Analysis and Commentary

EOS lines up cash and credit to fund growth

Analysis and Commentary

By Peter Roberts

Defence, space and communications manufacturer Electro Optic Systems has beefed up its finances achieving a net cash balance of $42.2 million as at June 30 as it expands to cater for a raft of major new orders.

On 30 June the Canberra company received a $17.2 million tax refund from the federal government and subsequently provided a $16.2 million security deposit to establish $22.2 million of new bank guarantee facilities to support near term growth.

EOS was punished by the sharemarket during Covid because of parts shortages and delays in delivering equipment, as well as over-exposure to its now-halted SpaceLink satellite venture in the United States.

Shares crashed from a high of $6.70 in Dec 2020, and though they have been recovering slowly this year, closing up 8.8 percent to close on Friday at $0.805, they are nowhere near their earlier levels.

Since then it has received a raft of orders including a $120 million contract to supply its Australian-made remotely operated weapons systems (RWS, pictured) to Ukraine which allow troops to aim and fire machine guns, canon and missiles from inside the safety of an armoured vehicle.

A second $61 million contract for Ukraine soon followed as did another $51 million contract to supply a ‘western European government’.

Also in June EOS subsidiary EM Solutions signed a $150 million contract to upgrade the Royal Australian Navy’s SATCOM systems across its existing fleet of vessels, sparking a major expansion for the Brisbane company.

Electro Optic Systems has seen a change in leadership and exited itts satellite venture in the US, indicating a more sales rather than company development focus for the future.

It also renegotiated delivery dates for its biggest ever contract for RWS systems worth $450 million and believed to be with the United Arab Emirates. This helped it overcome its Covid supply chain disruptions.

In Q2 EOS receipts from customers were $61.1 million, bringing half year receipts to June 30to $123.2 million. This was up from the previous corresponding period’s $74.5 million, according to a market update from Chief Executive Officer Andreas Schwer.

In the next half EOS expects to receive $51 million (Eur32 million) from sales to the new western European customer

According to the statement: “EOS continues to target improved cash flows.

“Future cash flows are expected to include benefits arising from actions completed to date, including the Q4 termination of the SpaceLink venture, the Q4 2022 $25 million cost reduction programme and the increased management focus on improving cash flows from customer contracts.

“The group is also maintaining a disciplined approach to costs and capex.”

The two sales to Ukraine worth $181 million are conditional on successful demonstrations being completed, which will occur in Q3.

As EOS’s RWS systems are installed on Australian Bushmasters which have also been supplied to Ukraine, this is unlikely to be an issue.

Further reading:
Celebrating Australian sovereign capability – the Covid woes and revival of Electro Optic Systems
EOS weapons systems invading the Ukraine battlefield
EM Solutions signs $150 million defence satellite communications contract

Peter Roberts has a financial interest in Electro Optic Systems.

Picture: Electro Optic Systems

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