eLectro optic systeMs HoLDings LiMiteD
acn 092 708 364
www.eos‑aus.com
2018
annUaL report
contents
corporate Directory
1
Review of Operations
5 Directors’ Report
18 Auditors’ Report
24 Directors’ Declaration
25 Consolidated Statement of Profi t or Loss and
Other Comprehensive Income
26 Consolidated Statement of Financial Position
27 Consolidated Statement of Changes in Equity
29 Consolidated Statement of Cash Flows
30 Notes to and forming part of the Financial Statements
81 ASX Additional Information
82 Twenty Largest Ordinary Shareholders
Directors
Share Registry
Mr Fred Bart (Chairman)
Computershare Investor Services Pty Limited
Dr Ben Greene (Chief Executive Offi cer)
Level 3, 60 Carrington Street
Mr Ian Dennis
Lt Gen Peter Leahy AC
Air Marshall Geoff Brown
Ms Kate Lundy
Company Secretary
Mr Ian Dennis
Registered Offi ce
Suite 3, Level 12
75 Elizabeth Street
Sydney NSW 2000
Australia
Telephone +61 2 9233 3915
Facsimile +61 2 9232 3411
Web site www.eos‑aus.com
Telephone 1300 855 080 or +61 3 9611 5711
Sydney NSW 2000
GPO Box 7045
Sydney NSW 1115
Australia
outside Australia
Facsimile 1300 137 341
Auditors
Deloitte Touche Tohmatsu
Chartered Accountants
8 Brindabella Circuit
Brindabella Business Park
Canberra Airport ACT 2609
Australia
4947 Designed and Produced by RDA Creative www.rda.com.au
review of operations
1. RESULTS FOR FULL‑YEAR ENDING 31 DECEMBER 2018
The consolidated entity (“EOS”) reported an operating profit after tax of $15,081,372 for the 12 month
period to 31 December 2018 [31 December 2017: $9,399,930 loss] based on revenues totalling $87,130,396
[31 December 2017: $23,259,794].
The consolidated entity reported net cash used by operations for the 12 month period totalling $15,686,202
[31 December 2017: $25,949,693]. At 31 December 2018, the consolidated entity held cash totalling $40,538,225
[31 December 2017: $9,989,953]. Cash of $119,025 [31 December 2017: $119,025] is restricted as it secures bank
guarantees relating to performance on some contracts.
The operating profit after tax represents strong performance against all prior expectations, but requires expansion.
The overall result was made up of four elements:
A. Foreign Exchange Gains (Defence Segment):
B. Defence Segment Profit;
C. Space Segment Loss:
D. Unallocated Holding Company Loss:
Total
$7.7 million
$10.1 million
($2.2 million)
($0.5 million)
$15.1 million
EOS exports over 95% of current production and export contracts are generally denominated in US currency.
The value of the Australian dollar fell from US$0.7805 at 31 December 2017 to US$0.7052 at 31 December 2018 and
EOS consolidated entity booked foreign exchange gains of $7,712,222 (31 December 2017: $695,061 ‑ losses) during the
full‑year period ended 31 December 2018.
The foreign exchange gains arose in the normal course of business as a result of performance bonds and cash reserves
held in US currency, and currency exchange as revenue was received.
The operating profit after tax of $15.1 million included foreign exchange gains of $7.7m and is stronger than
previously forecast. The table below shows the result in the context of earlier guidance.
$ millions
Foreign Exchange Gains
Defence Sector Operating profit
Space Sector Operating Loss
Unallocated Holding Company Loss
Full Year Result
Forecast March
2018
Forecast August
2018
Segment Result
Dec 2018
0
8.9
(3.8)
‑
5.1
3.8
10.1
(3.8)
‑
10.1
7.7
10.1
(2.2)
(0.5)
15.1
The key elements in the evolution forecasts to results are:
■ Foreign exchange gains progressively increased through 2018;
■ Space sector performance was better than expected, with losses for 2018 settling at 60% of original expectations;
■ Defence sector performance progressively improved throughout 2018, ultimately exceeding initial expectations
by 14%; and
■ Holding Company losses, previously allocated to operating sectors, falling at $0.5 million over the full year.
The individual sector performances are further discussed below.
1
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 review of operations (cont)
2. EOS DEFENCE SYSTEMS
New Product Development
EOS Defence sector delivered a very strong performance
in 2018. The full year result of $10.1 million profit is
14% higher than the expectation of $8.9 million in early
2018 and is consistent with the $10.1 million expected in
Q3 2018 when forecasts were last revised.
This result was due to gradual performance
improvement through 2018, and is particularly creditable
because it was achieved during execution of a strategic
process with a focus on longer term objectives.
The sector started the period with reasonable certainty
that sector revenue would approximately double in
2019 and so building a robust platform for sustainable
growth beyond 2018 was the highest priority. This priority
energised specific activities relating to human resources,
production processes, new sales and new products.
None of these activities were optimised for operational
performance in 2018 alone.
Human Resources
Initiating manufacture of a new product in a new
plant required double the number of production staff,
and training of all staff for new procedures, plant
and equipment.
As well as the expansion of staff for operations,
Defence sector leadership at executive and
management levels was significantly deepened
during 2018. The objective of this expansion was to
reduce performance risk going forward as revenue
doubles in 2019 and continues to grow into 2020.
This process has increased sector overhead costs,
but the increases are within expectations.
Production
The new production facility in Hume [ACT] is performing
ahead of expectations. A margin of 11.9% was achieved
with the plant operating at 55% capacity for the full year.
Production processes, documentation, supply chain
management, yield, and final quality all improved
significantly through the period. The improvements
achieved are substantial and are key factors driving
the full year sector result for 2018.
Further improvement is required because during
2019 new complexity will be added in the form of
new products, and specification variations on the
current product.
For the initial 1,000 units ordered of EOS’ revolutionary
R‑400S Mk2 weapon system, the product configuration
was frozen to reduce risk and accelerate production.
EOS now allows variants of this product to be ordered
and engineering resources are being expanded to
meet demand for these variants from existing and
new customers.
In September 2018 EOS launched the R‑150,
a lightweight remote weapon station, to the market.
This product has been well received. Further product
releases are imminent.
These key activities were addressed to form a basis for
further improvement in 2019, in the expectation of a
doubling of 2018 revenue for 2019. This objective has
been met.
3. EOS SPACE SYSTEMS
During this period EOS Space Sector executed its plan to
achieve the following:
A. Operational Scale and
International Credibility
EOS grew its operational space situational awareness
[SSA] capability, as a company, to a level exceeding
10,000 high precision space tracks each week from low
earth orbit to beyond geostationary orbit. This exceeds
the capability of all entities except the five most active
nations in space.
B. Performance
Long term, independent testing by the world leader
in SSA operations was completed. This formally
established the sensitivity, accuracy and applicable
range for the EOS capability. These factors met EOS
program objectives.
C. Scaling
Using 12 months of SSA operations at a scale exceeded
only by a few nations, the EOS capability has been
subject to technical reviews to increase performance
and reliability while reducing costs. This process
is undertaken in parallel with commercial contract
negotiations, because these involve tradeoffs among
price, performance and scale.
2
annUaL report 2018
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 review of operations (cont)
EOS has established that its sensors can achieve
sufficient throughput to meet customer data quantity
requirements at a reasonable price. Against a nominal
customer requirement of 100,000 space object tracks
per week, under all weather conditions, EOS has
deployed and operationally tested over many months at
10% of this scale.
Market demand is growing. At 1 February 2019 the
Company was participating in over $1.2 billion of
procurements globally. The conversion delay from
tenders to executed contracts is typically 18 months,
and around 25% of this pipeline is expected to convert
during 2019. A further $1 billion of tenders is expected to
be submitted by EOS during 2019 for new EOS products.
Margins
The full‑year result indicates a margin of 11.9% from
current products. Further improvement is possible
because in 2018 only 55% of nominal plant capacity
was used. Plant utilisation will increase to 90% of
nominal capacity in 2019. The US plant in Huntsville will
add capacity to meet new orders from customers not
presently serviced from the Hume plant. This is expected
from late in 2019.
The following key challenges for the Defence
Sector going forward are receiving close attention
by management:
■ Human Resources The skilled resource pool
is nearing exhaustion in the Canberra region.
The Company may have to establish an additional
site for operations.
■ Export Licenses This sector relies on the timely
release of export licenses for each customer,
usually by both Australia and the USA. This process
is becoming more complex.
■ Sovereign Risk and Customer Diversification
The sector now services seven customers.
The objective is for further diversification to
over 10 customers by 2020 to further reduce
sovereign risk.
■ US Program Delays The ramp up of production
from the US plant has been slowed in step with
delays to US defence procurements.
Considering all aspects, the outlook for the EOS Defence
Sector is very positive with business volume and margins
both expected to grow going forward.
EOS has successfully demonstrated compliance with
all customer and space industry requirements and
is now engaged in commercial discussions for data
supply contracts.
This activity was performed on time and well within the
allocated budget. The operating loss in this segment was
$2.2 million, or around 60% of the loss expected at the
commencement of the period.
4. FORECAST AND OUTLOOK
Defence
A strong positive outlook for the Defence Sector is based
on key performance metrics:
Revenue, Backlog
In 2018 revenue in this sector grew in excess of 200%
to $85 million, and the Company expects this to grow at
100% to exceed $170 million in 2019.
At 1 January 2018 EOS Defence Sector had a backlog
of undelivered orders and customer commitments of
around $581 million. At 1 January 2019 the contracted
order backlog exceeded $667 million.
The current backlog of $667 million is sufficient for the
sector to operate for almost two years from 2020 with
a revenue of $250 million, with no new sales added
from now. The Company expects that more sales will be
secured during 2019 and beyond.
Orders and Pipeline
Demand for EOS defence products is tracking ahead of
expectations. No competitor has yet offered a qualified
product into the market created by EOS with the
R‑400S weapon system. In 2018 EOS released its R‑150
lightweight weapon station which is expected to accrue
sales from late in 2019. New product launches will
continue in 2019. Each of these new products is designed
with strong market differentiation.
3
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 review of operations (cont)
Space
Full Year Forecast
EOS technology is creating a new market and somewhat
disrupting existing capabilities and arrangements in
space. This is the usual impact of new technology.
At this point there is no longer any question on the price
or performance of EOS’ technology, or its scalability.
The cost advantages of EOS’ approach are very
significant and likely to be essential to all customers the
Company is addressing.
EOS’ initial customers for space data are governments,
and negotiations for contracts have been prolonged.
This is partly caused because there are no direct
competitors so normal tendering processes are
not possible.
Discussions and negotiations with multiple government
entities are well under way.
The outlook for the EOS Space Sector remains positive,
and guidance is unchanged from earlier updates.
The Company expects profitable operations in this sector
from 2020.
Provided trading conditions remain close to current
settings, the Company now expects revenue to grow to
$170 million for 2019, with a profit expectation of around
$20 million for the full year to 31 December 2019.
The forecast assumes no change in the exchange rate
of AU$ against US$. However exchange rates can
be volatile and both gains and losses can arise from
normal operations.
Ben Greene
Chief Executive Officer
8 March 2019
4
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 Directors’ report
The directors of Electro Optic Systems Holdings Limited submit herewith the annual financial report of the company
for the year ended 31 December 2018. In order to comply with the provisions of the Corporations Act 2001, the directors
report as follows:
Directors
The names and particulars of the directors of the company during or since the end of the financial year are:
Name
Particulars
Fred Bart
Chairman (Age 64). He has been Chairman and Director of numerous public and private companies
since 1980, specialising in manufacturing, property, technology and marketable securities. Mr Bart
is a director of Immunovative Therapies Limited, an Israeli company involved in the manufacture
of cancer vaccines for the treatment of most forms of cancer. He is also Chairman of Audio Pixels
Holdings Limited and a director of Weebit Nano Limited. He is a member of the Remuneration
Committee. Appointed to the Board on 8 May 2000.
Dr Ben Greene BE (Hons), Phd in Applied Physics (Age 68) is the Chief Executive Officer of Electro Optic Systems.
Ian Dennis
Lt Gen Peter
Leahy AC
Dr Greene was involved in the formation of Electro Optic Systems. He is published in the subject
areas of weapon system design, laser tracking, space geodesy, quantum physics, satellite design,
laser remote sensing, and the metrology of time. Dr Greene is Deputy Chair of the Western
Pacific Laser Tracking Network (WPLTN) and has recently served as member of Australia’s Prime
Ministers Science, Engineering and Innovation Council (PMSEIC) and CEO of the Cooperative
Research Centre for Space Environment Management. Appointed to the Board on 11 April 2002.
BA, C.A. (Age 61) is a Chartered Accountant with experience as director and secretary in various
public listed companies and unlisted technology companies in Australia and overseas. He has been
involved in the investment banking industry and stockbroking industry for the past twenty five years.
Prior to that, he was with KPMG, Chartered Accountants in Sydney. Appointed to the Board on
8 May 2000. He is also director and company secretary of Audio Pixels Holdings Limited. He is a
member of the Audit Committee and Remuneration Committee. He is also company secretary of
Electro Optic Systems Holdings Limited.
Non‑executive director (Age 66). Appointed to the Board on 4 May 2009. Peter Leahy AC retired
from the Australian Army in July 2008 as a Lieutenant General in the position of Chief of Army.
Among his qualifications he holds a BA (Military Studies) and a Master of Military Arts and Science.
He is a Professor and the foundation Director of the National Security Institute at the University of
Canberra. He is a director of Codan Limited, Citadel Group Limited and a member of the advisory
board to Warpforge Limited. In other activities he is the Chairman of the charity Soldier On, the
Red Shield Appeal Committee in the ACT and the Australian International Military Games, which
brought the Invictus Games to Sydney in 2018. He is a member of the First Principles Review of
the Department of Defence, a member of the Advisory Council of China Matters and the Strategic
Defence Advisor ‑ Land and Chief Defence Advisor to the Queensland Government. He is Chairman
of the Audit Committee and Remuneration Committee.
Air Marshal
Geoff Brown AO
Non‑executive director (Age 60). Appointed to the Board on 21 April 2016. Geoff Brown AO retired
from the Royal Australian Air Force in July 2015 as Air Marshal in the position of Chief of Air Force.
Among his qualifications he holds a BEng (Mech), a Master of Arts (Strategic Studies), Fellow of the
Institute of Engineering Australia and is a Fellow of the Royal Aeronautical Society. He is a Director
of Lockheed Martin (Australia) Pty Limited, Chairman of the Sir Richard Williams Foundation and
Chairman of the Advisory Board of CAE Asia Pacific. He is a member of the Audit Committee.
5
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 Directors’ report (cont)
Name
Particulars
The Hon
Kate Lundy
(HonLittD,
GAICD)
Non‑Executive director (age 51) Appointed to the Board on 23 March 2018. Kate Lundy served as a
Senator representing the Australian Capital Territory from 1996 to 2015. During this time she held
various front bench positions in both Government and Opposition, including the Minister for Sport,
Multicultural Affairs and Assisting on Industry and Innovation and the Digital Economy.
Kate continues to be passionate about technology and innovation. Her focus is the positive impact of
technology on society, culture and the economy. In 2017, the Australian National University awarded
her a Doctor of Letters (honorary doctorate) for her “exceptional contributions to advocacy and
policy for information communications and technology, for the ACT and nationally.”
In 2017 Ms Lundy was inducted into the Pearcey Hall of Fame for “distinguished achievement
and contribution to the development and growth of the Information and Communication
Technology Industry”. The Pearcey Foundation is named in honour of Dr Trevor Pearcey,
an outstanding Australian ICT Pioneer, notable for his leadership of the project team that built one
of the world’s earliest digital computers, the CSIR Mark 1, later known as CSIRAC.
Kate is a non‑executive director of the Australian Grand Prix Corporation, the National Roads
and Motoring Association, the Cyber Security Research Centre and the National Youth Science
Forum. Kate is also a member of ACT Defence Industry Advisory Board and ACT Defence
Industry Ambassador.
The above named directors held office during and since the end of the financial year apart from Kate Lundy who was
appointed on 23 March 2018.
Directorships of Other Listed Companies
Directorships of other listed companies held by directors in the three years immediately before the end of the financial
year were as follows:
name
Fred Bart
Ian Dennis
Lt Gen Peter Leahy AC
Principal Activities
company
period of directorship
Audio Pixels Holdings Limited
Weebit Nano Limited
5 September 2000 to date
6 March 2018 to date
Audio Pixels Holdings Limited
5 September 2000 to date
Codan Limited
Citadel Group Limited
19 September 2008 to date
27 June 2014 to date
The principal activities of the consolidated entity are in the space and defence systems business.
The company is listed on the Australian Securities Exchange.
6
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 Directors’ report (cont)
Review of Operations
Subsequent Events
A detailed review of operations is included on
pages 1 to 4 of this financial report.
Changes to the State of Affairs
There was no significant changes in the state of affairs
of the consolidated entity that occurred during the
financial period.
Share Issues
On 6 February 2018, the Company announced a
placement of 10,471,434 new ordinary shares at $2.91 to
sophisticated and professional investor clients of Petra
Capital Pty Limited raising a total of $30.5m. These new
shares were allotted on 12 February 2018. These funds
were used for working capital and to lodge performance
bonds in respect of the new contract announced on
30 January 2018 and optimising the supply chain.
Additionally in the same announcement the Company
announced a further tranche of the placement of
10,147,123 new ordinary shares at $2.91 to sophisticated
and professional investor clients of Petra Capital
Pty Limited raising a total of $29.5m. These shares
were issued on 16 March 2018 following shareholder
approval at an Extraordinary General Meeting held on
13 March 2018 to refresh the 15% placement ability.
On 6 February 2018, the Company also announced a
Share Placement Plan to all existing shareholders
registered on 5 February 2018 at the same price
as the institutional placement of $2.91 to raise a
maximum of $5m. The Share Placement Plan closed
on 14 March 2018 raising $1.4m resulting in the issue
of 495,758 new ordinary shares on 21 March 2018.
The Directors decided not to place any further shares up
to the maximum of $5m.
The Company issued 5,180,000 new restricted fully
paid ordinary shares under the Loan Funded Share
Plan at an issue price of $2.99 on 20 June 2018 based
on the ‘Market Value’ which was determined as the
20 day volume weighted average price of Shares up to
and including the trading day immediately prior to the
date of issue (that is, the 20 most recent trading days
on the ASX). The issue of the 5,180,000 restricted fully
paid ordinary shares at $2.99 created loans to Directors
and staff under the LFSP of $15,488,200. Please refer to
Note 16 for further details.
There has not been any matter or circumstance that
has arisen since the end of the financial year, that has
significantly affected or may significantly affect the
operations of the consolidated entity, the results of those
operations or the state of affairs of the consolidated
entity in future financial years.
Deed of Cross Guarantee
On 29 March 2018, the parent entity, Electro Optic
Systems Holdings Limited entered into a deed of cross
guarantee with two of its Australian wholly‑owned
subsidiaries Electro Optic Systems Pty Limited and EOS
Defence Systems Pty Limited.
Future Developments
The company will continue to operate in the space and
defence systems business.
Please see the review of operations for further details.
Environmental Regulations
In the opinion of the directors the consolidated entity
is in compliance with all applicable environmental
legislation and regulations.
Dividends
The directors recommend that no dividend be paid and
no amount has been paid or declared by way of dividend
since the end of the previous financial year and up to the
date of this report.
Share Options
Share options granted to directors
and executives
No options were granted to any director or executive
during the year. On 20 June 2018 the Company issued
220,000 unlisted options under the Employee Option
Plan to overseas based employees at an exercise
price of $2.99 expiring on or before 31 March 2023.
These unlisted options have vesting conditions and
performance criteria similar to those ordinary restricted
shares issued under the Loan Funded Share Plan on
20 June 2018.
7
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 Directors’ report (cont)
Share options on issue at year end or
exercised during the year
The new ordinary shares issued under the LFSP were
issued to an employee share trust on behalf of the
following participants as follows:
There were 5,500,000 options at an exercise price of
$3.00 per share and 220,000 options at an exercise
price of $2.99 outstanding at year end. No options were
exercised during the year. The 5,500,000 options with an
exercise price of $3.00 expired on 31 January 2019 and
were not exercised.
There were no shares or interests issued during the
financial year as a result of exercise of an option.
Loan Funded Share Plan
Shareholders approved the issue of 5,180,000 restricted
ordinary shares on 24 April 2018 to directors, senior
executives and staff. The restricted ordinary shares were
issued on 20 June 2018 at a price of $2.99, being the
20 day volume weighted average price up to an including
the trading day immediately prior to the date of issue.
The Company provided an interest free loan to the
Directors and Employees to enable them to acquire the
shares under the Loan Funded Share Plan. The total
amount of the loan is $15,488,200.
Loan funds under LFSP are limited recourse in nature,
which means that if at the date that the loan becomes
repayable the Directors or Employees shares are
worth less than the outstanding balance of the loan,
the Company cannot recover the difference from the
Director or Employee. Interest will not be payable on the
outstanding balance of the loan.
All shares issued under the LFSP are held in an
employee share trust, on behalf of all participants.
The name of the Trust is Electro Optic Systems Holdings
Limited as trustee for the Share Plan Trust. All shares
under the LFSP are also subject to a holding lock until
all conditions and the loan are satisfied.
Mr Fred Bart (Chairman)
Dr Ben Greene (CEO)
Mr Ian Dennis
Mr Peter Leahy
Mr Geoffrey Brown
Ms Kate Lundy
Dr Craig Smith
Mr Grant Sanderson
Mr Peter Short
Mr Scott Lamond
Other Senior Employees
Total
200,000
2,000,000
200,000
200,000
200,000
200,000
3,000,000
250,000
250,000
250,000
250,000
1,180,000
5,180,000
The Shares issued to Directors will be subject to both
‘Vesting Conditions’ and ‘Forfeiture Conditions’. Directors
will be required to satisfy the Vesting Conditions in
order for their Shares to vest. While Directors hold their
Shares, they will be subject to Forfeiture Conditions
and Directors will forfeit their Shares if either they fail
to satisfy the Vesting Conditions or they cease to be
employed or continue to provide services to EOS or a
group company in certain circumstances.
Once the Vesting Conditions have been satisfied, removed
or lifted, the Shares become vested and Directors may
deal with them in accordance with the rules of the LFSP
subject to sale restrictions and other legal restrictions
(such as under the Company’s trading policy).
The Shares will vest at the end of each ‘Vesting Period’ in
the manner set out in the tables below, provided that the
following conditions are met:
(a) Directors continue to provide services to EOS on
each of the vesting dates (or such other date on
which the Board makes a determination as to
whether the Vesting Condition has been met); and
(b) the performance hurdles set out below are satisfied,
which relate to the Company’s earnings before income
tax (EBIT) and the Company’s share price. Notably,
EBIT and share price hurdles must both be achieved in
order for Shares to vest under each Tranche.
8
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 Directors’ report (cont)
To the extent Shares vest, they will be subject to sale restrictions for 6, 9, 12 and 15 months respectively as outlined in
the tables.
Measures and hurdles
Vested Shares can be sold after:
(i) EBIT of $5m for 12 months ending
31 December 2018; and
(ii) a Share Price Hurdle of $4.50 by 31 December 2019
(this hurdle must be reached on at least 30
trading days, not necessarily consecutive, by
31 December 2019)
30 June 2020
(25% of Vested Shares)
30 September 2020
(50% of Vested Shares)
31 December 2020
(75% of Vested Shares)
31 March 2021
(100% of Vested Shares)
Measures and hurdles
Vested Shares can be sold after:
(i) EBIT of $15m for 12 months ending
31 December 2019; and
(ii) a Share Price Hurdle of $7.50 by 31 December 2021
(this hurdle must be reached on at least 30
trading days, not necessarily consecutive, by
31 December 2021)
30 June 2022
(25% of Vested Shares)
30 September 2022
(50% of Vested Shares)
31 December 2022
(75% of Vested Shares)
31 March 2023
(100% of Vested Shares)
If the above Vesting Conditions are not satisfied, or if the Board determines that they cannot be satisfied, Directors will
forfeit their unvested Shares (unless the Board exercises its discretion to permit those Shares to vest in accordance with
the terms of the LFSP).
Directors have also imposed additional vesting conditions for Senior Employees under the terms of the LFSP which
specifically relate to the performance of their business sectors within EOS. These conditions as outlined in Note 16 are
in addition to the above vesting conditions for Directors.
Indemnification and Insurance of Officers and Auditors
During the financial year, the company paid a premium in respect of a contract insuring the Directors and Officers of the
Company and any related body corporate against a liability incurred as such a Director or Officer to the extent permitted
by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the coverage provided
and the amount of the premium. The Company has agreed to indemnify the current Directors, Company Secretary and
Executive Officers against all liabilities to other persons that may arise from their position as Directors or Officers of the
Company and its controlled entities, except where to do so would be prohibited by law. The agreement stipulates that
the Company will meet the full amount of any such liabilities, including costs and expenses.
The Company has not, during or since the financial year indemnified or agreed to indemnify an auditor of the company
or of any related body corporate against any liability incurred as such an auditor.
9
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 Directors’ report (cont)
Directors’ Meetings
The following table sets out the number of directors’ meetings (including meetings of committees of directors)
held during the financial year and the number of meetings attended by each director (while they were a director
or committee member). During the financial year, 12 Board meetings, two Audit committee meetings and no
Remuneration committee meetings were held.
Directors
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Lt Gen Peter Leahy AC
Air Marshal Geoff Brown AO
The Hon Kate Lundy
Board of directors
Audit committee
Remuneration committee
Held
Attended
Held
Attended
Held
Attended
12
12
12
12
12
7
12
12
11
12
12
7
‑
‑
2
2
2
‑
‑
‑
2
2
2
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Directors’ Shareholdings
The following table sets out each Director’s relevant interest in shares, restricted ordinary shares under the Loan
Funded Share Plan and options of the company or a related body corporate as at the date of this report.
Directors
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Lt Gen Peter Leahy AC
Air Marshall Geoff Brown AO
The Hon Kate Lundy
Fully paid ordinary
shares
Fully paid ordinary shares ‑
Loan Funded Share Plan
Unlisted Options
5,319,506
3,964,495
90,180
38,755
5,000
3,325
200,000
2,000,000
200,000
200,000
200,000
200,000
‑
‑
‑
‑
‑
‑
Movement in Director shareholdings during the 2018 are set out in the Remuneration Report.
The unlisted options were exercisable at $3.00 each and expired on 31 January 2019. The fully paid ordinary restricted
shares were issued on 20 June 2018 under the Loan Funded Share Plan at a price of $2.99 and are subject to vesting
and performance criteria.
10
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 Directors’ report (cont)
Remuneration Report (Audited)
The key management personnel of Electro Optic Systems
Holdings Limited during the year were:
Mr Fred Bart (Chairman, Non‑executive director)
Dr Ben Greene (Chief Executive Officer and director)
Mr Ian Dennis (Non‑executive director)
Lt Gen Peter Leahy AC (Non‑executive director)
Air Marshall Geoff Brown (Non‑executive director)
The Hon Kate Lundy (non‑executive director)
‑ Appointed 23 March 2018
Dr Craig Smith (Chief Executive Officer of
EOS Space Systems Pty Limited)
Mr Grant Sanderson (Chief Executive Officer
EOS Defence Systems Pty Limited)
Mr Scott Lamond (Chief Financial Officer
‑ Electro Optic Systems Pty Limited)
Mr Peter Short (Chief Operating Officer
‑ Electro Optic Systems Pty Limited)
This report outlines the remuneration arrangements in
place for Directors and Executives of the Group.
The Directors are responsible for remuneration policies
and packages applicable to the Board members and
executives of the Group. The Group has a separate
Remuneration Committee. The broad remuneration
policy is to ensure the remuneration package properly
reflects the persons duties and responsibilities.
Meeting of shareholders. An amount not exceeding
the amount determined is then divided between the
Directors as agreed. The latest determination was
at the Annual General Meeting held on 12 May 2017,
when shareholders approved a maximum aggregate
remuneration of $500,000 per year excluding options.
The amount of aggregate remuneration approved by
shareholders, the manner in which it is apportioned
amongst Directors, and the policy of granting options to
Directors, are reviewed by directors at least every two years.
Each Non‑Executive Director receives a fee for serving
as a Director of the Company. No additional fees are paid
to any Director for serving on a committee of the Board.
A company associated with Mr Ian Dennis receives a fee in
recognition of additional services provided to the Group.
Executive Director and Senior
Management remuneration
Objective
The Group aims to award Executives with a level and mix
of remuneration commensurate with their position and
responsibilities within the Group and so as to:
■ reward Executives for Group and individual
performance against targets set by reference to
suitable benchmarks;
■ align the interests of Executives with those of
shareholders; and
■ ensure that the total remuneration paid is
competitive by market standards.
Remuneration structure
Structure
In accordance with best practice corporate governance,
the structure of Non‑Executive Director and senior
manager remuneration is separate and distinct.
Non‑Executive Director remuneration
Objective
The Board seeks to set aggregate remuneration at a
level which provides the Company with the ability to
attract and retain directors of the highest calibre, whilst
incurring a cost which is acceptable to shareholders.
Structure
The Company’s Constitution and the Australian
Securities Exchange Listing Rules specify the
aggregate remuneration of Non‑ Executive Directors
shall be determined from time to time by a General
The remuneration paid to Executives is set with reference
to prevailing market levels and typically comprises a
fixed salary and option component. Options are granted
to Executives in line with their respective levels of
experience and responsibility. Details of the amounts
paid and the number of options granted to Executives are
disclosed elsewhere in the Directors’ Report.
Employment contracts
There are no employment contracts in place with any
Non‑Executive Director of the Group. Executive Directors
and Senior Management are employed under standard
employment contracts which contain no unusual terms.
Beyond accrued leave benefits, there are no other
termination payments or golden parachutes for any
directors or senior executives. The CEO has a 180 day
notice period under his employment contract and the
other senior management have 90 day notice periods
under their employment contracts.
11
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 Directors’ report (cont)
Remuneration Report (cont)
Director remuneration
The following tables disclose the remuneration of the directors of the Company:
Short term
Post Employment
Equity
Total
Salary &
Fees
$
Non‑
monetary
$
Superannuation
$
2018
Mr Fred Bart
Dr Ben Greene*
Mr Ian Dennis#
70,150
452,549
163,125
Lt Gen Peter Leahy AC
43,125
Air Marshall Geoff
Brown AO
The Hon Kate Lundy
43,125
33,171
‑
26,163
‑
‑
‑
6,664
39,405
4,097
4,097
4,097
3,235
Loan
Funded
Share
Plan
$
8,450
84,495
8,450
8,450
8,450
8,450
Other
Long
Term
Benefits
$
$
‑
87,365
Options
$
2,101
21,006
388,170
1,011,788
2,101
2,101
9,474
‑
‑
‑
‑
‑
177,773
57,773
65,146
44,856
805,245
26,163
61,595
126,745
36,783
388,170
1,444,701
* Executive Director during the financial year
# Includes fees for company secretarial and accounting consultancy services provided of $120,000 (2017: $120,000)
Short term
Post Employment
Equity
Total
2017
Mr Fred Bart
Dr Ben Greene*
Mr Ian Dennis#
Mr Mark Ureda
Lt Gen Peter Leahy AC
Mr Kevin Scully
Air Marshall Geoff
Brown AO
Salary &
Fees
$
Non‑
monetary
$
Superannuation
$
61,000
415,400
157,500
17,031
37,500
40,875
37,500
‑
26,163
‑
‑
‑
‑
‑
766,806
26,163
5,795
35,000
3,563
‑
3,563
‑
3,563
51,484
Loan
Funded
Share
Plan
$
‑
‑
‑
‑
‑
‑
‑
‑
Other
Long
Term
Benefits
$
$
‑
89,696
Options
$
22,901
229,012
41,787
747,362
22,901
22,901
22,901
22,901
‑
‑
‑
‑
183,964
39,932
63,964
63,776
41,847
‑
82,910
385,364
41,787
1,271,604
* Executive Director during the financial year
# Includes fees for company secretarial and accounting consultancy services provided of $120,000 (2016: $120,000)
Other long term benefits include annual leave and long service leave expensed during the year.
12
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 Directors’ report (cont)
Remuneration Report (cont)
Executive remuneration
No executives are employed by the holding company. The following table discloses the remuneration of the executives of
the consolidated entity:
Short term
Post Employment
Equity
Total
2018
Salary &
Fees
$
Non‑
monetary
$
Superannuation
$
Dr Craig Smith
Mr Scott Lamond
230,772
230,772
Mr Grant Sanderson
208,707
Mr Peter Short
227,218
897,469
‑
‑
‑
‑
‑
21,923
21,923
18,160
19,905
81,911
Loan
Funded
Share
Plan
$
9,646
10,562
10,253
10,562
41,023
Other
Long
Term
Benefits
$
34,659
26,857
14,660
10,607
Options
$
4,202
3,152
‑
‑
$
301,202
293,266
251,780
268,292
7,354
86,783
1,114,540
Short term
Post Employment
Equity
Total
2017
Dr Craig Smith
Mr Scott Lamond
Dr Warwick
Holloway
Salary &
Fees
$
Non‑
monetary
$
Superannuation
$
212,960
212,960
175,700
601,620
‑
‑
‑
‑
20,231
20,231
16,720
57,182
Loan
Funded
Share
Plan
$
‑
‑
‑
‑
Other
Long
Term
Benefits
$
$
9,137
276,680
12,459
271,414
Options
$
34,352
25,764
17,176
77,292
4,590
214,186
26,186
762,280
No options were granted to, or exercised by any director or executive during 2017 and 2018. Ordinary shares in relation
to the Loan Funded Share Plan were granted during 2018 as outlined earlier in the Directors’ Report.
During the 2016 financial year, 3,000,000 options were granted to Directors on 5 February 2016 and 200,000 options
on 30 May 2016 at an exercise price of $3.00 with an expiry date of 31 January 2019. All these options lapsed on
31 January 2019 unexercised.
During the 2016 financial year, 2,515,000 options were issued to staff on 5 February 2016 at an exercise price of $3.00
with an expiry date of 31 January 2019. 900,000 of these options were issued to senior executives included as part of the
key management personnel. All these options lapsed on 31 January 2019 unexercised.
Other long term benefits include annual leave and long service leave expensed during the year.
13
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 Directors’ report (cont)
Remuneration Report (cont)
The following table sets out each key management personnel’s equity holdings (represented by holdings of fully paid
ordinary shares in Electro Optic Systems Holdings Limited).
Balance at
1/1/18
Granted as
remuneration
Received on
exercise of
options
Net other
change
Balance at
31/12/18
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Lt Gen Peter Leahy AC
Air Marshal Geoff Brown AO
The Hon Kate Lundy
Dr Craig Smith
Mr Scott Lamond
Mr Grant Sanderson
Mr Peter Short
No.
5,309,075
3,954,185
170,050
33,600
‑
‑
89,450
11,000
‑
‑
No.
No.
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
No.
10,431
10,310
(79,870)
5,155
5,000
3,325
‑
‑
‑
‑
No.
5,319,506
3,964,495
90,180
38,755
5,000
3,325
89,450
11,000
‑
‑
The following table sets out each key management personnel’s equity holdings (represented by holdings of restricted
fully paid ordinary shares in Electro Optic Systems Holdings Limited issued on 20 June 2018 under the Loan Funded
Share Plan).
Balance at
1/1/18
Granted as
remuneration
Received on
exercise of
options
Net other
change
Balance at
31/12/18
No.
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
No.
200,000
2,000,000
200,000
200,000
200,000
200,000
250,000
250,000
250,000
250,000
No.
No.
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
No.
200,000
2,000,000
200,000
200,000
200,000
200,000
250,000
250,000
250,000
250,000
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Lt Gen Peter Leahy AC
Air Marshal Geoff Brown AO
The Hon Kate Lundy
Dr Craig Smith
Mr Scott Lamond
Mr Grant Sanderson
Mr Peter Short
14
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 Directors’ report (cont)
Remuneration Report (cont)
Elements of remuneration related to performance
There are no performance conditions other than service attached to the above option remuneration to directors and
executives. Directors and senior executives receive options as disclosed which are not subject to specific performance
conditions other than service.
The overall performance of the company as measured by the share price will determine whether the options are
exercised and whether the director or executive receives any benefit from these options. The time service condition has
been chosen by the Board as an appropriate condition as it helps in the retention and motivation of staff. Options issued
to certain directors and executives are also subject to vesting provisions as disclosed below.
As detailed above, 5,180,000 ordinary restricted shares were issued to directors, senior executives and senior staff on
20 June 2018 under the Loan Funded Share Plan. These ordinary restricted shares are subject to performance and
vesting conditions detail above.
Key management personnel option holdings
There were 3,500,000 options outstanding at the end of the financial year to key management personnel. During 2016,
3,500,000 unlisted options exercisable at $3.00 each with an expiry date of 31 January 2019 were issued to the following
key management personnel:
Directors
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Lt Gen Peter Leahy AC
Air Marshall Geoff Brown AO
Senior Executives
Dr Craig Smith
Mr Scott Lamond
Date of Issue
5 February 2016
5 February 2016
5 February 2016
5 February 2016
30 May 2016
5 February 2016
5 February 2016
Unlisted Options at the end of
the financial year held by KMP
200,000
2,000,000
200,000
200,000
200,000
400,000
300,000
3,500,000
These options vest as to 50% of the number after one year with the balance of 50% vesting after two years from
the date of issue. All the above options are fully vested at 31 December 2018 and have all expired unexercised on
31 January 2019.
15
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 Directors’ report (cont)
Remuneration Report (cont)
Other transactions with key management personnel
During the year, the Company paid a total of $76,814 (2017: $66,795) to 4F Investments Pty Limited, a company
associated with Mr Fred Bart in respect of directors fees and superannuation for Fred Bart.
During the year, the Company paid $47,222 (2017: $41,063) to Dennis Corporate Services Pty Limited, a company
associated with Mr Ian Dennis in respect of directors fees and superannuation for Ian Dennis.
During the year, the Company paid $47,222 (2017: $41,063) to GCB Stratos Consulting Pty Limited, a company
associated with Air Marshall Geoff Brown in respect of directors fees and superannuation for Geoff Brown.
During the year, the Company paid $120,000 (2017: $120,000) to Dennis Corporate Services Pty Limited, a company
associated with Mr Ian Dennis in respect of consulting fees for company secretarial and accounting services.
During the year, the Company paid $28,441 (2017: $22,955) to Audio Pixels Holdings Limited, a company of which
Fred Bart and Ian Dennis are directors and shareholders in respect of shared Sydney office facilities.
The table below sets out summary information about the company’s earnings and movements in shareholder wealth for
the last 5 financial years.
31 December 2018
$
31 December 2017
$
31 December 2016
$
31 December 2015
$
31 December 2014
$
Revenue
87,130,396
23,259,794
25,797,200
30,500,748
23,476,433
Net profit/ (loss)
before tax
Net profit/ (loss)
after tax
Share price at
start of year
Share price at
end of year
Dividends paid
15,081,372
(9,319,930)
(2,918,477)
3,032,442
(3,017,546)
15,081,372
(9,319,930)
(886,692)
3,032,442
(3,017,546)
31 December 2018
$
31 December 2017
$
31 December 2016
$
31 December 2015
$
31 December 2014
$
2.45
2.45
‑
1.73
2.45
‑
1.49
1.73
‑
0.82
1.49
‑
0.42
0.82
‑
Audit Committee
The Board appointed three non‑executive directors to form the committee, with a majority of independent directors
and the Chairman being an independent person. The current members of the Committee are Lt Gen Peter Leahy AC
(Chairman), Mr Ian Dennis and Mr Geoff Brown.
Remuneration Committee
The Board appointed three non‑executive directors to form the committee, with a majority of independent directors
and the Chairman being an independent person. The current members of the Committee are Lt Gen Peter Leahy AC
(Chairman), Mr Ian Dennis and Mr Fred Bart.
16
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 Directors’ report (cont)
Non‑audit Services
The Directors are satisfied that the provision of non‑audit services, during the year, by the auditor (or by another person
or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the
Corporations Act 2001. The Directors have formed this view based on the fact that the nature and scope of each type of
non‑audit service provided means that the audit independence was not compromised.
Details of amounts paid or payable to the auditor for non‑audit services provided during the year by the auditor are
contained in note 8 to the financial statements.
Auditor’s Independence Declaration
The auditor’s independence declaration is included on page 18 of the annual report.
Signed in accordance with a resolution of directors made pursuant to s.298(2) of the Corporations Act 2001.
On behalf of the Directors
I A Dennis
Director
Dated at Sydney this 8 day of March 2019
17
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Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018
Directors’ DecLaration
The directors declare that:
(a) in the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as
and when they become due and payable;
(b) in the directors’ opinion, the attached financial statements are in compliance with International Financial Reporting
Standards, as stated in Note 1 to the financial statements;
(c) in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the
Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the
financial position and performance of the company and the consolidated entity; and
(d) the directors have been given the declarations required by s.295A of the Corporations Act 2001.
At the date of this declaration, the company is within the class of compliance affected by ASIC Corporations
(Wholly Owned Companies) Instrument 2016/785. The nature of the deed of cross guarantee is such that each company
which is party to the deed guarantees to each creditor payment in full of any debt in accordance with the deed of
cross guarantee.
In the directors’ opinion, there are reasonable grounds to believe that the company and the companies to which
ASIC Corporations (Wholly Owned Companies) Instrument 2016/785 applies, as detailed in Note 21 to the financial
statements will, as a group, be able to meet any liabilities to which they are, or may become, subject because of
the deed of cross guarantee.
Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001.
On behalf of the Directors
I A Dennis
Director
Dated at Sydney this 8 day of March 2019
24
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 consoLiDateD stateMent of profit or Loss
anD otHer coMpreHensive incoMe
for tHe financiaL year enDeD 31 DeceMber 2018
Revenue
Changes in inventories of work in progress
Raw materials and consumables used
Employee benefits expense
Administration expenses
Finance costs
Depreciation and amortisation of property, plant and equipment
(Loss) on disposal of fixed assets
Foreign exchange gains/ (losses)
Occupancy costs
Other expenses
Note
2(a)
31 December
2018
$
31 December
2017
$
87,130,396
23,259,794
(2,842,202)
(2,699,765)
(40,356,855)
(8,473,543)
2(b)
(22,147,866)
(14,692,849)
2(b)
2(b)
2(b)
2(b)
(9,502,730)
(4,304,914)
(36,903)
(34,985)
(633,235)
(193,325)
‑
(2,007)
7,712,222
(695,061)
(3,440,347)
(1,188,969)
(801,108)
(374,306)
Profit/ (Loss) before income tax benefit
15,081,372
(9,399,930)
Income tax benefit
4
‑
‑
Profit/ (Loss) for the year
Attributable to:
Owners of the Company
Non‑controlling interests
Other comprehensive income
15,081,372
(9,399,930)
18
15,302,214
(9,399,930)
(220,842)
‑
15,081,372
(9,399,930)
Items that may be reclassified subsequently to profit and loss
Exchange differences arising on translation of foreign operations
(1,157,927)
363,703
Total comprehensive Profit/ (Loss) for the year
13,923,445
(9,036,227)
Attributable to:
Owners of the Company
Non‑controlling interests
Profit/ (Loss) per share
Basic (cents per share)
Diluted (cents per share)
Notes to the financial statements are included on pages 30 to 80.
14,144,287
(9,036,227)
(220,842)
‑
13,923,445
(9,036,227)
3
3
17.22
17.22
(15.1)
(15.1)
25
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 consoLiDateD stateMent of financiaL position
as at 31 DeceMber 2018
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventories
Other
TOTAL CURRENT ASSETS
NON‑CURRENT ASSETS
Security deposit
Property, plant and equipment
Trade and other receivables
Other
TOTAL NON‑CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Provisions
TOTAL CURRENT LIABILITIES
NON‑CURRENT LIABILITIES
Provisions
TOTAL NON‑CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Reserves
Accumulated losses
Equity attributable to owners of the Company
Non‑controlling interests
TOTAL EQUITY
Notes to the financial statements are included on pages 30 to 80.
26
Consolidated
December
2018
$
December
2017
$
Note
19
40,538,225
9,989,953
5
6
7
24
9
5
7
26,819,746
11,662 007
26,465,499
13,795,574
12,713,727
2,390,931
106,537,197
37,838,465
8,971,929
‑
3,960,849
1,405,347
7,146,990
609,864
2,252,177
7,751,938
19
22,331,945
9,767,149
128,869,142
47,605,614
10
11
11
14
17
18
22,328,897
18,084,358
6,366,891
5,091,560
28,695,788
23,175,918
3,891,770
3,891,770
859,076
859,076
32,587,558
24,034,994
96,281,584
23,570,620
161,784,727
103,342,071
8,472,791
9,344,928
(73,814,165)
(89,116,379)
96,443,353
23,570,620
(161,769)
‑
96,281,584
23,570,620
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 consoLiDateD stateMent of cHanges in eqUity
for tHe year enDeD 31 DeceMber 2018
Accumulated
losses
$
Issued
capital
$
Foreign
currency
translation
reserve
$
Employee
equity
settled
benefits
reserve
$
Attributable
to owners of
the parent
$
Non‑
controlling
interests
$
Total
Equity
$
2018
Balance at
1 January 2018
(89,116,379) 103,342,071
(241,137)
9,586,065
23,570,620
‑ 23,570,620
Profit for the year
15,302,214
‑
‑
‑
15,302,214
(220,842) 15,081,372
Exchange differences
arising on translation of
foreign operations
Total comprehensive
profit for the year
Issue of 10,471,434 new
shares at $2.91 each
Issue of 10,147,123 new
shares at $2.91 each
Issue of 495,858 new
shares at $2.91 under the
Share Purchase Plan
Adjustment arising from
change in non‑controlling
interest
Recognition of share
based payments
Balance at
31 December 2018
‑
‑
(1,157,927)
‑
(1,157,927)
‑
(1,157,927)
15,302,214
‑
(1,157,927)
‑
14,144,287
(220,842) 13,923,445
‑
‑
‑
‑
‑
28,948,278
28,051,722
1,442,656
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
28,948,278
‑ 28,948,278
28,051,722
‑ 28,051,722
1442,656
‑
1,442,656
‑
59,073
59,073
‑
285,790
285,790
‑
285,790
73,814,165) 161,784,727 (1,399,064)
9,871,855
96,443,353
(161,769) 96,281,584
27
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 consoLiDateD stateMent of cHanges in eqUity
for tHe year enDeD 31 DeceMber 2018 (cont)
Accumulated
losses
$
Issued
capital
$
Foreign
currency
translation
reserve
$
Employee
equity
settled
benefits
reserve
$
Attributable
to owners of
the parent
$
Non‑
controlling
interests
$
Total
Equity
$
2017
Balance at
1 January 2017
(79,716,449)
75,383,567
(604,840)
8,984,721
‑
‑
4,046,999
(Loss) for the year
(9,399,930)
Exchange differences
arising on translation of
foreign operations
Total comprehensive
(loss) for the year
‑
(9,399,930)
‑
‑
‑
‑
‑
(9,399,930)
‑
(9,399,930)
363,703
‑
363,703
‑
363,703
363,703
‑
(9,036,227)
‑
(9,036,227)
Issue of 3,863,638 new
shares at $2.20 each
Issue of 9,100,000 new
shares at $2.30 each
Recognition of share
based payments
Balance at
31 December 2017
‑
‑
‑
8,075,004
19,883,500
‑
‑
‑
‑
8,075,004
‑
8,075,004
19,883,500
‑ 19,883,500
‑
‑
601,344
601,344
‑
601,344
(89,116,379) 103,342,071
(241,137)
9,586,065
23,570,620
‑ 23,570,620
Notes to the financial statements are included on pages 30 to 80.
28
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 consoLiDateD stateMent of casH fLows
for tHe year enDeD 31 DeceMber 2018
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest and other costs of finance paid
Consolidated
31 December
2018
$
31 December
2017
$
Note
63,870,012
22,253,859
(80,309,969)
(48,363,455)
790,658
(36,903)
194,888
(34,985)
Net cash (outflows) from operating activities
19(c)
(15,686,202)
(25,949,693)
Cash flows from investing activities
Payment for property, plant and equipment
Security deposit for performance bond
Net cash (outflows) from investing activities
Cash flows from financing activities
Proceeds from issue of new shares
Net cash inflows from financing activities
(3,188,913)
(1,140,947)
(8,971,929)
‑
(12,160,842)
(1,140,947)
58,442,656
27,958,504
58,442,656
27,958,504
Net increase in cash and cash equivalents
30,595,612
867,864
Cash and cash equivalents at the beginning of the financial year
9,989,953
8,874,967
Effects of exchange rate fluctuations on the balances of cash held in
foreign currencies
(47,340)
247,122
Cash and cash equivalents at the end of the financial year
19(a)
40,538,225
9,989,953
Notes to the financial statements are included on pages 30 to 80.
29
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018
1. Summary of Accounting Policies
AASB 9 Financial Instruments
1(a) Statement of compliance
The financial statements are general purpose
financial statements which have been prepared
in accordance with the Corporations Act 2001 and
Accounting Standards and complies with other
requirements of the law. The financial statements
comprise the consolidated financial statements
of the Group. For the purposes of preparing the
consolidated financial statements, the Company
is a for‑profit entity. Accounting Standards include
Australian equivalents to International Financial
Reporting Standards (“AASB”). Compliance with
AASB ensures that the financial statements and
notes of the company and the consolidated entity
comply with International Financial Reporting
Standards (“IFRS”).
The financial statements were authorised for issue
by the Directors on 8 March 2019.
1(b) Basis of preparation
The financial report has been prepared on the basis
of historical cost. Cost is based on the fair values of
the consideration given in exchange for assets. All
amounts are presented in Australian dollars, unless
otherwise stated.
1(c) Adoption of new and revised Standards
New and amended IFRS Standards that are
effective for the current year
The Group has adopted all of the new and revised
Standards and Interpretations issued by the
Australian Accounting Standards Board (the AASB)
that are relevant to its operations and effective
for an accounting period that begins on or after
1 January 2018.
New and revised Standards and amendments
thereof and Interpretations effective for the current
financial year, and which have been applied in the
preparation of this general purpose financial report,
that are relevant to the Group include:
■ AASB 9 Financial Instruments and related
amending Standards
■ AASB 15 Revenue from Contracts with Customers
and related amending Standards
In the current year, the Group has applied AASB 9
Financial Instruments (as revised) and the related
consequential amendments to other Accounting
Standards for the first time. AASB 9 introduces
new requirements for 1) the classification and
measurement of financial assets and financial
liabilities, 2) impairment for financial assets and
3) general hedge accounting. Details of these new
requirements as well as their impact on the Group’s
consolidated financial statements are described below.
The Group has applied AASB 9 in accordance with
the transition provisions set out in AASB 9.
Classification and measurement of
financial assets
The date of initial application (i.e. the date on which
the Group has assessed its existing financial assets
and financial liabilities in terms of the requirements
of AASB 9) is 1 January 2018. Accordingly, the
Group has applied the requirements of AASB 9
to instruments that have not been derecognised
as at 1 January 2018 and has not applied the
requirements to instruments that have already been
derecognised as at 1 January 2018.
Subsequent to initial recognition, all recognised
financial assets that are within the scope of AASB
9 are required to be measured at amortised cost
or fair value on the basis of the entity’s business
model for managing the financial assets and
the contractual cash flow characteristics of the
financial assets.
Specifically:
■ Debt investments that are held within a
business model whose objective is to collect the
contractual cash flows, and that have contractual
cash flows that are solely payments of principal
and interest on the principal amount outstanding,
are subsequently measured at amortised cost,
■ Debt investments that are held within a business
model whose objective is both to collect the
contractual cash flows and to sell the debt
instruments, and that have contractual cash
flows that are solely payments of principal and
interest on the principal amount outstanding,
are subsequently measured at fair value through
other comprehensive income (FVTOCI),
■ All other debt investments and equity
investments are subsequently measured at fair
value through profit or loss (FVTPL).
30
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
1. Summary of Accounting Policies (cont)
Despite the aforegoing, the Group may make the
following irrevocable election/ designation at initial
recognition of a financial asset:
■ The Group may irrevocably elect to present
subsequent changes in fair value of an equity
investment that is neither held for trading nor
contingent consideration recognised by an
acquirer in a business combination to which
AASB 3 Business Combinations applies in other
comprehensive income,
■ The Group may irrevocably designate a debt
investment that meets the amortised cost
or FVTOCI criteria as measured at FVTPL if
doing so eliminates or significantly reduces an
accounting mismatch.
In the current year, the Group has not taken any of
the elections above.
When a debt investment measured at FVTOCI is
derecognised, the cumulative gain or loss previously
recognised in other comprehensive income is
reclassified from equity to profit or loss as a
reclassification adjustment. In contrast, for an equity
investment designated as measured at FVTOCI, the
cumulative gain or loss previously recognised in
other comprehensive income is not subsequently
reclassified to profit or loss.
Debt instruments that are subsequently measured
at amortised cost or at FVTOCI are subject
to impairment.
The directors of the Company reviewed and
assessed the Group’s existing financial assets
as at 1 January 2018 based on the facts and
circumstances that existed at that date and
concluded that the initial application of AASB
9 has had the following impact on the Group’s
financial assets as regards their classification
and measurement:
■ Financial assets classified as held‑to‑maturity
and loans and receivables under AASB 139 that
were measured at amortised cost continue to
be measured at amortised cost under AASB
9 as they are held within a business model to
collect contractual cash flows and these cash
flows consist solely of payments of principal and
interest on the principal amount outstanding.
As a result of the above, there was no impact on
the Group’s financial position, profit or loss, other
comprehensive income or total comprehensive
income for the period.
Impairment of financial assets
In relation to the impairment of financial assets,
AASB 9 requires an expected credit loss model as
opposed to an incurred credit loss model under
AASB 139. The expected credit loss model requires
the Group to account for expected credit losses and
changes in those expected credit losses at each
reporting date to reflect changes in credit risk since
initial recognition of the financial assets. In other
words, it is no longer necessary for a credit event to
have occurred before credit losses are recognised.
Specifically, AASB 9 requires the Group to recognise
a loss allowance for expected credit losses (‘ECL’)
on i) trade receivables, ii) debt investments
subsequently measured at amortised cost or at
FVTOCI, iii) lease receivables, iv) contract assets
and v) loan commitments and financial guarantee
contracts to which the impairment requirements of
AASB 9 apply.
In particular, AASB 9 requires the Group to measure
the loss allowance for a financial instrument at an
amount equal to the lifetime ECL if the credit risk on
that financial instrument has increased significantly
since initial recognition, or if the financial instrument
is a purchased or originated credit‑impaired financial
asset. On the other hand, if the credit risk on a
financial instrument has not increased significantly
since initial recognition (except for a purchased or
originated credit‑impaired financial asset), the Group
is required to measure the loss allowance for that
financial instrument at an amount equal to 12m ECL.
The Group has taken a simplified approach for
measuring the loss allowance at an amount equal to
lifetime ECL for trade receivables, contract assets
and lease receivables in certain circumstances.
The expected credit losses on these financial assets
are estimated using a provision matrix based on the
Group’s historical credit loss experience, adjusted
for factors that are specific to the debtors, general
economic conditions and an assessment of both
the current as well as the forecast direction of
conditions at the reporting date, including time value
of money where appropriate.
31
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
1. Summary of Accounting Policies (cont)
As at 1 January 2018, the directors of the Company reviewed and assessed the Group’s existing financial assets,
amounts due from customers and financial guarantee contracts for impairment using reasonable and supportable
information that is available without undue cost or effort in accordance with the requirements of AASB 9 to
determine the credit risk of the respective items at the date they were initially recognised:
Items existing as at 01/01/18
that are subject to the
impairment provisions of
AASB 9
Trade and other receivables
Cash and bank balances
Credit risk attributes at 01/01/18
01/01/18
Cumulative additional loss
allowance recognised on
The Group recognises 12m ECL for these
assets using a provision matrix.
All bank balances are assessed to have low
credit risk at each reporting date as they are
held with reputable banking institutions.
‑
‑
Classification and measurement of financial liabilities
The application of AASB 9 has had no impact on the classification and measurement of the Groups’ liabilities.
General hedge accounting
The Group does not undertake hedging activities and hence is not impacted by the changes in relation to hedging.
Disclosures in relation to the initial application of AASB 9
The table below illustrates the classification and measurement of financial assets and financial liabilities under
AASB 9 and AASB 139 at the date of initial application, 1 January 2018.
Original
measurement
category under
AASB 139
New
measurement
category under
AASB 9
Original
carrying
amount under
AASB 139
Additional loss
allowance
New carrying
amount under
AASB 9
Category
Trade and other
receivables
Loans and
receivables
Cash and bank
balances
Loans and
receivables
Financial assets
at amortised cost
Financial assets
at amortised cost
Trade and other
payables
Financial
liabilities at
amortised cost
Financial
liabilities at
amortised cost
12,271,870
9,989,952
(18,084,356)
‑
‑
‑
12,271,870
9,989,952
(18,084,356)
32
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
1. Summary of Accounting Policies (cont)
Financial impact of initial application of AASB 9
The tables below show the amount of adjustment for each financial statement line item affected by the application
of AASB 9 for the current and prior periods.
Impact on profit or loss, other comprehensive income and total
comprehensive income
Initial adoption
01/01/18
Year ended
31/12/18
Impact on profit (loss) for the year
Decrease in other gains and losses
Increase in administration expenses
Decrease in income tax expenses
Decrease in profit for the year
‑
‑
‑
‑
‑
‑
‑
‑
The application of AASB 9 has had no impact on the consolidated cash flows and earnings per share of the Group
AASB 15 Revenue from Contracts with Customers and related amending Standards
AASB 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from
contracts with customers. AASB 15 supersedes the current revenue recognition guidance including AASB 118
Revenue, AASB 111 Construction Contracts and the related Interpretations.
The core principle of AASB 15 is that an entity should recognise revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. Specifically, the Standard introduces a 5‑step approach to
revenue recognition:
■ Step 1: Identify the contract(s) with a customer
■ Step 2: Identify the performance obligations in the contract
■ Step 3: Determine the transaction price
■ Step 4: Allocate the transaction price to the performance obligations in the contract
■ Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
Under AASB 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when 'control'
of the goods or services underlying the particular performance obligation is transferred to the customer.
Far more prescriptive guidance has been added in AASB 15 to deal with specific scenarios. Furthermore, extensive
disclosures are required by AASB 15.
In May 2016, the AASB issued AASB 2016‑3 Amendments to Australian Accounting Standards ‑ Clarifications to AASB 15
in relation to the identification of performance obligations, principal versus agent considerations, as well as
licensing application guidance.
Apart from providing more extensive disclosures on the Group’s revenue transactions, the application of AASB 15
has not had a significant impact on the financial position and/or financial performance of the Group. Following an
assessment of all revenue streams no adjustments have been made to financial statement line items on first time
application of AASB 15 as illustrated in the tables below.
The directors have used the modified retrospective method to transition to AASB 15.
33
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
1. Summary of Accounting Policies (cont)
Financial impact of initial application of AASB 15
The tables below show the amount of adjustment for each financial statement line item affected by the application
of AASB 15 for the current and prior periods.
Impact on profit or loss, other comprehensive income
and total comprehensive income
Impact on profit (loss) for the year
Decrease in Revenue
Increase in raw materials and consumables used
Decrease in income tax expenses
Decrease in profit for the year
Initial
adoption
01/01/18
Year ended
31/12/18
‑
‑
‑
‑
‑
‑
‑
‑
The application of AASB 15 has had no impact on the consolidated cash flows and earnings per share of the Group.
Impact on assets, liabilities and equity
Trade and other Receivables
Unearned revenue
Total effect on net assets
Retained earnings
Total effect on equity
Initial
adoption
01/01/18
Year ended
31/12/18
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
New and revised AASB Standards in issue but not yet effective
The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian
Accounting Standards Board (the AASB) that are relevant to their operations and effective for the current year.
New and revised Standards and amendments thereof and Interpretations effective in future years that are relevant
to the Group include:
■ AASB 16 Leases
■ Annual Improvements to AASB Standards 2015‑2017 Cycle Amendments to AASB 3 Business Combinations,
AASB 11 Joint Arrangements, AASB 12 Income Taxes and AASB 23 Borrowing Costs
■ Amendments to AASB 19 Employee Benefits Plan Amendment, Curtailment or Settlement AASB 10 Consolidated
Financial Statements and AASB 28 (amendments) Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture
■ IFRIC 23 Uncertainty over Income Tax Treatments
The directors do not expect that the adoption of the Standards listed above will have a material impact on the
financial statements of the Group in future periods, except as noted below:
34
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
1. Summary of Accounting Policies (cont)
Impact on Lessee Accounting
AASB 16 Leases
General impact of application of AASB 16 Leases
AASB 16 provides a comprehensive model for the
identification of lease arrangements and their
treatment in the financial statements for both
lessors and lessees. AASB 16 will supersede the
current lease guidance including AASB 117 Leases
and the related Interpretations when it becomes
effective for accounting periods beginning on or
after 1 January 2019. The date of initial application
of AASB 16 for the Group will be 1 January 2019.
The Group has chosen the modified retrospective
application of AASB 16 in accordance with AASB
16:C5(b). Consequently, the Group will apply the
Standard retrospectively with the cumulative effect
of initially applying the Standard recognised at the
date of initial application.
In contrast to lessee accounting, AASB 16
substantially carries forward the lessor accounting
requirements in AASB 117.
Impact of the new definition of a lease
The Group will make use of the practical expedient
available on transition to AASB 16 not to reassess
whether a contract is or contains a lease.
Accordingly, the definition of a lease in accordance
with AASB 117 and IFRIC 4 will continue to
apply to those leases entered or modified before
1 January 2019.
The change in definition of a lease mainly relates
to the concept of control. AASB 16 distinguishes
between leases and service contracts on the basis of
whether the use of an identified asset is controlled
by the customer. Control is considered to exist if the
customer has:
■ The right to obtain substantially all of the
economic benefits from the use of an identified
asset; and
■ The right to direct the use of that asset.
The Group will apply the definition of a lease and
related guidance set out in AASB 16 to all lease
contracts entered into or modified on or after
1 January 2019 (whether it is a lessor or a lessee in
the lease contract). In preparation for the first time
application of AASB 16, the Group has carried out an
implementation assessment. The assessment has
shown that the new definition in AASB 16 will not
change significantly the scope of contracts that meet
the definition of a lease for the Group.
Operating leases
AASB 16 will change how the Group accounts for
leases previously classified as operating leases
under AASB 117, which were off balance sheet.
On initial application of AASB 16, for all leases
(except as noted below), the Group will:
a) Recognise right of use assets and lease
liabilities in the consolidated statement of
financial position, initially measured at the
present value of the future lease payments;
b) Recognise depreciation of right of use
assets and interest on lease liabilities in the
consolidated statement of profit or loss;
c) Separate the total amount of cash paid into a
principal portion (presented within financing
activities) and interest (presented within
operating activities) in the consolidated cash
flow statement.
Lease incentives (e.g. rentfree period) will be
recognised as part of the measurement of the right
of use assets and lease liabilities whereas under
AASB 117 they resulted in the recognition of a lease
liability incentive, amortised as a reduction of rental
expenses on a straight line basis.
Under AASB 16, right of use assets will be tested
for impairment in accordance with AASB 136
Impairment of Assets.
This will replace the previous requirement to
recognise a provision for onerous lease contracts.
For short term leases (lease term of 12 months
or less) and leases of low value assets (such as
personal computers and office furniture), the Group
will opt to recognise a lease expense on a straight
line basis as permitted by AASB 16.
As at 31 December 2018, the Group has non
cancellable operating lease commitments of
$1,121,050. (See Note 24).
A preliminary assessment indicates that all of these
arrangements relate to leases other than short
term leases and leases of low value assets, and
hence the Group will recognise a right of use asset
of $5,565,434 and a corresponding lease liability of
$5,565,434 in respect of all these leases. The impact
on profit or loss is to decrease Other expenses by
$2,346,048, to increase depreciation by $1,882, 845
and to increase interest expense by $463,203.
35
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
1. Summary of Accounting Policies (cont)
Sales‑related warranties
Under AASB 17, all lease payments on operating
leases are presented as part of cash flows from
operating activities. The impact of the changes
under AASB 16 would be to reduce the cash
generated by operating activities and to increase
net cash used in financing activities.
1(d) Revenue Recognition
The Group recognises revenue from the following
major sources:
■ Sale of goods
■ Providing services
The Group recognises revenue from the above
two sources both over time and at a point in time
depending on the nature and specifications of
contracts entered into with its customers.
For the revenue recognised over time refer to note
2(a) which details the basis of revenue recognition
for the current year.
For revenue recognised at a point in time,
the Group recognises revenue when control
transfers to the customer.
The Group considers the following requirements in
order to assess whether control has passed:
(a) The Group has a present right to payment for
the asset,
(b) The customer has legal title to the asset,
(c) The Group has transferred physical possession
of the asset,
(d) The customer has the significant risks and
rewards of ownership of the asset.
(e) The customer has accepted the asset.
Interest revenue is recognised on an accrual basis.
Sales‑related warranties cannot be purchased
separately and they serve as an assurance that
the products sold comply with agreed‑upon
specifications. Accordingly, the Group will continue
to account for these warranties in accordance
with AASB 137 Provisions, Contingent Liabilities
and Contingent Assets consistent with its current
accounting treatment.
1(e)(i) Financial assets
Classification
From 1 January 2018, the Group classifies
its financial assets in the following
measurement categories:
■ Those to be measured subsequently at fair value
(either through other comprehensive income,
or through profit or loss), and
■ Those to be measured at amortised cost.
The classification depends on the Group’s business
model for managing financial assets and the
contractual terms of the cash flows. For assets
measured at fair value, gains and losses will either
be recorded in profit or loss or other comprehensive
income. For investments in debt instruments,
this will depend on the business model in which the
investment is held.
For investments in equity instruments that are
not held for trading, this will depend on whether
the Group has made an irrevocable election at
the time of initial recognition to account for the
equity investment at fair value through other
comprehensive income. The Group reclassifies debt
investments when and only when its business model
for managing those assets changes.
Measurement
At initial recognition, the Group measures a financial
asset at its fair value plus, in the case of a financial
asset not at fair value through profit or loss,
transaction costs that are directly attributable to the
acquisition of the financial asset. Transaction costs
of financial assets carried at fair value through profit
or loss are expensed in profit or loss. Measurement
of cash and cash equivalents and trade and other
receivables remains at amortised cost consistent
with the comparative period.
36
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
1. Summary of Accounting Policies (cont)
Debt instruments
Subsequent measurement of debt instruments
depends on the Group’s business model
for managing the asset and the cash flow
characteristics of the asset. There are three
measurement categories into which the Group
classifies its debt instruments:
■ Amortised cost: Assets that are held for collection
of contractual cash flows where those cash
flows represent solely payments of principal and
interest are measured at amortised cost. A gain
or loss on a debt investment that is subsequently
measured at amortised cost and is not part of
a hedging relationship is recognised in profit or
loss when the asset is derecognised or impaired.
Interest income from these financial assets is
included in finance income using the effective
interest rate method.
impairment losses) on equity investments measured
at FVOCI are not reported separately from other
changes in fair value. Changes in the fair value of
financial assets at fair value through profit or loss
are recognised in other expenses in the statement
of profit or loss and other comprehensive income
as applicable.
Impairment
The Group assesses on a forward looking basis
the expected credit losses associated with its
debt instruments carried at amortised cost and
FVOCI. The impairment methodology applied
depends on whether there has been a significant
increase in credit risk. For trade receivables, and
lease receivables, the Group applies the simplified
approach permitted by AASB 9, which requires
expected lifetime losses to be recognised from initial
recognition of the receivables.
1(e)(ii) Financial Liabilities
■ Fair value through other comprehensive income
Interest bearing liabilities
(FVOCI): Assets that are held for collecting
contractual cash flows and through sale
on specified dates. A gain or loss on a debt
investment that is subsequently measured at
FVOCI is recognised in other comprehensive
income. No such assets are currently held by
the Group.
■ Fair value through profit or loss (FVPL):
Assets that do not meet the criteria for amortised
cost or FVOCI are measured at fair value through
profit or loss. A gain or loss on a debt investment
that is subsequently measured at fair value
through profit or loss and is not part of a hedging
relationship is recognised in profit or loss and
presented net in the statement of profit or loss
within other gains/(losses) in the period in which
it arises. No such assets are currently held by
the Group.
Equity instruments
The Group subsequently measures all equity
investments at fair value. Where the Group’s
management has elected to present fair value
gains and losses on equity investments in other
comprehensive income, there is no subsequent
reclassification of fair value gains and losses to
profit or loss following the derecognition of the
investment. Dividends from such investments
continue to be recognised in profit or loss as other
income when the Group’s right to receive payments
is established. Impairment losses (and reversal of
All loans and borrowings are initially recognised
at fair value, being the amount received less
attributable transaction costs. After initial
recognition, interest bearing liabilities are stated at
amortised cost with any difference between cost and
redemption value being recognised in the statement
of profit or loss over the period of the borrowings on
an effective interest basis.
Trade and other payables
Liabilities are recognised for amounts to be paid
for goods or services received. Trade payables
are settled on terms aligned with the normal
commercial terms in the Group’s countries
of operation.
1(f) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand,
cash in banks and investments in money market
instruments, net of outstanding bank overdrafts.
Cash and cash equivalents includes restricted cash
to the extent it relates to operating activities.
1(g) Employee benefits
Provision is made for benefits accruing to employees
in respect of wages and salaries, annual leave,
and long service leave when it is probable that
settlement will be required and they are capable of
being measured reliably.
37
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
1. Summary of Accounting Policies (cont)
Provisions made in respect of short term employee
benefits are measured at their nominal values using
the remuneration rate expected to apply at the time
of settlement.
Provisions made in respect of long term employee
benefits are measured as the present value of the
estimated future cash outflows to be made by the
consolidated entity in respect of services provided by
employees up to the reporting date.
Defined contribution plans ‑ Contributions to defined
benefit contribution superannuation plans are
expensed when incurred.
1(h) Foreign currency
Foreign currency transactions
All foreign currency transactions during the financial
year are bought to account using the exchange
rate in effect at the date of the transaction. Foreign
currency monetary items at reporting date are
translated at the exchange rate existing at reporting
date. Non‑monetary assets and liabilities carried at
fair value that are denominated in foreign currencies
are translated at the rates prevailing at the date
when the fair value was determined.
The net amount of GST recoverable from, or payable
to, the taxation authority is included as part of
receivables or payables.
Cash flows are included in the statement of cash
flows on a gross basis. The GST component of cash
flows arising from investing and financing activities
which is recoverable from, or payable to, the taxation
authority is classified as operating cash flows.
1(j) Government grants
Government grants are assistance by the government
in the form of transfers of resources to the consolidated
entity in return for past or future compliance with
certain conditions relating to the operating activities
of the entity. Government grants include government
assistance where there are no conditions specifically
relating to the operating activities of the consolidated
entity other than the requirement to operate in certain
regions or industry sectors.
Government grants relating to income are
recognised as income over the periods necessary
to match them with the related costs. Government
grants that are receivable as compensation for
expenses or losses already incurred or for the
purpose of giving immediate financial support to
the consolidated entity with no future related costs
are recognised as income in the period in which it
becomes receivable.
Exchange differences are recognised in profit or loss
in the period they arise.
1(k) Impairment of assets
Foreign operations
On consolidation, the assets and liabilities of the
consolidated entity’s overseas operations are
translated at exchange rates prevailing at the reporting
date. Income and expense items are translated at
the average exchange rates for the period unless
exchange rates fluctuate significantly. Exchange
differences arising, if any, are recognised in the foreign
currency translation reserve, and recognised in profit
or loss on disposal of the foreign operation.
1(i) Goods and services tax
Revenues, expenses and assets are recognised net of
the amount of goods and services tax (GST), except:
i. where the amount of GST incurred is not
recoverable from the taxation authority, it is
recognised as part of the cost of acquisition of
an asset or as part of an item of expense; or
ii.
for receivables and payables which are
recognised inclusive of GST.
At each reporting date, the consolidated entity reviews
the carrying amounts of its tangible and intangible
assets to determine whether there is any indication
that those assets have suffered an impairment loss.
If any such indication exists, the recoverable amount
of the asset is estimated in order to determine the
extent of the impairment loss (if any). Where the asset
does not generate cash flows that are independent
from other assets, the consolidated entity estimates
the recoverable amount of the cash‑generating unit to
which the asset belongs.
Goodwill, intangible assets with indefinite useful
lives and intangible assets not yet available for use
are tested for impairment annually and whenever
there is an indication that the asset may be impaired.
An impairment of goodwill is not subsequently
reversed. Recoverable amount is the higher of
fair value less cost of disposal and value in use.
In assessing value in use, the estimated future cash
flows are discounted to their present value using a
pre‑tax discount rate that reflects current market
assessments of the time value of money and the risks
specific to the asset for which the estimates of future
cash flows have not been adjusted.
38
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
1. Summary of Accounting Policies (cont)
If the recoverable amount of an asset
(or cash‑generating unit) is estimated to be less
than its carrying amount, the carrying amount
of the asset (cash‑generating unit) is reduced to
its recoverable amount. An impairment loss is
recognised in profit or loss immediately.
Where an impairment loss subsequently reverses,
the carrying amount of the asset (cash‑generating
unit) is increased to the revised estimate of its
recoverable amount, but only to the extent that the
increased carrying amount does not exceed the
carrying amount that would have been determined
had no impairment loss been recognised for
the asset (cash‑generating unit) in prior years.
A reversal of an impairment loss is recognised in
profit or loss immediately.
1(l) Income tax
Current tax
Current tax is calculated by reference to the amount
of income taxes payable or recoverable in respect
of the taxable profit or tax loss for the period.
It is calculated using tax rates and tax laws that
have been enacted or substantively enacted by
reporting date. Current tax for current and prior
periods is recognised as a liability (or asset) to the
extent that it is unpaid (or refundable).
Deferred tax
Deferred tax is recognised on temporary differences
arising from differences between the carrying amount
of assets and liabilities in the financial statements
and the corresponding tax base of those items.
In principle, deferred tax liabilities are recognised
for all taxable temporary differences. Deferred tax
assets are recognised to the extent that it is probable
that sufficient taxable amounts will be available
against which deductible temporary differences or
unused tax losses and tax offsets can be utilised.
However, deferred tax assets and liabilities are not
recognised if the temporary differences giving rise
to them arise from the initial recognition of assets
and liabilities (other than as a result of business
combination) which affects neither taxable income
nor accounting profit. Furthermore, a deferred
tax liability is not recognised in relation to taxable
temporary differences arising from goodwill.
Deferred tax liabilities are recognised for taxable
temporary differences arising on investments in
subsidiaries except where the consolidated entity
is able to control the reversal of the temporary
differences and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred tax assets arising from deductible
temporary differences associated with these
investments and interests are only recognised to the
extent that it is probable that there will be sufficient
taxable profits against which to utilise the benefits of
the temporary differences and they are expected to
reverse in the foreseeable future.
Deferred tax assets and liabilities are measured
at the tax rates that are expected to apply to the
period(s) when the assets and liabilities giving
rise to them are realised or settled, based on
tax rates (and tax laws) that have been enacted
or substantively enacted by reporting date.
The measurement of deferred tax liabilities and
assets reflects the tax consequences that would
follow from the manner in which the consolidated
entity expects, at the reporting date, to recover
or settle the carrying amount of its assets
and liabilities.
Deferred tax assets and liabilities are offset when
they relate to income taxes levied by the same
taxation authority and the company/consolidated
entity intends to settles its current tax assets and
liabilities on a net basis.
Current and deferred tax for the period
Current and deferred tax is recognised as an
expense or income in the statement of profit or loss
and other comprehensive income, except when it
relates to items credited or debited directly to equity,
in which case the deferred tax is also recognised
directly in equity, or where it arises from the initial
accounting for a business combination, in which
case it is taken into account in the determination of
goodwill or excess.
Tax consolidation
The company and all its wholly‑owned Australian
resident entities are part of a tax consolidated
group under Australian taxation law. Electro Optic
Systems Holdings Limited is the head entity in
the tax‑consolidated group. Tax expense/income,
deferred tax liabilities and deferred tax assets
arising from temporary differences of the members
of the tax‑consolidated group are recognised in the
separate financial statements of the members of the
tax‑consolidated group using the ‘separate taxpayer
within the group’ approach.
39
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
1. Summary of Accounting Policies (cont)
Current tax liabilities and assets and deferred
tax assets arising from unused tax losses and tax
credits of the members of the tax‑consolidated
group are recognised by the company (as head entity
in the tax‑consolidated group).
There are no formal tax funding arrangements
within companies within the tax‑consolidated entity.
1(m) Intangible assets
Research and development costs
Expenditure on research activities is recognised
as an expense in the period in which it is incurred.
Where no internally‑generated intangible assets
can be recognised, development expenditure is
recognised as an expense in the period as incurred.
Intangible assets acquired in a
business combination
Intangible assets acquired in a business combination
are identified and recognised separately from
goodwill where they satisfy the definition of
an intangible asset and their fair value can be
measured reliably.
Subsequent to initial recognition, intangible
assets acquired in a business combination are
reported at cost less accumulated amortisation and
accumulated impairment losses, on the same basis
as intangible assets acquired separately.
1(n) Inventories
Inventories are measured at the lower of cost and
net realisable value. Costs are assigned on a first‑in
first‑out basis. Net realisable value represents the
estimated selling price less all estimated costs of
completion and costs to be incurred in marketing,
selling and distribution.
1(o) Leased assets
Leases are classified as finance leases whenever the
terms of the lease transfer substantially all the risks
and rewards of ownership to the lessee. All other
leases are classified as operating leases.
Consolidated entity as lessee
Assets held under finance leases are initially
recognised at their fair value or, if lower, at amounts
equal to the present value of the minimum lease
payments, each determined at the inception of
the lease. The corresponding liability to the lessor is
included in the statement of financial position as a
finance lease obligation.
Lease payments are apportioned between finance
charges and reduction of the lease obligation so
as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges
are charged directly against income.
Finance leased assets are amortised on a straight
line basis over the estimated useful life of the asset.
Operating lease payments are recognised as an
expense on a straight‑line basis over the lease term,
except where another systematic basis is more
representative of the time pattern in which economic
benefits from the leased assets are consumed.
Lease incentives
In the event that lease incentives are received to
enter into operating leases, such incentives are
recognised as a liability. The aggregate benefits of
incentives are recognised as a reduction of rental
expenses on a straight‑line basis, except where
another systematic basis is more representative of
the time pattern in which economic benefits from
the leased assets are consumed.
1(p) Basis of consolidation
The consolidated financial statements incorporate
the financial statements of the Company and entities
controlled by the Company. Control is achieved when
the Company:
■ Has power over the investee;
■ Is exposed, or has rights, to variable returns from
its involvement with the investee; and
■ Has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls
an investee if facts and circumstances indicate
that there are changes to one or more of the three
elements of control listed above.
Consolidation of a subsidiary begins when the
Company obtains control over the subsidiary and
ceases when the Company loses control of the
subsidiary. Specifically, income and expenses of a
subsidiary acquired or disposed of during the year
are included in the consolidated statement of profit
or loss and other comprehensive income from the
date the Company gains control until the date when
the Company ceases to control the subsidiary.
40
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
1. Summary of Accounting Policies (cont)
The following estimated useful lives are used in the
calculation of depreciation:
All intra group assets and liabilities, equity, income,
expenses, and cash flows relating to transactions
between members of the group are eliminated in full
on consolidation.
Non‑controlling interest in subsidiaries are
identified separately from the Group’s equity therein.
Those interest of non‑controlling shareholders
that are present ownership interest entitling these
holders to a proportionate share of net assets upon
liquidation may initially be measured at fair value
or at the non‑controlling interests’ proportionate
share of the fair value of the acquiree’s identifiable
net assets. The choice of measurement is
made on and acquisition‑by‑acquisition basis.
Other non‑controlling interests are initially
measured at fair value. Subsequent to acquisition,
the carrying amount of non‑controlling interest is
the amount of those interests at initial recognition
plus the non‑controlling interests’ share of
subsequent changes in equity. Total comprehensive
income is attributed to non‑controlling interests
even if this results in non‑controlling interests
having a deficit balance.
1(q) Property, plant and equipment
Plant and equipment, leasehold improvements and
equipment under finance lease are stated at cost
less accumulated depreciation and impairment.
Cost includes expenditure that is directly
attributable to the acquisition of an item. In the
event that settlement of all or part of the purchase
consideration is deferred, cost is determined by
discounting the amounts payable in the future to
their present value as at the date of acquisition.
Depreciation is provided on property, plant and
equipment. Depreciation is calculated so as to
write off the net cost or other revalued amount
of each asset over its expected useful life to its
estimated residual value. Leasehold improvements
are depreciated over the period of the lease or
estimated useful life, whichever is the shorter, using
the straight line method. The estimated useful lives,
residual values and depreciation method is reviewed
at the end of each annual accounting period.
Plant and equipment
Leasehold improvements
Leased assets
Office equipment
5 to 15 years
3 to 5 years
3 to 5 years
5 to 15 years
Furniture, fixture and fittings
5 to 15 years
Motor vehicles
3 to 5 years
1(r) Provisions
Provisions are recognised when the consolidated
entity has a present obligation, the future sacrifice
of economic benefits is probable, and the amount of
the provision can be measured reliably.
When some or all of the economic benefits required
to settle a provision are expected to be recovered from
a third party, the receivable is recognised as an asset
if it is probable that recovery will be received and the
amount of the receivable can be measured reliably.
The amount recognised as a provision is the best
estimate of the consideration required to settle the
present obligation, taking into account the risks and
uncertainties surrounding the obligation. Where a
provision is measured using the cash flows estimated
to settle the present obligation, its carrying amount is
the present value of those cash flows.
Warranties ‑ Provisions for warranty costs are
recognised as agreed in individual sales contracts,
at the directors best estimate of the expenditure
required to settle the consolidated entity’s liability.
Contract losses ‑ Present obligations arising under
onerous contracts are recognised and measured as
a provision. An onerous contract is considered to
exist where the Group has a contract under which
the unavoidable costs of meeting the obligations
under the contract exceed the economic benefits
expected to be received under it.
Decommissioning cost‑ a provision for
decommissioning cost is recognised when there is
a present obligation, it is probable that an outflow
of economic benefits will be required to settle the
obligation, and the amount of the provision can be
measured reliably. The estimated future obligations
include the costs of removing the facilities and
restoring the premises.
41
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
1. Summary of Accounting Policies (cont)
1(s) Share based payments to employees
Equity‑settled share‑based payments are measured
at fair value at the date of the grant. Fair value
is measured by use of the Black Scholes model.
The expected life used in the model has been
adjusted, based on management best estimates,
for the effects of non‑transferability, exercise
restrictions and behavioural considerations.
The fair value determined at the grant date of the
equity‑settled share based payments is expensed on
a straight‑line basis over the vesting period, based
on the consolidated entity’s estimate of shares that
will eventually vest.
Ordinary shares issued under the Loan Funded
Share Plan is accounted for as an in substance
option and were initially measured using a Monte
Carlo simulation model. Directors’ reassess the
non‑market inputs and adjust throughout the life for
likely eventuality.
1(t) Interests in joint operations
A joint operation is a joint arrangement whereby the
parties that have joint control of the arrangement
have rights to the assets, and obligations for the
liabilities, relating to the arrangement. Joint control
is the contractually agreed sharing of control of
an arrangement, which exists only when decisions
about the relevant activities require unanimous
consent of the parties sharing control.
When a group entity undertakes its activities
under joint operations, the Group as a joint
operator recognises in relation to its interest in a
joint operation:
■ its assets, including its share of any assets
held jointly;
■ its liabilities, including its share of any liabilities
incurred jointly;
■ its revenue from the sale of its share of the output
arising from the joint operations;
■ its share of the revenue from the sale of the
output by the joint operation; and
■ its expenses, including its share of any expenses
incurred jointly.
The Group accounts for the assets, liabilities,
revenues and expenses relating to its interest in
a joint operation in accordance with the AASB’s
applicable to the particular assets, liabilities
revenues and expenses.
When a group entity transact with a joint operation
in which a group entity is a joint operator (such
as a sale or contribution of assets), the Group is
considered to be conducting the transaction with
the other parties to the joint operation, and gains
or losses resulting from the transactions are
recognised in the Group’s consolidated financial
statements only to the extent of other parties’
interest in the joint operation.
When a group entity transacts with a joint operation
in which a group entity is a joint operator (such as a
purchase of assets), the Group does not recognise
its share of the gains and losses until it resells those
assets to a third party.
1(u) Critical accounting judgements
In the application of the consolidated entity’s
accounting policies, management is required to
make judgements, estimates and assumptions
about carrying values of assets and liabilities
that are not readily apparent from other sources.
The estimates and associated assumptions are
based on historical experience and various other
factors that are believed to be reasonable under the
circumstance, the results of which form the basis of
making these judgements. Actual results may differ
from these estimates.
The estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in
which the estimate is revised if the revision affects
only that period, or in the period of the revision and
future periods if the revision affects both current and
future periods.
Key sources of estimation uncertainty
The following are the key assumptions concerning
the future, and other key sources of estimation
uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within
the next financial year:
42
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
1. Summary of Accounting Policies (cont)
Recoverable amount of property, plant
and equipment
The directors made a critical judgement in relation
to the recoverable amount of property, plant and
equipment included in Note 9. Judgement is made
regarding the value of second hand manufacturing
equipment and the future cash flows of the cash
generating units.
Deferred tax
The directors made a critical judgement in relation
to not recognising the deferred tax balances
described in Note 4(b). The directors do not currently
consider it probable that sufficient taxable amounts
will be available against which deductible temporary
differences can be utilised.
Inventory obsolescence
The directors made a critical judgement in relation
to the net realisable value of inventory included in
Note 6. Judgement is required in determining if
inventory items can be utilised in projects, given
the individual nature of the consolidated entity’s
contracts, and the specific nature of inventory items.
Warranty provision
The directors made a critical judgement in relation
to the valuation of the provision for warranty costs
described in Note 12. The valuation is determined
based on the director’s best estimate of the
expenditure required to settle the consolidated
entity’s liability under its warranty program.
Judgements in determining Revenue
recognised in the period
There are complexities and judgements associated
with interpreting key revenue contracts entered
into by the entity against the requirements of the
new accounting standard on Revenue (AASB 15).
This results in a significant level of management
judgement and estimation in relation to:
■ Interpreting and accounting for complex
contractual terms, including multiple
performance obligations, and clauses with
regards to cancellations and warranties (amongst
others); and
■ Accounting judgements and treatments in
relation to the first time application including
the assessment of performance obligations,
allocation of revenue and consideration of
revenue recognition as being at a point in time or
over time.
1(v) Going concern
The financial report has been prepared on the going
concern basis which assumes continuity of normal
business activities and the realisation of assets and
the settlement of liabilities in the ordinary course
of business.
The consolidated entity generated a net profit during
the year of $15,081,372 (2017: net loss of $9,399,930).
Net cash used by operating activities was $15,686,202
(2017: $25,949,693). As at 31 December 2018,
the consolidated entity had cash of $40,538,225
(2017: $9,989,953). Cash of $119,025 (2017: $119,025)
is restricted as it secures bank guarantees relating to
performance on some contracts.
In the opinion of the directors, the ability of the
consolidated entity to continue as a going concern
and pay its debts as and when they become due and
payable is dependent upon:
■ the continued ability of the consolidated entity to
deliver current contracts on time, to the required
specification and within budgeted costs;
■ key military and government customers making
timely payments for the goods supplied in
accordance with contractual terms;
■ the export licences which the Company has from
governments in Australia and the USA continue
and future export licences are not restricted;
■ the future trading prospects of the consolidated
entity including obtaining the required export
licences, lodgement of the required offset bonds
in relation to executed contracts and successfully
obtaining and negotiating commercial contract
terms in relation to potential customers; and
■ the ability to raise funding should the need arise.
Given the current financial position, performance
and prospects of the consolidated entity the
directors believe the consolidated entity can
continue as a going concern and pay its debts as and
when they become due and payable and that it is
therefore appropriate to prepare the financial report
on the going concern basis.
43
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
2. (Loss) from operations
(a) Revenue
Revenue from operations consisted of the following items:
Revenue from the sale of goods
Revenue from the rendering of services
Construction contract revenue
Total revenue
Disaggregation of Revenue
Consolidated
31 December
2018
$
31 December
2017
$
84,299,210
19,290,114
2,040,120
1,648,412
‑
2,125,292
86,339,330
23,063,818
The Group derives its revenue from the transfer of goods and services over time and at a point in time in the
following major segments.
Timing of revenue recognition
Over time
Defence segment ‑ Sale of goods
Defence segment ‑ Providing services
Space segment ‑ Sale of goods
Space segment ‑ Providing services
Total Revenue recognise over time
Revenue
$
60,105,786
‑
‑
‑
60,105,786
The Group recognises revenue for the overseas remote weapon system contract over time as the goods
manufactured under this contract do not have an alternative use for the entity, and EOS has an enforceable right
to payment for performance completed to date under the contract. AASB 15 takes a control‑based approach to
revenue recognition, where the transfer of a good or service happens as the customer obtains control of that
good or service. Under our current contract, the control of the goods transfer when the goods are delivered.
The output method, based on the delivery of goods to customer faithfully depicts our performance under the
contract and best depicts the pattern of transfer of goods to the customer.
44
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
2. (Loss) from operations (cont)
All other revenue is recognised at a point in time.
At a point in time
Defence segment ‑ Sale of goods
Defence segment ‑ Providing services
Space segment ‑ Sale of goods
Space segment ‑ Providing services
Total Revenue recognise at a point in time
Total Revenue
Other revenue
Interest revenue:
Bank deposits
Other
(b) (Loss) before income tax has been arrived at after charging the
following expenses:
Borrowing costs
Finance charges
Depreciation and amortisation ‑ property, plant and equipment
Loss on sale of property, plant and equipment
Foreign exchange loss (gains)
Operating lease rental expenses:
Minimum lease payments
Employee benefit expense:
Share based payments:
Equity settled
Contributions to defined contribution superannuation plans
Other employee benefits
Revenue
$
23,743,572
1,129,557
468,850
910,565
26,233,544
86,339,330
Consolidated
31 December
2018
$
31 December
2017
$
790,658
408
194,888
1,088
87,130,396
23,259,794
31 December
2018
$
31 December
2017
$
36,903
633,235
‑
(7,712,222)
34,985
193,325
2,007
695,061
2,053,962
801,986
285,790
601,344
1,530,708
1,171,747
20,331,368
12,919,758
22,147,866
14,692,849
45
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018
notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
3. Profit/ (Loss) per Share
Basic profit/ (loss) per share
Basic Profit/ (Loss) per Share
Profit/ (Loss) (a)
Weighted average number of ordinary shares (b), (c)
31 December
2018
$
31 December
2017
$
17.22 cents
(15.1 cents)
15,081,372
(9,399,930)
87,582,641
62,260,622
(a) Profit/ (Loss) used in the calculation of basic earnings per share are the same as the net profit/ (loss) in the statement of
profit or loss and other comprehensive income.
(b) There are no potential ordinary shares and hence diluted earnings per share is the same as basic earnings per share.
The unlisted options outstanding are not in the money at 31 December 2018 and are not considered dilutive.
(c) The 5,180,000 ordinary shares issued on 20 June 2018 at a price of $2.99 under the Loan Funded Share Plan are not included
in the weighted average number of ordinary shares as they are treated as in substance options for accounting purposes.
The conditions in relation to these in substance options have not all been met at the reporting date.
4. Income Tax
(a) The prima facie income tax benefit on pre‑tax accounting profit/ (loss) from operations reconciles to the income
tax benefit in the financial statements as follows:
Profit/(Loss) from operations
Consolidated
31 December
2018
$
31 December
2017
$
15,081,372
(9,399,930)
Income tax (benefit) calculated at 30%
4,524,412
(2,818,979)
Effect of different tax rates of subsidiaries operating in other jurisdictions
(166,904)
(133,752)
Share based payments
Other non‑deductible/ non assessable items
85,737
1,054,960
180,403
34,444
5,498,205
(2,737,884)
Deferred tax assets not previously recognised now bought to account
(5,498,205)
‑
Unused tax losses and tax offsets not recognised as deferred tax assets
Income tax benefit attributable to operating Profit/ (Loss)
‑
‑
2,737,884
‑
46
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
4. Income Tax (cont)
The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate
entities on taxable profits under Australian tax law, 25% in Germany, 17% in Singapore and the federal tax rate
applicable in the USA and the State of Arizona has been assumed to approximate a combined rate 40% as their tax
rates apply on a sliding scale. There has been no change in the corporate tax rate when compared with the previous
reporting period.
(b) Unrecognised deferred tax balances
The following deferred tax assets have not been bought to account as assets
Tax losses ‑ revenue
Temporary differences
Tax consolidation
Consolidated
31 December
2018
$
31 December
2017
$
17,052,793
22,550,998
2,954,843
1,647,998
20,007,636
24,198,996
Relevance of tax consolidation to the consolidated entity
The company and its wholly‑owned Australian resident entities have formed a tax‑consolidated group with
effect from 1 January 2003 and are therefore taxed as a single entity from that date. The head entity within the
tax‑consolidated group is Electro Optic Systems Holdings Limited. The members of the tax‑consolidated entity
group are identified in Note 21.
Nature of tax funding arrangements and tax sharing agreements
There are no formal tax funding or tax sharing arrangements within the tax‑consolidated group.
47
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
5. Trade and other receivables
Current
Trade receivables
GST receivable
Amounts due from customers under construction contracts (Note 28)
Other debtors
Non‑current
Trade receivables
Consolidated
31 December
2018
$
31 December
2017
$
26,228,489
11,389,405
571,575
‑
19,682
228,825
7,613
36,164
26,819,746
11,662,007
7,146,990
609,864
The average credit period on sales of goods is 45 days. No interest is charged on outstanding late receivables.
The Group always measures the loss allowance for trade receivables at an amount equal to lifetime ECL.
The expected credit losses on trade receivables are estimated using a provision matrix by reference to past
default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors
that are specific to the debtors, general economic conditions of the industry in which the debtors operate and an
assessment to both the current as well as the forecasted direction of conditions at the reporting date. The Group
has not recognised any loss allowance.
There has been no change in the estimation techniques or significant assumptions made during the current
reporting period.
The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial
difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation
or has entered bankruptcy proceedings, or when the trade receivables are over two years past due, whichever
occurs earlier. None of the trade receivables that have been written off is subject to enforcement activities.
Ageing of past due not impaired
31‑60 days
61‑90 days
91‑120 days
120 days +
6. Inventories
Raw materials ‑ at net realisable value
Work in progress ‑ at cost
48
321,346
‑
‑
19,060
340,406
63,526
2,187
10,778
12,239
88,730
20,356,864
10,529,141
6,108,635
3,266,433
26,465,499
13,795,574
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
7. Other Assets
Current
Prepayments
Non‑current
Prepayment
Consolidated
31 December
2018
$
31 December
2017
$
12,713,727
2,390,931
2,252,177
7,751,938
These prepayments relates to a prepayment made to a supplier for the delivery of component parts in relation to a
future order.
8. Auditors Remuneration
(a) Auditor of the Parent Entity
Audit or review of the financial report
Taxation services
(b) Other Auditor
Audit or review of the financial report
Taxation services
The auditor of Electro Optic Systems Holdings Limited is Deloitte Touche Tohmatsu.
196,665
5,670
202,335
2,976
893
3,869
155,003
5,000
160,003
2,839
852
3,691
49
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
9. Property, Plant and Equipment
(a) Plant and equipment ‑ at cost
Less accumulated depreciation and impairment
(b) Leased assets ‑ at cost
Less accumulated amortisation and impairment
(c) Office equipment ‑ at cost
Less accumulated depreciation and impairment
(d) Furniture, fixtures and fittings ‑ at cost
Less accumulated depreciation and impairment
(e) Leasehold improvements ‑ at cost
Less accumulated depreciation and impairment
(f) Motor vehicle ‑at cost
Less accumulated depreciation and impairment
(g) Computer software ‑ at cost
Less accumulated depreciation
(h) Satellite ‑ at cost
Less impairment
Total net book value of Property, Plant and Equipment
50
Consolidated
31 December
2018
$
31 December
2017
$
9,502,565
7,649,696
(7,748,865)
(7,188,427)
1,753,700
461,269
26,066
(26,066)
‑
23,551
(23,551)
‑
4,670,390
3,955,490
(3,909,971)
(3,563,079)
760,419
392,411
1,560,332
826,911
(679,155)
(585,429)
881,177
241,482
1,499,424
1,205,945
(1,118,477)
(940,851)
380,947
265,094
102,260
(36,377)
65,883
128,499
(9,776)
118,723
60,682
(15,591)
45,091
‑
‑
‑
7,000,000
7,000,000
(7,000,000)
(7,000,000)
‑
‑
3,960,849
1,405,347
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
9. Property, Plant and Equipment (cont)
Cost
Plant and equipment
Balance at beginning of year
Additions
Disposals
Net foreign currency exchange differences
Balance at end of year
Leased assets
Balance at beginning of year
Net foreign currency exchange differences
Balance at end of year
Office equipment
Balance at beginning of year
Additions
Disposals
Net foreign currency exchange differences
Balance at end of year
Consolidated
31 December
2018
$
31 December
2017
$
7,649,696
7,889,339
1,554,016
(254,022)
240,957
(3,750)
552,875
(476,850)
9,502,565
7,649,696
23,551
2,515
26,066
26,245
(2,694)
23,551
3,955,490
4,306,943
542,589
(124,401)
338,623
‑
296,712
(690,076)
4,670,390
3,955,490
51
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
9. Property, Plant and Equipment (cont)
Furniture, fixtures and fittings
Balance at beginning of year
Additions
Net foreign currency exchange differences
Balance at end of year
Leasehold improvements
Balance at beginning of year
Additions
Net foreign currency exchange differences
Consolidated
31 December
2018
$
31 December
2017
$
826,911
675,373
58,048
1,560,332
1,205,945
246,859
46,620
646,962
242,131
(62,182)
826,911
983,701
272,185
(49,941)
Balance at end of year
1,499,424
1,205,945
60,682
41,578
102,260
‑
128,499
128,499
13,630
47,052
60,682
‑
‑
‑
7,000,000
7,000,000
7,000,000
7,000,000
Motor vehicle
Balance at beginning of year
Additions
Balance at end of year
Computer software
Balance at beginning of the year
Additions
Balance at end of year
Satellite
Balance at beginning of year
Balance at end of year
52
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
9. Property, Plant and Equipment (cont)
Accumulated Depreciation/Amortisation/ Impairment
Plant and equipment
Balance at beginning of year
Depreciation
Disposals
Net foreign currency exchange differences
Balance at end of year
Leased plant and equipment
Balance at beginning of year
Net foreign currency exchange differences
Balance at end of year
Office equipment
Balance at beginning of year
Depreciation
Disposals
Net foreign currency exchange differences
Balance at end of year
Consolidated
31 December
2018
$
31 December
2017
$
(7,188,427)
(7,557,401)
(261,585)
(109,617)
254,022
(552,875)
1,743
476,848
(7,748,865)
(7,188,427)
(23,551)
(2,515)
(26,066)
(26,245)
2,694
(23,551)
(3,563,079)
(4,180,466)
(174,834)
(72,631)
124,401
(296,459)
‑
690,018
(3,909,971)
(3,563,079)
53
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
9. Property, Plant and Equipment (cont)
Furniture, fixtures and fittings
Balance at beginning of year
Depreciation
Net foreign currency exchange differences
Balance at end of year
Leasehold improvements
Balance at beginning of year
Depreciation
Net foreign currency exchange differences
Balance at end of year
Motor vehicle
Balance at beginning of year
Depreciation
Net foreign currency exchange differences
Balance at end of year
Computer software
Balance at beginning of the year
Depreciation
Balance at end of year
Satellite
Balance at beginning of year
Balance at end of year
Consolidated
31 December
2018
$
31 December
2017
$
(585,429)
(645,586)
(35,338)
(58,388)
(2,025)
62,182
(679,155)
(585,429)
(940,851)
(131,005)
(46,621)
(983,701)
(7,091)
49,941
(1,118,477)
(940,851)
(15,591)
(20,697)
(89)
(13,630)
(1,961)
‑
(36,377)
(15,591)
‑
(9,776)
(9,776)
‑
‑
‑
(7,000,000)
(7,000,000)
(7,000,000)
(7,000,000)
Aggregate depreciation, impairment and amortisation allocated during the period is recognised as an expense and
disclosed in Note 2 to the financial statements.
Impairment of property, plant and equipment
The consolidated entity has assessed the carrying amount of plant and equipment and determined an impairment
(reversal) charge for the year of Nil (2017: Nil). The basis to assess for any potential impairment was fair value less cost
for disposal and fair value determined by reference to an active market for second hand manufacturing equipment.
54
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018
notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
10. Current Trade and Other Payables
Trade payables
Accruals
Unearned revenue
Consolidated
31 December
2018
$
31 December
2017
$
11,277,520
5,905,060
1,399,605
773,735
9,651,772
11,346,649
Amounts due to customers under construction contracts (Note 28)
‑
58,914
22,328,897
18,084,358
The average credit period on purchases of goods is 30 days and no interest is payable on goods purchased within
agreed credit terms. The consolidated entity has financial risk management policies in place to ensure that all
payables are paid within the credit timeframe.
11. Provisions
Current
Employee benefits (Note 13)
Provision for straight lining of rent
Decommissioning costs
Under utilised space
Warranty (Note 12)
Non‑current
Employee Benefits (Note 13)
Make good of premises
Warranty (Note 12)
4,620,115
3,594,345
15,497
250,000
884,855
596,424
7,225
250,000
‑
1,239,990
6,366,891
5,091,560
409,262
132,776
3,349,732
3,891,770
457,311
80,000
321,765
859,076
55
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
11. Provisions (cont)
Movement on decommissioning costs
Balance at 1 January
Balance as at 31 December
Consolidated
31 December
2018
$
31 December
2017
$
250,000
250,000
250,000
250,000
The provision for decommissioning costs relate to an obligation to dismantle and refurbish a telescope at a
future date.
Movement in straight lining of rental
Balance at 1 January
Increase during the period from new lease
Balance as at 31 December
Movement in make good of premises
Balance at 1 January
Increase during the period from new lease
Balance as at 31 December
Movement in under utilised space
Balance at 1 January
Increases resulting from re‑measurement
Balance as at 31 December
12. Warranty Provisions
Movement in warranty provision
Balance at 1 January
Reductions resulting from re‑measurement
Additional provisions recognised
Balance as at 31 December
Current (Note 11)
Non‑Current (Note 11)
7,225
8,772
15,497
80,000
52,776
132,776
‑
884,855
884,855
‑
7,225
7,225
‑
80,000
80,000
‑
‑
‑
1,561,755
2,121,545
(944,692)
(1,402,265)
3,329,093
842,475
3,946,156
1,561,755
596,424
1,239,990
3,349,732
321,765
The provision for warranty claims represents the present value of the directors’ best estimate of the future sacrifice
of economic benefits that will be required under the consolidated entity’s warranty program for military products
and telescopes. The estimate has been made on the basis of historical industry accepted warranty trends and may
vary as a result of new materials, altered manufacturing processes or other events affecting product quality.
56
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
13. Employee Benefits
The aggregate employee benefits liability recognised in the financial statements is as follows:
Provision for employee entitlements
Current (Note 11)
Non‑Current (Note 11)
14. Issued Capital
Consolidated
31 December
2018
$
31 December
2017
$
4,620,115
3,594,345
409,262
457,311
Balance at the beginning of the financial year ‑ Ordinary shares
103,342,071
75,383,567
Issue of 3,863,638 new shares at $2.20 each on 30 March 2017 at $2.20 each
(net of issuance costs)
Issue of 9,100,000 new shares at $2.30 each on 22 September 2017 at $2.30 each
(net of issuance costs)
‑
‑
8,075,004
19,883,500
Issue of 10,471,434 new shares at $2.91 on 9 February 2018
(net of issuance costs)
28,948,278
Issue of 10,147,123 new shares at $2.91 on 16 March 2018 (net of issuance costs)
28,051,722
Issue of 495,758 new shares at $2.91 on 21 March 2018 under the Small
Shareholder Plan
Issue of 5,180,000 new shares at $2.99 on 20 June 2018 under the
Loan Funded Share Plan
1,442,656
‑
‑
‑
‑
‑
Balance at the end of the financial year
161,784,727
103,342,071
Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to share
capital from 1 July 1998. Therefore, the company does not have a limited amount of authorised capital and issued
shares do not have a par value.
Fully Paid Ordinary Shares
Balance at the beginning of financial year
Issue of new shares at $2.20 each on 27 March 2017
Issue of new shares at $2.30 each on 22 September 2017
Issue of new shares at $2.91 on 9 February 2018
Issue of new shares at $2.91 on 16 March 2018
Issue on new shares at $2.91 on 21 March 2018 under the
Small Shareholder Plan
Number
Number
69,809,564
56,845,926
‑
‑
3,863,638
9,100,000
10,471,434
10,147,123
495,758
‑
‑
‑
‑
Issue of new shares at $2.99 on 20 June 2018 under the Loan Funded Share Plan
5,180,000
Balance at end of financial year
96,103,879
69,809,564
Fully paid ordinary shares carry one vote per share and carry the right to dividends. The 5,180,000 ordinary
shares issued on 20 June 2018 under the Loan Funded Share Plan are restricted shares subject to vesting
and performance criteria under the Plan detailed in Note 16 to the financial statements and are treated as in
substance options.
57
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
15. Directors and Employee Share Option Plan
The consolidated entity has an ownership‑based compensation scheme for employees (including directors) of
the company. In accordance with the provisions of the scheme, as approved by shareholders at a previous annual
general meeting, employees with more than three months service with the company may be granted options to
purchase ordinary shares at exercise prices determined by the directors based on market prices at the time the
issue of options were made.
Each share option converts to one ordinary share in Electro Optic Systems Holdings Limited. No amounts are paid
or payable by the recipient on receipt of the options. The options carry neither rights to dividends nor voting rights.
Options may be exercised at any time from the date of vesting to the date of expiry.
The number of options granted is determined by the directors and takes into account the company’s and individual
achievements against both qualitative and quantitive criteria.
On 28 June 2002, shareholders approved the adoption of an Employee Share Option Plan.
(a) Unlisted Options issued under the Employee Share Option Plan
2018
2017
Weighted
average
exercise price
$
Number
Balance at the beginning of the financial year (i)
5,620,000
Granted during the year (ii)
Exercised during the year (iii)
Lapsed during the year (iv)
Balance at the end of the financial year (v)
Exercisable at end of the year
(i) Balance at the beginning of the year
220,000
‑
(120,000)
5,720,000
5,500,000
3.00
2.99
‑
3.00
3.00
3.00
Weighted
average
exercise price
$
3.00
‑
3.00
3.00
3.00
Number
5,715,000
‑
‑
(95,000)
5,620,000
2,810,000
2018
2017
Number
Grant date
Expiry date
Exercise
Price
Fair value at
grant date
5,620,000
5,715,000
Various
Various
31/1/19
31/1/19
3.00
3.00
$1,892,410
$1,919,058
Staff and Director options carry no rights to dividends and no voting rights.
58
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
15. Directors and Employee Share Option Plan (cont)
(ii) Granted during the year
2018
Staff options
2017
None
Number
Grant date
Expiry date
Exercise
Price
Fair value at
grant date
220,000
20/6/18
31/3/2023*
2.99
$61,369
‑
‑
‑
‑
‑
These staff options have similar vesting and forfeiture conditions as those issued under the Loan Funded Share
Plan summarised in Note 16. The options issued were priced using the Monte Carlo Simulation method model.
Where relevant, the expected life used in the model has been adjusted based on management’s best estimate for
the effects of non‑transferability, exercise restrictions and behavioural conditions. Expected volatility is based on
the historical share price volatility.
The following inputs were used in the model for the option grants made on 20 June 2018:
Dividend yield
Expected volatility (linearly interpolated)
Risk free interest rate
Expected life of options
Grant date share price
Exercise price
‑
30.00%
2.32%
1,745 days *
$2.91
$2.99
* These options commence to vest after 30 June 2020 on the basis of 12.5% of their number each quarter subject to share price
and profitability hurdles being achieved.
The Options issued during the financial year ended 31 December 2016 were priced using the Black Scholes model.
Where relevant, the expected life used in the model has been adjusted based on management’s best estimate for
the effects of non‑transferability, exercise restrictions and behavioural conditions. Expected volatility is based on
the historical share price volatility over a two year period.
The following inputs were used in the model for the option grants made on 5 February 2016:
Dividend yield
Expected volatility (linearly interpolated)
Risk free interest rate
Expected life of options
Grant date share price
Exercise price
‑
82.77%
1.745%
1,085 days
$1.18
$3.00
59
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
15. Directors and Employee Share Option Plan (cont)
The following inputs were used in the model for the option grant made on 30 May 2016:
Dividend yield
Expected volatility (linearly interpolated)
Risk free interest rate
Expected life of options
Grant date share price
Exercise price
(iii) Exercised during the year
There were no options exercised during the year.
(iv) Lapsed during the year
120,000 (2017: 95,000) Staff options lapsed during the year.
(v) Balance at the end of the financial year
‑
82.77%
1.745%
975 days
$1.40
$3.00
2018
Staff options
Staff options
Director options
Director options
2017
Staff options
Director options
Director options
Number
Grant date
Expiry date
Exercise
Price
Fair value at
grant date
2,300,000
220,000
3,000,000
200,000
5,720,000
2,420,000
3,000,000
5/2/16
20/6/18
5/2/16
30/5/16
5/2/16
5/2/16
200,000
30/5/16
5,620,000
31/1/19
31/3/23
31/1/19
31/1/19
31/1/19
31/1/19
31/1/19
$3.00
$2.99
$3.00
$3.00
$3.00
$3.00
$3.00
645,150
61,369
1,122,000
91,600
1,920,119
678,810
1,122,000
91,600
1,892,410
Staff and Director options carry no rights to dividends and no voting rights.
All options granted to directors and staff in 2016 vest on the basis of 50% after one year and 50 % after two years
from the date of issue.
All options granted to staff on 20 June 2018 commence to vest after 30 June 2020 on the basis of 12.5% of their
options each quarter subject to share price and profitability hurdles being achieved.
The difference between the total market value of the options issued during the financial year, at the date of issue,
and the total amount received from the employees (nil) is recognised in the financial statements over the vesting
period as disclosed in Note 17 to the financial statements.
60
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
16. Loan Funded Share Plan
The Board has established a new employee incentive scheme known as the Electro Optic Systems Holdings Limited
Loan Funded Share Plan (LFSP), pursuant to which fully paid restricted ordinary shares in the Company (Shares)
are acquired by Directors and selected employees of the Company using a loan made to them by the Company.
Shareholders approved the establishment of the LFSP and the participation of directors in the LFSP at the Annual
General Meeting held on 24 April 2018. The loans are limited recourse, interest and fee free and are repayable
in full on the earlier of the termination date of the loan (5 years) or the date on which the shares are sold in
accordance with the terms of the LFSP.
Under the applicable Accounting Standards, the LFSP shares are accounted for as options, which give rise to share
based payments.
The Company issued 5,180,000 new restricted fully paid ordinary shares under the LFSP at an issue price of $2.99
on 20 June 2018 based on the ‘Market Value’ which was determined as the 20 day volume weighted average price of
Shares up to and including the trading day immediately prior to the date of issue (that is, the 20 most recent trading
days on the ASX). The issue of the 5,180,000 restricted fully paid ordinary shares at $2.99 created loans to Directors
and staff under the LFSP of $15,488,200.
The 5,180,000 restricted fully paid ordinary shares were issued under the LFSP on 20 June 2018 as follows:
Directors and KMP’s
Mr Fred Bart
Dr Ben Greene
Mr Ian Dennis
Lt Gen Peter Leahy AC
Air Marshal Geoff Brown AO
The Hon Kate Lundy
Dr Craig Smith
Mr Scott Lamond
Mr Grant Sanderson
Mr Peter Short
Selected Employees
Number of
Shares
Fair Value at
grant date
200,000
2,000,000
200,000
200,000
200,000
200,000
250,000
250,000
250,000
250,000
$55,790
$557,900
$55,790
$55,790
$55,790
$55,790
$69,738
$69,738
$69,738
$69,738
4,000,000
$1,115,800
1,800,000
$329,161
5,180,000
$1,444,961
The Shares issued to Directors and selected employees will be subject to both ‘Vesting Conditions’ and ‘Forfeiture
Conditions’. The vesting conditions are split into two different tranches which are outlined in the table below.
Directors and selected employees will be required to satisfy the Vesting Conditions in order for their Shares to
vest. While Directors and selected employees hold their Shares, they will be subject to Forfeiture Conditions and
Directors will forfeit their Shares if either they fail to satisfy the Vesting Conditions or they cease to be employed or
continue to provide services to EOS or a Group company in certain circumstances.
Once the Vesting Conditions have been satisfied, removed or lifted, the Shares become vested and Directors and
selected employees may deal with them in accordance with the rules of the LFSP subject to sale restrictions and
other legal restrictions (such as under the Company’s trading policy).
61
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
16. Loan Funded Share Plan (cont)
The Shares will vest at the end of each ‘Vesting Period’ in the manner set out in the tables below, provided that the
following conditions are met:
(a) Directors and selected continue to provide services to EOS on each of the vesting dates (or such other date on
which the Board makes a determination as to whether the Vesting Condition has been met); and
(b) the performance hurdles set out below are satisfied, which relate to the Company’s earnings before income tax
(EBIT) and the Company’s share price. Notably, EBIT and share price hurdles must both be achieved in order
for Shares to vest under each Tranche.
To the extent Shares vest, they will be subject to sale restrictions for 6, 9, 12 and 15 months respectively as outlined
in the tables.
TRANCHE A (applies to 50% of the total number of Shares to be issued to Directors)
Measures and hurdles
Vested Shares can be sold after:
(i) EBIT of $5m for 12 months ending
31 December 2018; and
(ii) a Share Price Hurdle of $4.50 by
31 December 2019
(this hurdle must be reached on at least
30 trading days, not necessarily consecutive,
by 31 December 2019)
30 June 2020
(25% of Vested Shares)
30 September 2020
(50% of Vested Shares)
31 December 2020
(75% of Vested Shares)
31 March 2021
(100% of Vested Shares)
TRANCHE B (applies to 50% of the total number of Shares to be issued to Directors)
Measures and hurdles
Vested Shares can be sold after:
(i) EBIT of $15m for 12 months ending
31 December 2019; and
(ii
a Share Price Hurdle of $7.50 by
31 December 2021
(this hurdle must be reached on at least
30 trading days, not necessarily consecutive,
by 31 December 2021)
30 June 2022
(25% of Vested Shares)
30 September 2022
(50% of Vested Shares)
31 December 2022
(75% of Vested Shares)
31 March 2023
(100% of Vested Shares)
62
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
16. Loan Funded Share Plan (cont)
Over and above the above conditions, KMP and employees who work for Space and Defence Systems have to meet
the additional hurdles summarised below:
Tranche A
i) Defence Systems profit exceeds A$8m for 2018 and A$20m for 2019;
ii) Space Systems loss does not exceed A$3m for 2018 and A$2m for 2019;
iii) Defence Systems production exceeds 275 units for 2018 and 480 units for 2019.
Tranche B
i) Defence Systems profit exceeds A$20m for 2020;
ii) Space Systems profit exceeds $1M for 2020 and $3M for 2021;
iii) Defence Systems production exceeds 480 units or 2020.
If the above Vesting Conditions are not satisfied, or if the Board determines that they cannot be satisfied, Directors
and selected employees will forfeit their unvested Shares (unless the Board exercises its discretion to permit those
Shares to vest in accordance with the terms of the LFSP).
The 5,180,000 ordinary restricted fully paid shares issued on 20 June 2018 were valued using the Monte Carlo
Simulation method model as the shares have a share price hurdle in the vesting conditions. Where relevant,
the expected life used in the model has been adjusted based on management’s best estimate for the effects of
non‑transferability, vesting restrictions and behavioural conditions. Expected volatility is based on the historical
share price volatility.
The following inputs were used in the model for the option grants made on 20 June 2018:
Dividend yield
Expected volatility (linearly interpolated)
Risk free interest rate
Expected life of options
Grant date share price
Issue price
Other features of the LFSP structure
‑
30.00%
2.32%
1,745 days
$2.91
$2.99
Shares are held in an employee share trust, on behalf of Participants, until all Vesting Conditions are satisfied in
accordance with their terms of issue and the Loan relating to the Shares is repaid in full.
If the Company pays dividends or make capital distributions, the after‑tax value of any dividends paid or
distributions made to a Participant will be applied to repay the Loan. The balance (i.e., the estimated value of the
tax payable by the Participant on the dividend or distribution) is paid to the Participant to allow them to fund their
tax liability on the dividend or distribution.
At the end of the period for the Vesting Conditions and subject to continuous employment or engagement of
services with the Company, the Participants are able to dispose of their Shares on repayment of any outstanding
Loan balance. However, the Board may impose sale restrictions on the Shares for a period of time after vesting.
All unvested Shares will automatically vest in the event of a change in control of the Company.
63
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
17. Reserves
Foreign currency translation
Employee equity‑settled benefits
Foreign currency translation
Balance at beginning of financial year
Translation of foreign operations
Balance at end of financial year
Consolidated
31 December
2018
$
31 December
2017
$
(1,399,064)
(241,137)
9,871,855
9,586,065
8,472,791
9,344,928
(241,137)
(604,840)
(1,157,927)
363,703
(1,399,064)
(241,137)
Exchange differences relating to the translation from US dollars, being the functional currency of the consolidated
entity’s foreign controlled entities in the USA, Euros, being the functional currency of the consolidated entity’s
foreign controlled entity in Germany, Singaporean dollars, being the functional currency of the consolidated entity’s
foreign controlled entity in Singapore and Dirham being the functional currency in the United Arab Emirates,
into Australian dollars are brought to account by entries made directly to the foreign currency translation reserve.
Exchange differences previously accumulated in the foreign currency translation reserve (in respect to translating
the net assets of foreign operations) are reclassified to profit or loss on disposal of the foreign operation.
Employee equity‑settled benefits
Balance at beginning of financial year
Share based payment
Balance at end of financial year
9,586,065
8,984,721
285,790
601,344
9,871,855
9,586,065
The employee equity‑settled benefits reserve arises on the grant of share options to directors and executives under
the Employee Share Option Plan and Loan Funded Share Plan. Further information about share‑based payments
to employees is made in Note 15 to the financial statements. Items included in employee equity‑settled benefits
reserve will not be reclassified subsequently to profit or loss.
18. Accumulated Losses
Balance at beginning of financial year
Net profit/ (loss) attributable to members of the parent entity
Balance at end of financial year
(89,116,379)
(79,716,449)
15,302,214
(9,399,930)
(73,814,165)
(89,116,379)
64
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
19. Notes to the Cash Flow Statement
(a) Reconciliation of Cash and cash equivalents
For the purposes of the statement of cash flows, cash includes cash on hand and at call deposits with banks or
financial institutions, investments in money market instruments maturing within less than two months and net of
bank overdrafts. Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the
related items in the statement of financial position as follows:
Cash and cash equivalents ‑ current
(b) Restricted cash
Consolidated
31 December
2018
$
31 December
2017
$
40,538,225
9,989,953
Cash held as security for performance bonds and leases
119,025
119,025
(c) Reconciliation of profit/ (loss) for the year to net cash flows from operating activities
Profit/ (Loss) for the year
15,081,372
(9,399,930)
Loss on disposal of fixed assets
Equity settled share‑based payments
Depreciation of fixed assets
Foreign exchange movements
(Increase)/decrease in assets
Current receivables
Inventories
Other current assets
Increase/(decrease) in liabilities
Provisions
Trade and other payables
‑
285,790
633,235
(1,110,411)
2,007
601,344
193,325
116,640
(21,694,865)
(8,466,311)
(12,669,925)
(10,316,578)
(4,763,962)
(9,683,641)
4,308,025
95,662
5,998,330
4,693,161
Deferred income and amounts due to customers under construction contracts
(1,753,791)
6,214,628
Net cash (outflows) from operating activities
(15,686,202)
(25,949,693)
65
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
20. Related Party Disclosures
(a) Equity interests in related parties
Details of the percentage of ordinary shares held in subsidiaries are disclosed in Note 21.
(b) Key management personnel compensation
The aggregate compensation of the key management personnel of the consolidated entity is set out below:
31 December
2018
$
31 December
2017
$
1,728,877
1,394,589
143,506
211,905
474,953
108,666
462,656
67,973
2,559,241
2,033,884
Short term benefits
Post‑employment benefits
Share based payments
Long term benefits
(c) Transactions with other related parties
Other related parties includes:
■ the parent entity;
■ entities with significant influence over the consolidated entity; and
■ subsidiaries.
(d) Other transactions with key management personnel
During the year, the Company paid a total of $76,814 (2017: $66,795) to 4F Investments Pty Limited, a company
associated with Mr Fred Bart in respect of directors fees and superannuation for Fred Bart.
During the year, the Company paid $47,222 (2017: $41,063) to Dennis Corporate Services Pty Limited, a company
associated with Mr Ian Dennis in respect of directors fees and superannuation for Ian Dennis.
During the year, the Company paid $47,222 (2017: $41,063) to GCB Stratos Consulting Pty Limited, a company
associated with Mr Geoff Brown in respect of directors fees and superannuation for Geoff Brown.
During the year, the Company paid $120,000 (2017: $120,000) to Dennis Corporate Services Pty Limited, a company
associated with Mr Ian Dennis in respect of consulting fees for company secretarial and accounting services.
During the year, the Company paid $28,441 (2017: $22,955) to Audio Pixels Holdings Limited, a company of which
Fred Bart and Ian Dennis are directors and shareholders in respect of shared Sydney office facilities.
(e) Parent entity
The parent entity in the consolidated group is Electro Optic Systems Holdings Limited.
66
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
21. Controlled Entities
Name of Entity
Parent Entity
Country of
Incorporation
December 2018
%
December 2017
%
Electro Optic Systems Holdings Limited (i), (ii)
Australia
Controlled Entities
Electro Optic Systems Pty Limited (ii), (iii)
Australia
EOS Defence Systems Pty Limited (formerly
Fire Control Systems Pty Limited) (ii), (iii)
FCS Technology Holdings Pty Limited (ii)
EOS Space Systems Pty Limited (ii)
EOS UAE Holdings Pty Limited (ii)
EOS Advanced Technologies LLC (iv)
EOS Optronics GmbH
EOS Defense Systems Pte Limited
EOS USA, Inc. (Inc in Nevada)
EOS Technologies, Inc. (Inc in Arizona)
EOS Defense Systems, Inc (Inc in Arizona)
EOD Defense Systems USA Inc (Inc in Alabama)
Australia
Australia
Australia
Australia
UAE
Germany
Singapore
USA
USA
USA
USA
100
100
100
100
100
49
100
100
100
100
100
100
100
100
100
100
100
‑
100
100
100
100
100
‑
(i)
Electro Optic Systems Holdings Limited is the head entity within the tax‑consolidated group.
(ii)
These companies form part of the Australian consolidated tax entity.
(iii) These wholly owned subsidiaries have entered into a deed of cross guarantee with Electro Optic Systems
Holdings Limited pursuant to ASIC Corporations (Wholly‑owned Companies) Instrument 2016/875 and are relieved
from the requirement to prepare and lodge an audited financial report.
On 29 March 2018, the parent entity, Electro Optic Systems Holdings Limited entered into a deed of cross
guarantee with two of its Australian wholly‑owned subsidiaries Electro Optic Systems Pty Limited and EOS
Defence Systems Pty Limited.
(iv) Whilst the Group owns less than 50% of the shares, pursuant to the shareholder and related agreements, it
has existing rights that give it the ability to direct the relevant activities of the company and is entitled to 80% of
company distributions.
Deloitte Touche Tohmatsu is the auditor of the Group. EOS Defense Systems Pte Limited is the only entity with a
separately appointed statutory auditor.
67
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018
notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
21. Controlled Entities (cont)
21(b) Consolidated income statement, consolidated statement of financial position
and movements in consolidated retained earnings of entities party to the deed of
cross guarantee
The consolidated income statement of the entities which are parties to the deed of cross guarantee are:
Revenue
Changes in inventories of work in progress
Raw materials and consumables used
Employee benefits expense
Administration expenses
Finance costs
Depreciation and amortisation of property, plant and equipment
Foreign exchange gains
Occupancy costs
Other expenses
Provision for loss on loans to subsidiaries
Profit before income tax benefit
Income tax benefit
Profit for the year
31 December
2018
$
85,444,179
(2,842,202)
(39,709,340)
(16,461,267)
(8,352,985)
(29,472)
(600,082)
7,708,137
(945,491)
(943,862)
(11,822,666)
11,444,949
‑
11,444,949
68
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
21. Controlled Entities (cont)
21(b) Consolidated income statement, consolidated statement of financial position and
movements in consolidated retained earnings of entities party to the deed of cross
guarantee (cont)
The consolidated statement of financial position of the entities which are parties to the deed of cross guarantee are:
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventories
Other
TOTAL CURRENT ASSETS
NON‑CURRENT ASSETS
Security deposit
Property, plant and equipment
Other
TOTAL NON‑CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Provisions
TOTAL CURRENT LIABILITIES
NON‑CURRENT LIABILITIES
Provisions
TOTAL NON‑CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Reserves
Accumulated losses
TOTAL EQUITY
Consolidated
December
2018
$
37,938,141
26,326,301
25,213,232
11,448,915
100,926,589
8,971,929
3,792,113
9,399,167
22,163,209
123,089,798
16,855,009
4,099,587
20,954,596
3,849,314
3,849,314
24,803,910
98,285,888
161,784,727
9,871,855
(73,370,694)
98,285,888
69
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
21. Controlled Entities (cont)
21(b) Consolidated income statement, consolidated statement of financial position and
movements in consolidated retained earnings of entities party to the deed of cross
guarantee (cont)
The consolidated retained earnings/(accumulated losses) of the entities which are party to the deed of cross
guarantee are:
Balance at the start of the year
Add
Net profit for the year
Balance at end of the year
22. Joint Operations
31 December
2018
$
(84,815,643)
11,444,949
(73,370,694)
The group is party to a joint operation. The group has a share in the operation based on capital contributions that
entitles it to a proportionate share of revenue earnt from the operation.
The operation is not yet active.
23. Contingent Liabilities
Entities within the consolidated entity are involved in contractual disputes in the normal course of contracting operations.
The directors believe that the entities within the consolidated entity can settle any contractual disputes with customers
and should any customers commence legal proceedings against the company, the directors believe that any actions can
be successfully defended. As at the date of this report no legal proceedings have been commenced against any entity
within the group.
Under the terms of a contract in the Defence sector, the Company has an obligation to enter into and execute an offset
agreement with the overseas Government Authority. Once the agreement is executed, the Company will be required
to lodge an offset bond of approximately US$16m with the overseas Government Authority to ensure that local content
requirements are met. The final terms of the offset bond are still being negotiated.
70
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
24. Commitments
(a) Capital commitments and guarantees
On 14 July 2015, the parent entity provided a guarantee to the Commonwealth of Australia for $2,750,000 in respect
of advance payments received of $3,950,000 GST inclusive in relation to a space sector project.
During the year, the Group provided a performance bond in respect of a contract in the Defence sector for
US$31,635,147. The performance bond was provided by Efic under a Bond Facility Agreement and is secured by a
cash security deposit of A$8,791,929.
(b) Operating lease commitments
Non‑cancellable operating leases contracted for but not recognised in the
financial statements:
Payable:
not later than one year
later than one year and not later than five years
later than five years
Operating Leases
Leasing arrangements ‑ Operating leases relate to:
Consolidated
31 December
2018
$
31 December
2017
$
1,882,845
4,145,792
‑
629,070
946,009
‑
6,028,637
1,575,079
Premises at 2500 N. Tucson Boulevard, Suite 100, Tucson Arizona with a lease term which expires on 30 April 2019.
There is an option to renew on a monthly basis after 30 April 2019. There is no option to purchase the property.
Premises at 2112 N. Dragoon, Units 6 and 18, Tucson Arizona are subject to an expired lease. The company
occupies the property on a month to month basis and there is no make good requirement.
Premises in Queanbeyan, Australia for a 5 year period to 31 December 2008 with a 5 year option. The Company
has the first right of refusal in respect of the purchase of the property. The Company is on a month to month basis
whilst a new lease is negotiated.
Premises at 46 Bayldon Road, Queanbeyan with a lease term which expired on 2 August 2016. The company occupies
the property on a month to month basis. There is no make good provision or option to purchase the property.
Premises at 90 Sheppard Street, Hume, ACT for a period to 31 March 2021. There is no option to purchase this
property. There is a make good provision in the lease, however EOS has made significant improvements to the
property which will reduce any make good costs.
Shared premises in Sydney which are on a month to month arrangement with Audio Pixels Holdings Limited,
a company associated with directors Mr Fred Bart and Mr Ian Dennis.
The Commonwealth and EOS Space Systems Pty Limited (EOS) have entered into a Services Agreement (executed
10 June 2015) to provide Space Situational Awareness (SSA) Tracking Data to the Commonwealth. In addition to the
Services Agreement the Commonwealth and EOS have also entered into a Lease Agreement for Defence property
in Learmonth WA on which EOS is permitted to build SSA Tracking Infrastructure in order to deliver SSA Tracking
Services. The term of the lease is for ten years from 26 November 2015 at an annual rental of $1 per annum.
Premises at 2865 Wall Triana Highway, Huntsville, Alabama for a period to 28 February 2023. The company has an
option to purchase the property for US$6.5m prior to the expiry of the lease.
On 1 October 2018 the Company entered into a lease of premises at Tawazun Industrial Park, Al Ajban, Abu Dhabi,
United Arab Emirates for a period of 1 year.
71
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
25. Subsequent Events
The Directors are not aware of any significant subsequent events since the end of the financial period and up to the
date of this report.
26. Financial Risk Management Objectives and Policies
The Group’s principal financial instruments comprise receivables, payables, borrowings, finance leases, cash and
short term deposits.
Due to the small size of the group significant risk management decisions are taken by the board of directors. These
risks include market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity
risk and cash flow interest rate risk.
The Group does not use derivative financial instruments to hedge these risk exposures.
The directors consider that the carrying amount of financial assets and liabilities recognised in these financial
statements approximate their fair values.
Risk Exposures and Responses
(a) Interest rate risk
The Group’s exposure to market interest rates relates primarily to the Group’s cash holdings.
At balance date, the Group had the following mix of financial assets and liabilities exposed to interest rate risk that
are not designated in cash flow hedges:
Financial assets
Cash and cash equivalents
Security deposit
Consolidated
2018
$
2017
$
40,538,225
9,989,953
8,971,929
‑
49,510,154
9,989,953
The Group constantly analyses its interest rate exposure. Within this analysis consideration is given to potential
renewals of existing positions, alternative financing and the mix of fixed and variable interest rates.
At 31 December 2018, if interest rates had moved, as illustrated in the table below, with all other variables held
constant, post tax (loss) and equity would have been affected as follows:
Judgements of reasonably
possible movements
Consolidated
+1% (100 basis points)
‑.5% (50 basis points)
Post Tax (Loss)
Higher/(Lower)
Equity
Higher/(Lower)
2018
$
2017
$
2018
$
2017
$
495,116
99,900
495,116
(247,588)
(49,950)
(247,588)
99,900
(49,950)
The movements in profits are due to lower interest rates on cash balances. The cash balances were higher in 2018
than in 2017 and accordingly the sensitivity is higher.
72
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
26. Financial Risk Management Objectives and Policies (cont)
(b) Foreign currency risk
As a result of purchases of inventory denominated in United States Dollars, the Group’s statement of financial
position can be affected significantly by movements in the US$/A$ exchange rates. Exchange rates are managed
within approved policy parameters using natural hedges and no derivatives are used.
The Group also has transactional currency exposures. Such exposures arise from sales or purchases by an
operating entity in currencies other than the functional currency.
The policy of the Group is to convert surplus foreign currencies to Australian dollars. The group also holds cash
deposits in US dollars to secure US dollar bank guarantees and performance bonds to overseas customers.
At 31 December 2018, the Group had the following exposure to US$ foreign currency:
Financial assets
Cash and cash equivalents
Security deposit
Trade and other receivables
Financial liabilities
Trade and other payables
Net exposure
Consolidated
2018
$
2017
$
3,642,504
8,971,929
571,773
‑
40,562,230
10,367,157
53,176,663
10,938,930
2,168,101
730,696
51,008,562
10,208,234
All US$ denominated financial instruments were translated to A$ at 31 December 2018 at the exchange rate of
0.7052 (2017: 0.7805).
At 31 December 2018 and 2017, had the Australian Dollar moved, as illustrated in the table below, with all other
variables held constant, post tax profit and equity would have been affected as follows:
Judgements of reasonably
possible movements
Consolidated
AUD/USD +10%
AUD/USD ‑5%
Post Tax Profit
Higher/(Lower)
Equity
Higher/(Lower)
2018
$
2017
$
2018
$
2017
$
(4,267,142)
(928,021)
(4,267,142)
(928,021)
2,684,661
537,275
2,684,661
537,275
Management believes the balance date risk exposures are representative of risk exposure inherent in
financial instruments.
As noted, foreign currency transactions entered into during the financial year are managed within approved
policy parameters using natural hedges. The director’s do not consider that the net exposure to foreign currency
transactions is material after considering the effect of natural hedges.
73
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
26. Financial Risk Management Objectives and Policies (cont)
(c) Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial
loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties which are
continuously monitored.
The credit risk on liquid funds is limited because the counterparties are banks with high credit‑ratings assigned by
international credit agencies.
(d) Liquidity risk management
The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient
liquidity to meet its liabilities when due.
Ultimate responsibility for liquidity risk management rests with the board of directors, who has built an appropriate
risk management framework for the management of the Group’s short, medium and long term funding and liquidity
requirements. The Group manages liquidity by maintaining adequate cash reserves by continuously monitoring
forecast and actual cash flows and managing maturity profiles of financial assets.
Liquidity and interest tables
The following tables detail the Group’s remaining contractual maturity for its non‑derivative financial liabilities.
The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest
date on which the Group can be required to pay. The table includes both interest and principal cash flows.
Weighted
average
effective
interest rate
%
Less than
1 month
$
1‑3 months
$
3 months
to 1 year
$
1‑5 years
$
Consolidated
2018
Other non‑interest bearing liabilities
2017
Other non‑interest bearing liabilities
‑
‑
6,678,795
7,724,391
‑
‑
‑
‑
‑
‑
74
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
26. Financial Risk Management Objectives and Policies (cont)
(d) Liquidity risk management (cont)
The following tables detail the Group’s remaining contractual maturity for its non‑derivative financial assets.
The tables have been drawn up based on the undiscounted contractual maturities of the financial assets including
interest that will be earned on these assets except where the Company/Group anticipates that the cash flow will
occur in a different period.
Weighted
average
effective
interest rate
%
Less than
1 month
$
1‑3 months
$
3 months
to 1 year
$
Consolidated
2018
Non‑interest bearing
Receivables
‑
‑
12,168,586
26,248,171
‑
‑
Fixed interest rate instruments
1.56
9,001,059
28,427,519
47,417,816
28,427,519
2017
Non‑interest bearing
Receivables
‑
‑
641,004
12,035,434
Fixed interest rate instruments
1.78
9,345,768
22,022,206
‑
‑
‑
‑
1‑5 years
$
‑
7,146,990
‑
7,146,990
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
17,050
17,050
(e) Price risk
The Group’s exposure to commodity price risk is minimal. The Group does not make investments in equity securities.
27. Segment Information
AASB 8 requires operating segments to be identified on the basis of internal reports about components of the
Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the
segment and to assess performance.
The identification of the Group’s reportable segments has not changed from those disclosed in the previous
2017 Annual Report. The Group’s reportable segments are Defence Systems and Space.
The consolidated entity operates in Australia, USA, Singapore and Germany in the development, manufacture and
sale of telescopes and dome enclosures, laser satellite tracking systems and the manufacture of electro‑optic fire
control systems.
75
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
27. Segment Information (cont)
Product and Services within each Segment
Space
EOS’s laser‑based space surveillance systems have been demonstrated in customer trials and EOS is now
well‑placed to be a major contributor to the next generation of space tracking capability. Future business is
dependent on large government contracts being awarded in the space sector.
In addition, EOS has substantial space resources in its own right, and may enter the market for space data provision
in the future.
The space sector also manufactures and sells telescopes and dome enclosures for space projects.
Defence Systems
EOS develops, manufactures and markets advanced fire control, surveillance, and weapon systems to approved
military customers. These products either replace or reduce the role of a human operator for a wide range of
existing and future weapon systems in the US, Australasia, Middle East and other markets.
Segment Revenues
Space
Defence systems
Total of all segments
Unallocated interest received
Total
Segment Results
Space
Defence systems
Total of all segments
Unallocated holding company costs
Profit/ (Loss) before income tax expense
Income tax benefit
Profit/ (Loss) for the year
Consolidated
31 December
2018
$
31 December
2017
$
1,379,421
3,472,975
84,960,317
19,591,931
86,339,738
23,064,906
790,658
194,888
87,130,396
23,259,794
(2,153,278)
(2,893,122)
17,766,199
(5,701,590)
15,612,921
(8,594,712)
(531,549)
(805,218)
15,081,372
(9,399,930)
‑
‑
15,081,372
(9,399,930)
The revenue reported above represents revenue from external customers. There were no intersegment sales
during the period. There were no discontinued operations during the period.
The consolidated entity had one customer who provided in excess of 10% of consolidated revenue. The customer is
within the Defence segment and provided combined revenue of $68,847,875.
76
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
27. Segment Information (cont)
Segment Assets and Liabilities
Space
Defence systems
Assets
Liabilities
31 December
2018
$
31 December
2017
$
31 December
2018
$
31 December
2017
$
726,984
552,047
5,504,682
6,189,379
78,632,004
37,063,614
27,082,876
17,845,565
Total all segments
79,358,988
37,615,661
32,587,558
24,034,944
Unallocated cash and security deposit
49,510,154
9,989,953
‑
‑
Consolidated
128,869,142
47,605,614
32,587,558
24,034,944
Assets used jointly by reportable segments are allocated on the basis of the revenue earned by the individual
reportable segments.
Depreciation, impairment
and amortisation of
segment assets
Acquisition of
segment assets
31 December
2018
$
31 December
2017
$
31 December
2018
$
31 December
2017
$
18,935
527,787
23,353
30,551
41,422
136,371
3,158,912
1,099,525
Other Segment Information
Space
Defence systems
Total all segments
546,722
159,724
3,188,913
1,140,947
Unallocated management
86,513
33,601
‑
‑
Consolidated
633,235
193,325
3,188,913
1,140,947
77
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
27. Segment Information (cont)
Information on Geographical Segments
31 December 2018
Geographical Segments
Australasia
Middle East
North America
Germany
Total
31 December 2017
Geographical Segments
Australasia
North America
Germany
Total
Revenue from
External Customers
$
Segment Assets
$
Acquisition of
Segment Assets
$
87,130,166
124,104,603
‑
‑
230
582,556
4,178,267
3,716
87,130,396
128,869,142
Revenue from
External Customers
$
23,258,706
‑
1,088
23,259,794
Segment Assets
$
46,484,717
1,116,897
4,000
47,605,614
3,043,380
114.982
30,551
‑
3,188,913
Acquisition of
Segment Assets
$
1,140,075
‑
872
1,140,947
28. Construction Contracts
Construction work in progress
Less
Provision for losses
Progress billings
Recognised and included in the financial statements as amounts due:
From customers under construction contracts:
Current (note 5)
To customers under construction contracts:
Current (note 10)
78
Consolidated
31 December
2018
$
31 December
2017
$
‑
24,716,854
‑
(24,768,155)
(51,301)
7,613
(58,914)
(51,301)
‑
‑
‑
‑
‑
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
29. Parent entity disclosure
Financial position
Assets
Current assets
Non‑current assets
Total assets
Liabilities
Current liabilities
Non‑current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
(Accumulated losses)
Total equity
Financial performance
(Loss) for the period
Other comprehensive income
31 December
2018
$
31 December
2017
$
33,973,209
7,403,521
‑
‑
33,973,209
7,403,521
95,790
70,698
‑
‑
95,790
70,698
33,877,419
7,332,823
161,784,727
103,342,071
9,871,855
9,141,068
(137,779,163)
(105,150,316)
33,877,419
7,332,823
(32,628,847)
(25,410,783)
‑
‑
(32,628,847)
(25,410,783)
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
Guarantee provided under the deed of cross guarantee (i)
24,708,119
‑
(i) Electro Optic Systems Holdings Limited has entered into a deed of cross guarantee on 29 March 2018 with two of its wholly
owned subsidiaries. Electro Optic Systems Pty Limited and EOS Defence Systems Pty Limited
79
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 notes to anD forMing part of tHe financiaL stateMents
for tHe year enDeD 31 DeceMber 2018 (cont)
30. Additional Company Information
Electro Optic Systems Holdings Limited is a listed public company in Australia, incorporated in Australia.
The company and its subsidiaries operate in Australia, North America, Middle East, Singapore and Germany.
Registered Office
Principal Place of Business
Suite 3, Level 12
75 Elizabeth Street
Sydney NSW 2000
Australia
Tel: 02 9233 3915
Fax: 02 9232 3411
90 Sheppard Street
Hume
ACT 2620
Australia
Tel: 02 6222 7900
Fax: 02 6299 7687
USA Operations Tucson
German Operations
2500 N. Tucson Boulevard
Suite 114
Tucson, Arizona 85716
USA
Tel: +1 (520) 624 6399
Fax: +1 (520) 624 1906
USA Operations Alabama
2865
Wall Triana Hwy SW
Huntsville
AL 35824 USA
Singapore Operations
4 Shenton Way #28‑01
SGX Centre II
Singapore 068807
Tel: +65 6224 0100
Fax: +65 6227 6002
Ulrichsberger Str. 17
D‑94469 Deggendorf
Germany
Tel: +49 991 3719 1883
Fax: +49 991 3719 1884
United Arab Emirates Operations
Tawazun Industrial Park (TIP)
Zone 2, Hangar 5,
Al Ajban Area,
Abu Dhabi,
UAE
Tel: +971 2 492 7112
Fax: +971 2 492 7110
80
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 asX aDDitionaL inforMation
Additional information required by the Australian Stock Exchange Listing Rules and not disclosed elsewhere in this report.
HOME EXCHANGE
The Company’s ordinary shares are quoted on the Australian Stock Exchange Limited under the trading symbol “EOS”.
The Home Exchange is Sydney.
SUBSTANTIAL SHAREHOLDERS
At 7 March 2019 the following substantial shareholders were registered:
Fred Bart Group
Industry Super Holdings Pty Limited
Northrop Grumman Space and Mission Systems Corp.
Ordinary Shares
5,319,506
6,402,783
5,000,000
Percentage of total
Ordinary shares
5.54%
6.66%
5.20%
VOTING RIGHTS
At 7 March 2019 there were 3,130 holders of fully paid ordinary shares.
Rule 74 of the Company’s Constitution stipulates the voting rights of members as follows:
“Subject to any rights or restrictions for the time being attached to any class or classes of shares and to this Constitution:
(a) on a show of hands every person present in the capacity of a Member or a proxy, attorney or representative (or in more
than one of these capacities) has one vote; and
(b) On a poll every person present who is a Member or proxy, attorney or Representative has member present has:
(i) For each fully paid share that the person holds or represents ‑ one vote; and
(ii) For each share other than a fully paid share that the person holds or represents ‑ that proportion of one vote that
the amount paid (not credited) on the shares bears to the total amount paid and payable on the share (excluding
amounts credited).”
OTHER INFORMATION
In accordance with Listing Rule 4.10.19, the Company has used the cash and assets in a form readily convertible to cash
that it had at the time of admission in a way consistent with its business objectives.
The Company has a sponsored Level 1 American Depositary Receipt (ADR) program on the Over‑The‑Counter (OTC)
market in the USA with the ADR ticker symbol of EOPSY. The ration of ADR’s to Ordinary shares is 1:5 and the CUSIP
Number is 28520B1070. The local custodian is National Australia Bank Limited and the US Depositary Bank is
BNY Mellon.
81
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 asX aDDitionaL inforMation (cont)
DISTRIBUTION OF SHAREHOLDINGS
At 7 March 2019 the distribution of shareholdings were:
Range
1‑1,000
1,001 ‑ 5,000
5,001 ‑ 10,000
10,001 ‑ 100,000
100,001 and over
Ordinary Shareholders
Number of Shares
1,201
1,115
314
408
92
3,130
628,053
2,750,230
2,506,630
12,803,100
77,415,866
96,103,879
There were 145 ordinary shareholders with less than a marketable parcel.
There is no current on‑market buy‑back.
TWENTY LARGEST ORDINARY SHAREHOLDERS
At 7 March 2019 the 20 largest ordinary shareholders held 60.61% of the total issued fully paid quoted ordinary shares
of 96,103,879.
Shareholder
Fully Paid Ordinary Shares
Percentage of Total
1. Citicorp Nominees Pty Limited
2. JP Morgan Nominees Australia Limited
3. Electro Optic Systems Holdings Limited
4. HSBC Custody Nominees (Australia) Limited
5. N & J Properties Pty Limited
6. Washington H. Soul Pattinson and Company
7. HSBC Custody Nominees (Australia) Limited A/C 2
8. Technology Transformations Pty Limited
9. Emichrome Pty Limited
10. Link Traders (Aust) Pty Limited
11. Warbont Nominees Pty Ltd
12. Brazil Farming Pty Ltd
13. Capitol Enterprises Limited
14. National Nominees Limited
15. A & D Wire Limited
16. UBS Nominees Pty Ltd
17. Technology Investments Pty Limited
18. Emichrome Pty Limited
19. Landed Investments NZ Limited
20. BNP Paribus Noms Pty Ltd
82
9,149,269
6,833,905
5,180,000
4,352,935
4,090,000
3,816,207
3,785,929
2,759,340
2,603,236
1,939,100
1,905,932
1,704,139
1,550,000
1,460,310
1,457,276
1,447,266
1,205,155
1,097,450
1,010,000
896,800
9.52%
7.12%
5.39%
4.53%
4.26%
3.97%
3.94%
2.87%
2.71%
2.02%
1.98%
1.77%
1.61%
1.52%
1.52%
1.51%
1.25%
1.14%
1.05%
0.93%
58,244,249
60.61%
Electro Optic Systems Holdings Limited and Controlled Entities ANNUAL REPORT 2018 contents
corporate Directory
1
Review of Operations
5 Directors’ Report
18 Auditors’ Report
24 Directors’ Declaration
25 Consolidated Statement of Profi t or Loss and
Other Comprehensive Income
26 Consolidated Statement of Financial Position
27 Consolidated Statement of Changes in Equity
29 Consolidated Statement of Cash Flows
30 Notes to and forming part of the Financial Statements
81 ASX Additional Information
82 Twenty Largest Ordinary Shareholders
Directors
Share Registry
Mr Fred Bart (Chairman)
Dr Ben Greene (Chief Executive Offi cer)
Mr Ian Dennis
Lt Gen Peter Leahy AC
Air Marshall Geoff Brown
Ms Kate Lundy
Company Secretary
Mr Ian Dennis
Registered Offi ce
Suite 3, Level 12
75 Elizabeth Street
Sydney NSW 2000
Australia
Telephone +61 2 9233 3915
Facsimile +61 2 9232 3411
Web site www.eos‑aus.com
Computershare Investor Services Pty Limited
Level 3, 60 Carrington Street
Sydney NSW 2000
GPO Box 7045
Sydney NSW 1115
Australia
Telephone 1300 855 080 or +61 3 9611 5711
outside Australia
Facsimile 1300 137 341
Auditors
Deloitte Touche Tohmatsu
Chartered Accountants
8 Brindabella Circuit
Brindabella Business Park
Canberra Airport ACT 2609
Australia
4947 Designed and Produced by RDA Creative www.rda.com.au
eLectro optic systeMs HoLDings LiMiteD
acn 092 708 364
www.eos‑aus.com
2018
annUaL report