Europe require expensive technology upgrades. Uncertainties in commodity prices and currency fluctuations can undermine margin stability. Fierce competition from Chinese suppliers, who account for 12% of the worlds auto component trade, undermines market share. Economic slowdowns in major markets such as the EU and the US can suppress the demand for OEM components.

Outlook

Our future growth is being shaped by four transformative trends: electric vehicle (EV) adoption, premiumization, increasing electronics integration, and advanced automotive lighting. As EVs gain momentum, we are adapting our product portfolio to support EV-specific components. The rising demand for premium features is driving greater content per vehicle, boosting our value-added offerings. Vehicles are evolving into intelligent systems with embedded electronics, and we are enhancing our capabilities to align with this shift. Lighting, now a key differentiator in both safety and styling, presents another area of growth where we are well-positioned to lead.

The Indian auto ancillary sector is on the brink of a multi-decade growth cycle. Companies focused on innovation, scale, and global integration—like Varroc Engineering—are poised to lead this transformation. Looking ahead, we remain optimistic yet disciplined, with continued investments in automation, product innovation, and strategic global partnerships. We are ready to seize opportunities in emerging areas such as electric mobility, connected vehicles, and ADAS technologies.

Our commitment remains firm: to deliver long-term, sustainable value to all our stakeholders—customers, employees, partners, and you, our shareholders.

Financial Overview

Abridged Consolidated Profit and Loss (Continuing Operations)

H in Million

Particulars	FY 2025	FY 2024	YoY	FY 2023	YoY
Revenue from Operations	81,541	75,519	8.0%	68,912	9.6%
Raw Material Cost including change in Inventories	52,092	47,333	10.1%	44,305	6.8%
Employee Cost	8,877	8,092	9.7%	7,173	12.8%
Other Expenses	12,804	12,504	2.4%	11,685	7.0%
Finance Cost	1,702	1,939	-12.2%	1,903	1.9%
Depreciation & Amortisation (D&A) expense	3,233	3,368	-4.0%	3,367	0.0%
Exceptional item	1,473	-	-	-	-
Share of Profit/(Loss) from the Joint Ventures	37	444	-91.7%	53	737.7%
Profit (loss) before Tax	1,693	3,149	-46.2%	829	279.9%
Profit after Tax	697	5,530	-87.4%	388	1,325.3%

Key financial ratios (consolidated continuing operations)

Particulars	March31, 2025	March31, 2024	March31, 2023
Debtors Turnover Ratio	13.92	13.87	12.36
Inventory Turnover Ratio	7.40	7.04	6.89
Interest Service Coverage Ratio	4.76	4.36	3.21
Current Ratio	0.77	0.79	0.62
Gross Debt Equity Ratio	0.59	0.79	1.63
Return on Capital Employed	20.8%	20.3%	11.9%
Operating Margin	5.6%	5.8%	3.5%
Net Profit Margin	0.9%	7.3%	0.6%
Return on Net Worth	4.4%	36.2%	3.9%

Revenue from operations

The Companys consolidated revenue from operations changed to C 81,541 million in FY 2025 up by 8.0% from C 75,519 million in FY 2024.

Raw material

Raw material cost (cost of material consumed+changes in stock of finished goods and work-in-progress) for operations has changed by 10.1% to C 52,092 million in FY 2025 as compared to C 47,333 million in FY 2024.

Employee cost

In FY 2025, the employee benefit expenses were at C 8,877 million as compared to C 8,092 million in FY 2024 recording a change of 9.7%.

Finance Cost

Finance Cost has reduced by 12.2% to C 1,702 million in FY 2025 as compared to C 1,939 million in FY 2024.

Depreciation and Amortisation (D&A) expense

Depreciation and amortisation reduced by 4.0% from FY 2024 to FY 2025. The absolute depreciation and amortisation expense stood at C 3,233 million for FY 2025 as compared to C 3,368 million in FY 2024.

Other expenses

The other expenses have changed from C 12,504 million in FY 2024 to C 12,804 million in FY 2025.

Profit/(loss) before tax for operations (PBT)

The PBT in FY 2025 was C 1,693 million as compared to C 3,149 million in FY 2024.

Profit/(loss) after tax for operations (PAT)

In FY 2025, the group reported profit after tax of C 697 million as compare to profit reported in FY 2024 of C 5,530 million which were supported favourably by deferred tax credit.

Net Debt

Net debt for FY 2025 was C 7,480 million as compared to C 9,828 million in FY 2024.

Net worth

Net worth of the Group in FY 2025 was C 15,979 million as compare to C 15,262 million in FY 2024.

Research and Development

The Company considers innovation as critical to sustaining the competitive advantage. It lays strong emphasis on research and development to expand its product portfolio and drive innovation. Utilising seven technical centres in India, China, Italy, Romania, and Poland, the Group has established strong in-house R&D capabilities. Having filled more than 120+ patents globally, it continuously explores new avenues to innovate mobility solutions.

Expecting significant growth in the automotive industry-driven by changing consumer tastes, technological innovation and increasing government investment-the Group is enhancing its engineering and software development capabilities. Its aim is to provide cost-efficient products designed for major markets. Leveraging its core competencies, the Group hopes to address changing end-user requirements and become the first choice partner for domestic and international OEMs. Being an early development partner, it offers integrated, end-to-end solutions to ensure smooth implementation and delivery.

Human Resource

The Company deployed Microsoft HoloLens 2 devices to technical teams, enabling interactive 3D visualization of complex assemblies, and pilot productions reduced assembly-line training times for new employees by 40%.

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Internal Control Systems and their Adequacy

The Company has developed robust internal controls and systems, sized to its size and complexity, to facilitate seamless operations. Its Internal Audit department takes a proactive approach, identifying key areas for review to enhance efficiency and maximise resource utilisation. Audit procedures test compliance with all relevant laws and regulations and the Audit Committee approves flexible audit plans to enable timely management assistance. Each function and plant is covered thoroughly with audit, observations carefully monitored and status reports communicated promptly to management. Significant findings and remedial action are then laid out to the Audit Committee, along with action on their closure.

Cautionary Statement

The content within this document pertains to forecasts regarding future events and financial outcomes for Varroc Engineering Limited and should be viewed as forward looking. Given the nature of such statements, they are based on certain assumptions and are subject to inherent risks and uncertainties. There is a notable risk that these assumptions and predictions may not prove accurate. Readers are advised against placing excessive reliance on forward-looking statements as various factors could lead to differences between the assumed and actual future results and events. Therefore, this document is subject to a disclaimer and is qualified in its entirety by the assumptions, qualifications and risk factors outlined in Varroc Engineering Limiteds Annual Report for FY 2025.