ELECTRO OPTIC SYSTEMS HOLDINGS LIMITED
ANNUAL REPORT
2022
Electro Optic Systems (EOS) is an Australian high technology business
operating in the global space, defence and communications domains.
The EOS business is a group of companies headed by Electro Optic Systems
Holdings Limited (“EOS” or “the Group”).
Headquartered in Canberra, Australia, where the business was founded in 1983,
EOS specialises in:
• space domain intelligence and control services
• laser, remote weapon system and counter-drone technologies
• high-performance naval satellite communications products.
EOS has international offices on four continents and employs a highly skilled
global workforce of around 400 engineers, scientists, technicians and other
expert personnel.
EOS products and services are used in a wide range of civilian and military
contexts – on land, at sea and in space.
Electro Optic Systems Holdings Limited Annual Report 2022
EOS Annual Report 2022 | Contents
CONTENTS
02
04
06
08
10
12
14
16
18
21
22
23
24
36
59
65
66
Chairman’s and CEO’s Report
EOS in 2022
EOS Directors
Executive Team
Company Overview
Defence
Space
EM Solutions
EOS People
Commitment to STEM
Working with Supply Chain Partners
Corporate Social Responsibility
Review of Operations
Directors’ Report
Auditor’s Report
Directors’ Declaration
Financial Statements and Notes
149
152
ASX Additional Information
Corporate Directory
Electro Optic Systems Holdings Limited Annual Report 2022
EOS Annual Report 2022 | Chairman’s and CEO’s Report
CHAIRMAN’S & CEO’S REPORT
For the year ended 31 December 2022
We begin this message to shareholders by
acknowledging – in no uncertain terms – that 2022
was the most challenging year in EOS’ history.
Readers will be aware that our first half results revealed
a substantial shortfall in revenue which, together
with other challenges, gave rise to an urgent need to
restructure the Company. Over the ensuing months, our
response included cutting costs, ceasing investment in
the SpaceLink program and securing additional funding.
A great deal of change has been occurring across every
level of EOS, as the Company enacts a rightsizing and
restructuring program aimed at serving shareholders’
interests by securing a profitable, sustainable future for
the business.
A distressing but unavoidable element of this program
was the departure of a number of staff members from
several areas of the business, a significant reduction
in managerial overhead and simplification of the
organisation structure. Change also took place at the
Board and management levels: EOS begins 2023 with a
new Chairman, a new CEO and CFO, and new personnel
in several key management positions.
We extend our gratitude to a broad range of
stakeholders – shareholders, suppliers, customers,
collaborators, staff members and others – who have
shown patience and loyalty throughout this period. We
particularly thank Washington H. Soul Pattinson for
its strong support of EOS as both a shareholder and a
lender.
This has undoubtedly been a difficult stage in the
Company’s history, but it has been a necessary one.
Now, our task is to convert this phase of uncertainty
into one of stabilisation and consolidation. At the time
of writing, the Company has already taken meaningful
strides in that direction.
In our capacity as the Company’s new Chairman and CEO,
we are convinced that EOS has significant potential.
Over many years, EOS has used its expertise in high-
energy laser and other technologies to create industry-
leading products. The Company has been operating in the
international defence and space markets for almost four
decades.
Our products and services are well known and well
established, and our technologies highly regarded. Our
engineers and engineering pedigree are truly remarkable.
We have strong business relationships with influential
organisations and individuals not only in Australia and New
Zealand but also in the US, Europe, the Middle East and
South East Asia, and our potential markets continue to
grow. We consider EOS well placed to capitalise on future
opportunities.
The Board and EOS senior management are wholly
focused on realising the Company’s potential. We have the
opportunity to continue to commercialise our technologies
and to create a profitable, sustainable business. Realising
this goal will take time, but it can be done and doing so
will benefit our customers, our suppliers, our people and,
importantly, our shareholders, over the mid and long term.
With all of this in mind, the Board has adopted a new
strategic approach that is very much focused on discipline
and commercial pragmatism. This new direction was
manifest in the decision to discontinue SpaceLink, an
ambitious, capital-intensive program that, given the timing
and available time frame, the Company was ultimately
unable to commercialise effectively.
In tandem with the strategic and cost-cutting measures
outlined above – which are described more fully later in this
Report (see the “Review of Operations” on pp. 24 to 34) we
are developing and implementing a growth strategy that
builds on the success of our existing products while also
investing in the development of related technologies that
have considerable commercial potential.
R&D and innovation have been core components of EOS’
organisational culture since 1983, and they will remain at
the heart of our operations. We are seeking to support this
innovation with a stronger commercial approach, including
by working more closely with development funding partners.
2
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Chairman’s and CEO’s Report
We enter this new phase in the Company’s history with
humility, energy and determination to not only preserve but
build on EOS’ heritage as a great Australian business.
The regeneration process will, of course, take time, and we
will be judged based on results rather than intentions. We
thank you for your patience and support.
Finally, we wish to acknowledge the many and varied
contributions of Lt Gen Peter Leahy AC, Dr Ben Greene, Ms
Deena Shiff and Mr Robert Kaye, who recently retired from
the Board of Directors.
Garry Hounsell
Director and Chair of the
Board of Directors
30 March 2023
Dr Andreas Schwer
Chief Executive Officer
30 March 2023
As well as fulfilling our existing contracts, our utmost priority
in the short to medium term is creating growth opportunities
by building the orderbook. In doing so, we are focused on
core business areas where we have genuine technological
advantages over competitors. Current examples include
our family of remote weapon systems (RWS); our long-
established expertise in space domain awareness and
other space services; KiwiStar Optics, which creates
optical components for the world’s leading astronomical
observatories; and EM Solutions, a high-growth organisation
that is a genuine world leader in its field.
Additionally, we are prioritising:
z improving the cash flow of the business and its
ability to collect cash
z working closely with customers to achieve
sustainable commercial outcomes
z establishing and maintaining mutually beneficial
relationships with our many supply chain partners.
Both the geopolitical situation and global views on national
security have shifted dramatically over the last 12 months,
as Europe became embroiled in its largest land war since
the Second World War. In this context, we firmly believe in
the importance of EOS’ work and in the Company’s ability
to be a vital contributor to the future national security
apparatus of Australia and its allies – on land, at sea and in
space.
EOS has achieved incredible things over its nearly 40-year
history. While 2022 was a year of great change for the
Company, we have sought to preserve the fundamental
elements that enabled those many past achievements
– namely, a strong innovation culture; a global outlook;
and a standing commitment to harnessing the talents
of Australia’s best and brightest science, technology,
engineering and mathematics (STEM) practitioners.
Electro Optic Systems Holdings Limited Annual Report 2022
3
EOS Annual Report 2021 | Section Heading
EOS Annual Report 2022 | EOS in 2022
EOS Annual Report 2021 | EOS in 2021
EOS Annual Report 2021 | Section Heading
EOS IN 2022
EOS IN 2021
SpaceLink Corporation
Washington DC and Silicon Valley, USA
EOS Defense Systems USA, Inc
EOS Defense Systems USA, Inc
EOS Space Technologies, Inc
EOS Space Technologies, Inc
Huntsville, USA
Huntsville and Tucson, USA
EOS Defence Systems
The Hague, The Netherlands
EOS Optronics GMBH
EOS Optronics GMBH
Deggendorf, Germany
Deggendorf, Germany
EOS Advanced Technologies LLC
EOS Advanced Technologies LLC
Abu Dhabi, UAE
Abu Dhabi, UAE
OFFICES IN
OFFICES IN
ACTIVITIES SPANNING
ACTIVITIES SPANNING
EMPLOYING
EMPLOYING
6
6
18
18
COUNTRIES
COUNTRIES
COUNTRIES
COUNTRIES
404
548
PEOPLE
PEOPLE
4
4
Electro Optic Systems Holdings Limited Annual Report 2022
Electro Optic Systems Holdings Limited and Controlled Entities
Electro Optic Systems Holdings Limited Annual Report 2022
EOS Annual Report 2021 | EOS in 2021
EOS Annual Report 2022 | EOS in 2022
EOS CUSTOMERS
EOS CUSTOMERS
AUSTRALIA
AUSTRALIA
USA
USA
UAE
UAE
SINGAPORE
SINGAPORE
SOUTH KOREA
SOUTH KOREA
THAILAND
THAILAND
JAPAN
JAPAN
INDIA
INDIA
NETHERLANDS
NETHERLANDS
FRANCE
FRANCE
PORTUGAL
PORTUGAL
SPAIN
SPAIN
CANADA
CANADA
MEXICO
MEXICO
Electro Optic Systems Holdings Limited and Controlled Entities
Electro Optic Systems Holdings Limited Annual Report 2022
5
5
EOS Defence Systems
The Hague, The Netherlands
EOS Optronics GMBH
EOS Optronics GMBH
Deggendorf, Germany
Deggendorf, Germany
EOS Defence Systems Pte Limited
Singapore
EOS Defence Systems Pte Limited
Singapore
KiwiStar Optics
Wellington, New Zealand
EM Solutions Pty Limited
Tennyson, Australia
EM Solutions Pty Limited
Brisbane, Australia
Electro Optic Systems Holdings Limited
Electro Optic Systems Pty Limited
Electro Optic Systems Pty Limited
EOS Defence Systems Pty Limited
EOS Defence Systems Pty Limited
EOS Space Systems Pty Limited
EOS Space Systems Pty Limited
Symonston, Hume, Queanbeyan and
Symonston, Hume, Queanbeyan and
Melbourne, Australia
Melbourne, Australia
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Section Heading
EOS Annual Report 2022 | EOS Directors
EOS DIRECTORS
Garry Hounsell B.Bus (Acc), FCA, FAICD
Independent Non-Executive Chair
Garry is currently Chair of the Commonwealth Superannuation Corporation, Chair of Helloworld
Travel Limited (since 2016) and Chair of HiroBrands Limited (since December 2021). He is also a
Non-Executive Director at Treasury Wine Estates Limited (since 2012), a Director of Findex (since
January 2020), and a member of Commencer Capital’s (formally Investec Emerging Companies)
Investment Committee (since 2019).
Garry was previously the Chair of Myer Holdings Limited (2017-2020; Executive Chair Feb-Jun
2018), Chair and a Non-Executive Director of Spotless Group Holdings Limited (2014-2017),
and Chair of Emitch Limited (2006-2008) and PanAust Limited (2008-2015). He was also
previously an Advisory Board Member of PanAust Limited (2015-2017), Rothschild Australia
Limited (2012-2017), and Investec Global Aircraft Fund (2007-2019). He was a Director at Orica
Limited (2004-2013), Nufarm Limited (2004-2012), Qantas Airways Limited (2005-2015), Mitchell
Communication Group Limited (2008-2010), Integral Diagnostics Limited (2015-2017), Dulux
Group Limited (2010-2017) and Investec Aircraft Syndicate Limited (2012-2018). Garry was a
Senior Partner at Ernst & Young (2002-2004), CEO and Managing Partner of Arthur Andersen
(2001-2002) and a Partner at Arthur Andersen (1989-2002).
Garry has a Bachelor of Business (Accounting) from the Swinburne Institute of Technology
(1975) and is a Fellow of Chartered Accountants Australia and New Zealand and of the
Australian Institute of Company Directors.
Board Committees:
Nil
Directorships of other listed entities in the last three years:
Treasury Wine Estates Limited (01 September 2012 to present), Helloworld Travel Limited (04
October 2016 to present), Hiro Brands Limited (06 December 2021 to present), Myer Holdings
Limited (20 September 2017 to 28 October 2020).
Air Marshal Geoffrey Brown AO BEng (Mech), M.A. (Strategic Studies)
Independent Non-Executive Director
Geoffrey 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 Institution of Engineers Australia and is a Fellow of the Royal Aeronautical
Society. He is Chair of the Sir Richard Williams Foundation and Chairman of the Advisory Board of
CAE Asia Pacific. He is Chair of the Nomination and Remuneration Committee and a member of
the Audit and Risk Committee.
Board Committees:
Member Audit and Risk Committee, Chair Nomination and Remuneration Committee
Directorships of other listed entities in the last three years:
Nil
Appointed: 24/11/22
Appointed: 21/04/16
6
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | EOS Directors
Appointed: 23/03/18
Appointed: 01/01/21
The Hon Kate Lundy HonLittD, GAICD
Independent Non-Executive Director
Kate 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 2022, the ANU Research School of Physics appointed Kate Honorary Associate Professor.
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, and the National Roads
and Motoring Association. Kate is the Chair of the Cyber Security Cooperative Research Centre,
Canberra Institute of Technology, and Deputy Chair of the National Youth Science Forum. Kate is
also the ACT Defence Industry Adviser.
Board Committees:
Member Audit and Risk Committee, Member Nomination and Remuneration Committee
Directorships of other listed entities in the last three years:
Nil
David Black BA(Hons) (Economics), FCA, MBA, GAICD
Independent Non-Executive Director
Before retiring from the Deloitte Touche Tohmatsu Australia partnership in 2016, David spent 25
years with Deloitte in the UK and Australia. During that time David provided services to a range
of clients including in the Defence, Manufacturing and Government sectors. David’s experience
includes working with growing start-up businesses, multinational corporations and the boards
of ASX listed entities on complex accounting, internal and external auditing, risk management,
corporate governance and due diligence engagements. David previously served as the audit
partner of Deloitte Touche Tohmatsu for the Company for the periods ending from June 2005 to
December 2009 and June 2012 to June 2016.
Since his retirement from Deloitte, David has established a growing family business, The Coastal
Brewing Company, and serves on three Government sector audit committees as the independent
member, chairing one of those committees.
Board Committees:
Chair Audit and Risk Committee, Member Nomination and Remuneration Committee
Directorships of other listed entities in the last three years:
Nil
Electro Optic Systems Holdings Limited Annual Report 2022
7
EOS Annual Report 2022 | Executive Team
EXECUTIVE TEAM
Dr Andreas Schwer
Chief Executive Officer
Andreas was appointed CEO in August 2022. An
accomplished executive leader with deep international
experience – including in Asia, the Middle East, Europe and
North America – Andreas has had a varied career in the
defence, manufacturing and space domains.
His previous experience includes senior positions in the
public sector defence industry and at the German defence
company Rheinmetall AG, the US global equipment
manufacturer Manitowoc Company, Airbus Group and the
European Space Agency.
He is currently a board member and recently retired
Non-Executive Chairman of Australian-based, ASX listed
Titomic Ltd. Andreas has a thorough understanding of the
Company’s global operations, having acted, most recently,
as President of EOS EMEA (Europe, Middle East and Africa)
for two years, during which time he oversaw the expansion
of the Company’s operations in NATO and Middle Eastern
markets.
Among his qualifications, he holds a PhD in the field of
system modelling and numerical optimisation.
Clive Cuthell
Chief Financial Officer
Matt Jones
Acting Vice President
EOS Defence Systems
Dr James Bennett
Acting Vice President
EOS Space Systems
8
Electro Optic Systems Holdings Limited Annual Report 2022
EOS Annual Report 2022 | Executive Team
Electro Optic Systems Holdings Annual Report 2022
9
EOS Annual Report 2022 | Company Overview
COMPANY OVERVIEW
EOS operates in two business divisions:
z EOS Defence Systems
z EOS Space Systems.
The Company’s core technologies – advanced optical and
laser assemblies, thermal imagers, day cameras, gimbal
units, laser rangefinders – offer great utility for both of
these business areas.
Organisation
EOS Defence Systems, specialises in technologies that
enable the integration of weapon systems to a diverse
range of platforms used in both land and naval warfare.
Its current key products are:
z remote weapon systems (RWS), including the
highly regarded R150 (ultra-lightweight), R400
(lightweight), R400-M (marine), and R600 and R800
heavyweight variants
z high-specification vehicle turrets (e.g. the T1600
and T2000)
z high-energy laser systems (i.e. directed energy)
z next-generation counter uncrewed aerial systems
(CUAS, or counter-drone) technologies (e.g. Titanis).
EOS Space Systems, a global industry leader in producing
accurate knowledge of the space environment, specialises
in:
z space surveillance and intelligence services
z space control and warfare capabilities
z state-of-the-art optical and satellite
communications products.
EOS Space Systems operates as three separate but closely
linked entities:
z Canberra-based EOS Space Technologies, which
supplies space domain intelligence and control
services to both domestic and international
customers
z Brisbane-based EM Solutions, which creates
innovative satellite communications systems that
are breaking new ground in the domain of high-
speed telecommunications
z New Zealand-based KiwiStar Optics, which
specialises in precision optical systems and has
designed and installed bespoke lenses and other
components for many of the world’s leading space
observatories.
EOS has had a global mindset and a strong export
business ever since its earliest years and today is a well-
established member of the international space and defence
communities. In recent years, the Company has become a
genuinely global enterprise, with offices in the US, Germany,
UAE and Singapore and a far-flung international customer
base.
Strategy
In 2022, EOS carried out an organisational restructure
to reduce costs, increase efficiencies and create
opportunities for sustainable future growth of the
business. In the wake of this program – which included
significant change at the Board and management levels
– the Company is placing a renewed emphasis on the
effective commercialisation of its core technologies, as
well as on improving its precision manufacturing and
service delivery capabilities.
During 2022 we started a new phase in the Company’s
long history – one that will be focused on fiscal discipline,
commercial growth and the creation of long-term value for
shareholders. EOS will concentrate on its core products
and services, which the Company believes have the
potential to unlock significant operational advantages for
customers.
For EOS Space Systems, a primary medium-term goal
will be to generate additional business for EOS’ space
intelligence services, with an increased focus on space
control applications, which are closely linked with
customers’ national security interests.
The group sees genuine potential to further grow EM
Solutions, building on its history of strong financial results.
The key growth opportunities include both Australian and
international markets.
EOS Defence Systems will seek to continue its strong
heritage in the RWS arena, while advancing, through
disciplined R&D, its developing capabilities in several
cutting-edge technological areas such as directed energy,
CUAS and autonomous, robotic and laser-based weapon
systems. These areas have significant future growth
potential over the medium term.
While a portion of these product developments will be
funded internally, more capital-intensive projects will
require the establishment of funding partnerships between
EOS and other entities.
Overall, the Company’s strategic approach will continue to
be informed by the original vision of a globally competitive
Australian high technology company whose business
activities increase the security and prosperity of Australia
and its allies around the world.
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Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Company Overview
OUR VISION
To be Australia’s most-valued
space and defence company
and a global leader in each of
our market segments.
OUR MISSION
To develop and produce world-
leading technology to enhance the
security and prosperity of Australia
and its allies.
WHAT DO WE ASPIRE TO DO BEST?
Develop and produce systems that can detect, identify, stabilise,
control and communicate to improve informed decision-making.
WHAT IS OUR PASSION?
Design and harness RF and electro-optical engineering to solve
unique customer challenges.
WHAT DRIVES OUR RESOURCING?
We depend on trusted and enduring relationships with agencies
that seek to enhance national security and prosperity.
11
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Defence
DEFENCE
The heavy hitting firepower of the EOS R800 RWS being put through its paces out at the Lightforce Group, Klondyke Range Complex in Australia
During 2022, EOS Defence Systems:
z continued to deliver our existing contracts
successfully
z continued to release new products and upgrade
existing products
z continued to seek out and establish new domestic
and international partnerships
z refocused on cash flow and cash collection as
mission-critical objectives.
We gratefully acknowledge our supply chain partners and
the support they have shown us throughout this year of
transition, which was vital to our ability to fulfil the terms of
our contracts in 2022.
It is also appropriate to recognise the continued assistance
of our key domestic customer, the Australian Defence
Force (ADF), as well as our UAE customer, with whom we
agreed certain contractual amendments that are expected
to significantly improve our cash realisations in FY23 and
FY24.
Commercial Priorities and
Strategic Focus
As we focus our business priorities in the short to
medium term, our attention is on product areas where
we have technical and commercial advantages over
competitors and where there is potential for commercial
growth. Key examples include:
z our growing portfolio of multiform remote weapon
systems (RWS)
z our next-generation counter uncrewed aerial systems
(CUAS) products
z our evolving work with high-energy laser systems
and directed energy.
New and Improved Products
May saw the official launch of our R400 Marine (R400-M)
RWS, which transfers the advanced capabilities of
our land R400 RWS to the maritime domain. We
are continuing to upgrade this product, and further
investment in demonstration and integration activities is
planned for FY23.
We also commenced pre-production of our ultra-
lightweight R150 RWS, and we will soon deliver our first
shipment of R150 gimbals to our initial customer, in the US,
as part of a program to support Ukraine.
Late-stage development of the high-velocity, heavy-
firepower R800 also continued, as we solidified plans to
move into pre-production in early FY24.
Demonstration, Trial and
Integration Activities
EOS Defence Systems participated in the Counter
Uncrewed Aerial Systems (CUAS) Sandbox, a major global
industry event staged in Alberta, Canada, which brought
together international defence companies that are creating
leading-edge technologies in the CUAS sphere.
In a strong performance, EOS Defence Systems
showcased that, even when using a kinetic weapon
system, we can successfully engage and destroy small
commercial drones – and some higher-end drones – at a
comparatively low cost per kill.
Elsewhere, we achieved a landmark in our directed energy
program by carrying out successful open-air testing of
our next-generation high-energy laser weapon over long
ranges, neutralising a variety of flying UAV targets over long
distances.
Lastly, we participated in several integration activities
relating to our land and maritime RWS. Further information
about these initiatives will be released as appropriate.
12
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Defence
The EOS R400 RWS in CUAS and anti-tank configuration on the Milrem
THeMIS uncrewed ground vehicle (UGV)
The L3 Harris VAMPIRE TM System with the R150 RWS gimbal
Robotics and Remote, Autonomous
Lethality
The potential commercial value of robotic and
autonomous capabilities has been underlined by the
ongoing conflict in Ukraine, where new battlefield tactics
for uncrewed ground vehicles (UGVs) and drones are being
employed to potent effect.
Addressing the clear and present threat posed by UGVs
and UAS is now a high priority for international defence
programs. This represents a significant growth opportunity
for EOS Defence Systems.
EOS Defence Systems is already providing remote lethality
on UGVs and is a trusted capability partner for four
national programs – in the US, Thailand, the Netherlands
and Australia – that are focused on the delivery of remote
and autonomous lethality.
We have established certain technical advantages over
competitors in this area and will aim to capitalise on the
commercial opportunity this has created.
Commercialisation and Cash Flow
Commercialisation
There is little doubt that there are many commercial
opportunities for our business around the world. The
challenge before us is to improve our ability to capitalise
on these opportunities, including by:
z maximising opportunities afforded by third-party
development funding
z making commercialisation a core focus of our
business in FY23 and FY24.
Cash Flow
A persistent challenge in recent years – particularly
during the height of the COVID-19 pandemic – has been
our ability to maintain a reliable cash flow by collecting
cash promptly. We are taking active steps to improve this
situation, including:
z through close management of our commercial
terms on all existing and upcoming domestic and
international contracts
z by realising cash flow from various contracts,
including in the Middle East.
Improving overall cash flow and the timeliness of cash
collections will be a focal point of our business in FY23
and FY24.
Looking Ahead
Many EOS Defence Systems products already have a
strong reputation globally, and we have confidence in our
existing and developing technologies and their potential for
Australia and its allies.
Encouragingly, as international business emerges from the
worst effects of the COVID-19 pandemic and constraints
on deliveries ease, we are already achieving improved
efficiencies and reduced costs.
Our goal in FY23 and beyond will be to achieve commercial
growth and, in the process, demonstrate that our products
can provide significant operational advantages in the
modern threat environment.
13
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Space
SPACE
Satellite laser ranging at the EOS Space Systems, Mt Stromlo Space Research Centre, Canberra, Australia
The following were among EOS Space Systems’ notable
2022 activities:
Commercial Priorities
z We continued to successfully deliver our services to
the Australian Department of Defence and our other
long-term customers.
z We were awarded two contracts to supply
space tracking services – specifically, satellite
laser ranging data and passive electro-optical
observations – to the Office of Space Commerce, a
branch of the US National Oceanic and Atmospheric
Administration (NOAA).
z We signed a modest contract to provide Space
Domain Awareness (SDA) services to a UK firm that
provides satellite end-of-life space debris removal
services.
z We made strong contributions to the Sprint
Advanced Concept Training (SACT) exercises,
where the world’s leading space organisations
test their latest technologies in various real-world
scenarios.
z We continued to develop and trial our high-
energy laser systems, including by completing
demonstration work for two potential customers.
As well as continuing to deliver for our customers, EOS
Space Systems’ chief priorities for FY23 and FY24 will be to
improve the bottom-line performance of our business and
continue to develop our growing expertise in:
z space domain intelligence and control services
z high-energy laser systems.
Moreover, we are shifting our focus towards the
development and build-up of advanced, innovative
defence and security-related applications in the area of
space control and space warfare.
A New Strategic Focus
Historically, our space business has not generated
consistent, reliable net results for EOS and its
shareholders. Following a year of significant change for
the Company as a whole, we are more committed than
ever to improving this situation.
EOS Space Systems now has a new strategic focus that
revolves around investing our efforts only in activities that
have the potential to produce a commercial return in the
foreseeable future.
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Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Space
EOS participating in global space operations from its pop-up command
centre
A KiwiStar Optics technician preparing for interferometric testing of an
astronomical off axis parabola mirror
In the near term, we will:
EM Solutions
z seek to maintain our edge in delivering SDA services
to key global customers
z focus on the growing global market for space
domain intelligence and control services and seek
third-party funding for development projects within
this sphere
z seek to establish ongoing service delivery contracts
to operate these technologies, rather than provide
custom telescope and optical infrastructure for one-
off customer projects
z bolster our precision – as opposed to bespoke
– manufacturing capabilities and offer potential
customers a clearly defined, well marketed suite of
products
z focus our sales efforts and our investments –
including in industry demonstrations, trials and
related events – on areas that have the potential
to generate substantial business growth, such as
space warfare applications.
EM Solutions’ substantial contributions to EOS Space
Systems throughout 2022 are discussed separately, on
pp. 16 and 17.
Core Technologies
SDA services – the tracking and analysis of objects in
distant space and the provision of precise data about
these objects – are the bedrock of our business. We also
have related technological advantages in the areas of
space surveillance and control, intelligence gathering and
associated services.
With an increasing amount of global defence activity
occurring in the space environment, these core
capabilities represent a significant future growth
opportunity. As such, we will continue to invest in
developing them.
Outlook
KiwiStar Optics
In April, we acquired the precision optics manufacturer
KiwiStar Optics. New Zealand-based KiwiStar – previously
a valued EOS supplier – is an acknowledged global
leader in its field, with a strong heritage of supplying and
installing bespoke optical lenses and other components
for many of the largest astronomical telescopes on Earth.
KiwiStar’s advanced optical capabilities align well
with many of EOS Space Systems’ core activities.
Commercially, we see an opportunity to achieve growth
for KiwiStar through improved efficiencies and by growing
the business’ global commercial sales activity.
2022 saw EOS Space Systems chart a new commercial
direction and begin to embed a new strategic focus
throughout our business. Our organisation has significant
untapped commercial potential and opportunities for
growth. Given the long-lasting product life cycles of
the industry in which we operate, it will take time to
realise those opportunities – but we are fully committed
to achieving improved outcomes for EOS and its
shareholders in future.
The EOS Space Systems team were recognised for their
innovative work in the 2022 Australian Space Awards
winning Space Business of the Year - Large, and Engineer
of the Year.
15
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | EM Solutions
EM SOLUTIONS
EM Solutions and CASG signing ceremony for the “Cobra” Introduction into Service and Support Contract
EM Solutions designs, builds, deploys and maintains on-
the-move satellite communication (SATCOM) systems for
defence forces in Australia and globally.
Continued Delivery of “Cobra” and
“King Cobra” Systems
The business’ key products are state-of-the-art SATCOM
terminals and antennae for naval vessels and other
maritime contexts, which are designed and manufactured
in EM Solutions’ Brisbane production facility.
EM Solutions maintains a strong working relationship with
the Australian Defence Force (ADF) and works closely with
Defence to understand, anticipate and address the RAN’s
evolving communications needs.
In commercial as well as technical terms, 2022 was a
period of strong growth for EM Solutions.
CASG Contract
EM Solutions signed a three-year, $26m sustainment
contract with the Commonwealth of Australia’s Capability
Acquisition and Sustainment Group (CASG).
The contract gives CASG the ability to purchase additional
EM Solutions satellite terminals as needed to meet
requirements for new Royal Australian Navy (RAN) ship
builds as well as to acquire enhanced SATCOM capabilities
for its existing fleet.
For EM Solutions, this agreement represents a significant
step towards achieving the business’ long-term vision of
becoming a full-service organisation that provides the
entire suite of design, manufacture, installation and – now
– support services throughout the product life cycle.
In 2022, the business expanded the breadth of its existing
one-metre, multi-band “Cobra” terminal installations across
a range of RAN vessels, including Enhanced Cape Class
patrol boats, frigates and Landing Helicopter Dock (LHD)
ships.
In addition to this major fleet upgrade activity, EM Solutions
achieved a significant business landmark via the successful
deployment of its inaugural “King Cobra” (“Fleet”) two-metre
maritime terminal system on an RAN vessel.
Internationally, the business commenced delivery and
installation of “Cobra” systems with several allied naval
customers in Europe and the Middle East, while additional
“King Cobras” were also delivered to two European (NATO)
navies.
EM Solutions’ growing export business will continue to be a
strong focus of the Company’s in 2023 and beyond.
16
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | EM Solutions
The EM Solutions team with a “King Cobra” system ahead of its
installation and sea trial with the RAN
“Cobra” Maritime SATCOM Terminal Installation with the RAN
Industry Leading SATCOM
Solutions
Customers are already providing positive feedback on
the “King Cobra”, a next-generation SATCOM solution
that simultaneously covers X-band as well as the entire
(commercial and military) Ka-band spectrums and tracks
LEO, MEO and GEO systems.
Notable features of this terminal, which has been
engineered to withstand the toughest environmental and
performance conditions, include:
z the ability to acquire and track satellites in GPS-
denied environments
z low re-acquire times following interruptions caused
by signal loss
z closed-loop beacon and carrier signal processing
and tracking, which enables increased availability
and industry-best pointing performance
z a high level of inbuilt redundancy – via switching of
satellites, orbits, or frequency bands
z a balanced gimbal with direct drive motors,
providing low power requirements, and energy
efficiency.
The “King Cobra” is poised to become an exciting addition
to the communications portfolios of EM Solutions
domestic and international naval customers.
Outlook and Strategy
In the maritime domain, the reliability – or otherwise – of
lines of communication can mean the difference between
mission success and failure.
As such, and given the business’ position as a recognised
technological innovator in its field, the Company anticipates
continuing demand for EM Solutions’ whole-of-fleet
SATCOM solutions.
The business’ near-term commercial outlook is positive,
with a strong orderbook for the ongoing delivery of
maritime satellite systems through FY23 and FY24 both in
Australia and globally.
In the medium term, EM Solutions’ goals will be to:
z continue its current growth trajectory by adding to
its domestic and international customer base
z continue to consolidate its growing global
reputation as a supplier of industry-best multi-band
SATCOM systems.
The EM Solutions team were recognised for their innovative
work at the 2022 Australian Defence Industry Awards,
where the business was named Export Business of the
Year, and at the 2022 Australian Space Awards, where
it was named Manufacturer of the Year and Defence
Business of the Year.
17
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | EOS People
EOS PEOPLE
EOS understands that the achievement of its business
goals requires a highly skilled and committed workforce.
As such, the Company is implementing a range of action
plans to help it to attract, develop and retain such a
workforce. These plans are evolving and will continue into
FY23 and beyond.
As at December 2022, the largest proportion of EOS’
workforce (72 per cent) is based in Australia.
A breakdown of EOS’ entire global workforce is given
below:
Workforce Profile
The profile of EOS’ global workforce changed significantly
during FY22, most notably in its size, as shown below:
538
569
404
Dec-21
Jun-22
Dec-22
A 29 per cent reduction in EOS’ total global workforce – from a
peak of 569 employees in June 2022 down to 404 employees
in December 2022 – came about as the company undertook
a comprehensive organisational restructuring exercise to
enable it to continue to meet its trading conditions.
EOS acknowledges that this process had a significant adverse
impact on its workforce.
18
404
Total EOS employees
globally
AUSTRALIA
290
USA
UAE
SINGAPORE
GERMANY
NEW ZEALAND
41
48
15
1
9
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | EOS People
Workforce Culture
Working Arrangements
In the wake of this restructuring, EOS is actively
implementing a range of initiatives to improve its
workplace culture. These measures include:
z ensuring that we attract high-calibre candidates to
vacant positions
z providing all employees with professional learning
and development opportunities
z ensuring that EOS’ workplace culture is a positive
one that will be attractive to both prospective and
current employees
z enacting a suite of policies, work practices and
benefits aimed at ensuring that EOS will retain high-
performing employees.
Diversity and Inclusion
z As an equal-opportunity employer, EOS values
the efforts and contributions of all staff members
irrespective of gender, age, gender identity, disability,
race, sex, or sexual orientation.
z EOS does not discriminate on the basis of these
attributes when making recruitment, appointment or
other employment-related decisions.
z EOS maintains a range of policies and procedures to
prevent any forms of discrimination or harassment
from occurring at its workplaces.
z In 2022, women comprised 22 per cent of EOS’
global workforce and 29 per cent of its Board of
Directors.
EOS understands that, to attract and retain talented
employees across its workforce, it must actively seek
to adopt, where practical, ways and means of balancing
business requirements with employee preferences when
determining working arrangements, including in regard to
hours of work and where work is performed.
Historically, EOS’ workforce has largely comprised
full-time employees working on-site on a full-time
basis; however, the company is increasingly offering
employment options that do not require employees to
work 100 per cent on-site.
Examples include:
z increasing the number of part-time staff members
z engaging staff members to work on a “fixed term” or
per-project basis.
A breakdown of the employment status of EOS’ workforce
is provided below:
Employment status
Full time: 93%
Part time: 4%
Casual: 3%
EOS Directors and Staff 2022
Number
Female
Female %
Male
Male %
Board
Senior Management (CEO/EVP)
Australia
New Zealand
Singapore
United States
United Arab Emirates
Germany
Totals
7
5
285
9
15
41
48
1
411
2
0
58
0
4
11
12
1
88
29%
0%
21%
0%
27%
27%
25%
100%
21%
5
5
227
9
11
30
36
0
323
71%
100%
79%
100%
73%
73%
75%
0%
79%
* “Senior management” is defined as a manager who has a relatively high leadership role in the day-to-day responsibilities of managing the Company.
19
Electro Optic Systems Holdings Limited Annual Report 2022
EOS Annual Report 2022 | EOS People
zworkplace health and safety (WHS)
zexpected standards of conduct and behaviour
zICT and cyber-security matters
zthe prevention and elimination of any form of
workplace harassment.
z EOS’ commitment to the ongoing professional
learning and development of its workforce will
extend into FY23 and beyond.
Work Health and Safety
Throughout 2022, EOS has continued to maintain a
strong focus on Work Health and Safety (WHS). As a
result, during FY22:
z no significant accident or incident occurred in any
EOS workplace that required mandatory reporting to
the WHS regulator
z fewer than 10 WHS incidents occurred across all
EOS global work sites. These incidents were of a
relatively minor nature, did not harm employees
either physically or psychologically and did not
require extended periods of time off work.
EOS sites in Australia undertook their annual WHS site
audits in 2022. These audits, which were carried out
by an appropriately accredited third-party organisation,
evidenced EOS’ robust commitment to managing WHS
issues and our ongoing commitment to making WHS a
leading business priority.
Employment of Veterans
EOS is a proud employer of veteran personnel and
recognises that such staff members bring unique and
critically important skills and experiences to their work.
At the time of writing, approximately 15 per cent of EOS’
global workforce are either veterans or are continuing
their service in the armed forces through engagement
with military reservist commitments.
EOS’ strong commitment to supporting veterans is shown
in our ongoing Platinum-level sponsorship of the Soldier
On organisation, which does vital work in supporting
Australian Defence Force veterans and their families.
EOS will continue to meet its Soldier On pledge as well as
seek to appoint military veterans to vacant positions as
opportunities permit.
Learning and Development
EOS is committed to enabling staff members to acquire
new skills and experiences and to grow their careers at
the Company. As such, throughout FY22 the Company
implemented a wide range of learning and development
plans to grow the skills of its workforce. Examples include
the following:
z A LinkedIn Learning account was made available to
every EOS staff member, enabling access to self-
paced online learning on a broad variety of relevant
topics.
z EOS has encouraged employees to apply for
internal job vacancies and has sought to transfer
or promote staff members into different roles as
opportunities have permitted.
z EOS provides a suite of mandatory online training
modules that all new employees in Australia are
required to complete; established employees are
required to re-complete these modules on an
annual basis. Topics covered by these training
materials include:
20
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Section Heading EOS Annual Report 2022 | Commitment to STEM
COMMITMENT TO STEM
Ever since EOS emerged from the incubator of Australia’s
early space program, in 1983, the Company has had a
standing commitment to support Australia’s science,
technology, engineering and mathematics (STEM)
ecosystem.
This commitment, which is ongoing, reflects an
organisational philosophy as well as a commercial
imperative, given that all of EOS’ global activities revolve
around a workforce of highly skilled engineers, scientists
and technicians.
EOS’ history is one of STEM-driven innovation, and the
Company is dedicated to helping the next generation
of STEM practitioners to develop, through real-world
experience, and forge fulfilling career paths.
2022 STEM Activities
The Company actively supports a range of STEM
initiatives – for example, through:
z participation in the University of Queensland’s
Women in Engineering programs, which provide
opportunities for women studying STEM subjects at
university to undertake internships at EOS
z our continuing involvement with the One Giant Leap
Australia Foundation, a not-for-profit organisation
that helps young adults – and young women in
particular – kickstart their careers in STEM fields.
Further 2022 STEM-related activities are outlined in
the table below. EOS will continue to support the STEM
ecosystem in 2023 and beyond.
EOS Space Systems Research Awards
EOS Professorial Chair in Laser Physics
The University of South Australia (UniSA) Chair, Professor David
Lancaster, will create two post-doctoral positions and establish
a world-leading research and teaching group in areas closely
aligned to core EOS capabilities in space domain awareness.
EOS has also previously established the Professorial
Chair in Microwave and Photonic Engineering and Applied
Electromagnetics at the University of Queensland.
“The Jupiter Program” was developed to inspire the next
generation of Australian space scientists and engineers.
In 2022, applicants were required to submit a short research
project proposal outlining the motivation behind their research,
as well as expected results, and to discuss the potential impact
of their project on the space science community.
Winners were selected for their outstanding research project
proposals in the fields of space science and engineering and
were each awarded a $10,000 prize.
EOS warmly congratulates the 2022 winners:
• Sofia McLeod, University of Adelaide
• David Smith , The University of Tasmania
• Julian Guinane, University of Sydney.
21
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Working With Supply Chain Partners
WORKING WITH
SUPPLY CHAIN PARTNERS
EOS is committed to building and maintaining mutually
beneficial business relationships with our many supply
chain partners.
While 2022 was a year of significant change for the
business, a constant throughout the year was our
continuing close collaboration with the dozens of highly
capable small- to medium-sized enterprises (SMEs) that
comprise EOS’ domestic supply chain.
The ongoing support of these organisations – many of
them family owned and operated – was critical to our
ability to maintain business continuity and deliver on our
existing contracts in 2022. EOS is grateful for this support.
The health of smaller onshore industry participants is
closely linked to the overall health of Australia’s defence
and space industries, and we seek to support the
continuous growth of our suppliers.
An ongoing commercial relationship with a larger
organisation such as EOS can be beneficial to these SMEs
in several ways; for example:
z it can offer a degree of ongoing business certainty,
enabling forward planning
z it provides access to EOS’ expertise in navigating
global export markets
z it creates employment and other economic benefits
for the communities along our supply chains, which
are found in all corners of Australia, including rural
and regional areas that face higher-than-average
levels of unemployment.
EOS’ suppliers, in short, are a critical element of
our operations. We thank them for their significant
contributions to our business during FY22 and look
forward to working with them to achieve future growth of
our organisations in FY23 and beyond.
Building Australian Industry
Capability
EOS is committed to utilising and developing Australian
Industry Capability (AIC).
The Company has long been passionate about advancing
Australia’s sovereign capabilities and about growing
globally competitive Australian defence, space and
communications industries.
With this in mind, EOS products feature Australian designs
and are built with largely Australian components. Our
benchmark for local content in our technologies is more
than 80 per cent for products delivered to the ADF and
more than 70 per cent for export products.
EOS was recognised for its strong contributions to AIC
when it was named the inaugural “AIC Champion” at the
2022 Australian Defence Industry Awards.
NUMBER OF SUPPLY
CHAIN BUSINESSES:
Defence
146
Space & Comms
321
22
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Corporate Social Responsibility
CORPORATE SOCIAL
RESPONSIBILITY
Environment
EOS recognises the importance of businesses taking
active steps to reduce their carbon footprint and other
environmental impacts of their operations – on Earth as
well as in space.
Our approach to environmental sustainability is
underpinned by judicious compliance with all related
government legislation and other regulations. More
broadly, EOS is committed to:
z actively managing and mitigating the environmental
effects of its operations
z contributing to the ongoing global transition to a
low-carbon economy.
In practice, this commitment involves, for example:
z minimising resource and energy usage in
manufacturing and corporate contexts
z ensuring that all waste is disposed of appropriately
z fostering a culture of energy efficiency throughout
the Company.
As part of this commitment, EOS is actively working
towards achieving compliance with ISO14001 –
Environmental Management Systems.
Corporate Governance Framework
EOS’ multifaceted global business activities call for robust
corporate governance, and so the Company maintains a
governance framework that enables our environmental,
social and governance (ESG) initiatives by:
z promoting transparency
z ensuring accountability
z managing risk throughout the Company
appropriately
z dealing with all stakeholders respectfully
z calling for careful stewardship of the environment.
The foundations of EOS’ corporate governance framework
are shown below.
Environmental
Social
Governance
Energy efficiency
management
Safe disposal of
chemical waste
Waste
management
Water usage and
conservation
Board
governance
Board diversity
Compliance
with all relevant
legislation
Modern Slavery
Statement
Management
of the wellbeing
of the EOS
workforce
Employee
Assistance
Program
Support for
charities (e.g.
ex-defence force
veterans)
Workplace health
and safety
Workplace
benefits
Our Commitment to Ethical Exports
and Human Rights
EOS operates under Australian and US export controls that
are designed to protect human rights around the globe.
EOS defence products are exported from Australia to allies
and coalition partners of Australia and the US, subject to
the simultaneous formal approval of both these nations.
The US and Australia closely observe the laws of armed
conflict and apply high human rights standards, and so
this dual restriction means EOS products are among the
most highly controlled in the world.
Australia participates in a number of multilateral export
control regimes, and the Commonwealth assesses export
applications against legislative criteria that include human
rights and Australia’s international obligations. The US
controls the export, import and use of military items
under the International Traffic in Arms Regulations, which
operate separately from, and in addition to, Australian
controls.
To gain necessary export approvals, EOS products
undergo rigorous assessments under both Australian and
US export control systems which confirm that they will not
be used to commit human rights abuses.
23
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Review of Operations
REVIEW OF OPERATIONS
1. Results for Full Year Ended
31 December 2022
For the Consolidated Entity (“EOS”) or (“Group’’), Revenue
from Continuing Operations activities was $137.9m,
representing a $74.4m or 35% decrease on the prior
comparative period (31 December 2021: $212.3m)
The Loss After Tax, from Continuing Operations, was
$53.6m (including charges for impairment provisions),
compared to a profit of $6.7m in the prior comparative
period.
Underlying EBITDA from Continuing Operations (prior to
charges for impairment provisions and foreign exchange
gains) was a loss of $42.9m, compared to an Underlying
EBITDA profit from Continuing Operations of $22.8m in the
prior comparative period.
The activities of a subsidiary, SpaceLink Corporation
(“SpaceLink”), were discontinued during the period and a
Loss After Tax from Discontinued Operations of $62.0m
was recorded. This included a loss for the period of $34.5m
and impairment charges of $47.2m, as reported at 30 June
2022. This was partially offset by a gain of $19.7m on the
effective disposal of SpaceLink.
Including the results of SpaceLink’s Discontinued
Operations, EOS reported an operating Loss After Tax
of $115.6m for the year ended 31 December 2022 (31
December 2021: operating Loss After Tax of $13.8m).
The Consolidated Entity reported Net Cash Used by
Operations for the year totalling $51.6m (31 December
2021: $0.2m Net Cash Generated by Operations). This
included $15.3m relating to Discontinued Operations
in 2022. In addition, the Consolidated Entity reported
$28.3m of Net Cash Outflows on Investing Activities (31
December 2021: $37.7m). This included $11.3m relating to
Discontinued Operations in 2022.
At 31 December 2022, the Consolidated Entity held cash
totalling $21.7m (31 December 2021: $59.3m).
Key elements of financial performance are summarised
below.
Revenue from Continuing Operations
For the year ended 31 December 2022 the Consolidated
Entity recorded revenue from Continuing Operations of
$137.9m (31 December 2021: $212.3m), representing a
decrease of $74.4m or 35%.
The decrease in revenue was driven by lower Defence
Systems segment Revenue, down from $184.5m in 2021
to $105.9m in 2022, a decrease of $78.6m. More detailed
information is provided in Section 5 below.
Revenue in the Space segment increased on prior year to
$32.0m (2021: $27.8m). This included growth in the EM
Solutions business. More detailed information is provided
in Section 6 below.
At 31 December 2022, the Group had a backlog order
book of contracted future work of over $300m. This
represents work secured under customer contracts,
mainly in Defence Systems and EM Solutions. This work
is currently expected to be undertaken principally in 2023
and 2024.
Expenses from Continuing Operations
Expenses in Continuing Operations increased from
$207.1m in the prior period to $215.3m in this period.
This increase of $8.2m was driven by an increase in
administration expenses of $7.5m (including advisory
costs associated with addressing funding and related
matters), increased finance costs of $7.7m, an impairment
charge of $7.3m, and increases in other items totalling
$15.4m and a reduction in material costs by $29.7m
During the third and fourth quarters of the year a
Restructuring Program was commenced to reduce costs,
improve efficiency and align resources more closely with
activity levels at the end of the year. Total annual savings of
$25.0m are expected to be achieved. As part of this, over
100 roles were made redundant during the year. Costs of
$3.5m were incurred during the year in implementing this
Restructuring Program.
Underlying EBITDA from Continuing
Operations
Underlying EBITDA from Continuing Operations (prior to
charges for impairment and foreign exchange gains) was
a loss of $42.9m, compared to an EBITDA profit from
Continuing Operations of $22.8m in the prior comparative
period.
Continuing Operations
Year ended 31 December
$m
Profit (Loss) for the period
Income tax expense (benefit)
Profit (Loss) before tax
Finance costs
Impairment of assets
2022
2021
(53.6)
(9.3)
(62.9)
14.3
7.3
6.7
9.2
15.9
6.6
-
Foreign exchange (gains)
(12.7)
(9.8)
Underlying EBIT (before impairment and
foreign exchange gains)
Depreciation & Amortisation
(54.0)
11.1
12.7
10.1
Underlying EBITDA (before impairment
and foreign exchange gains)
(42.9)
22.8
24
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Review of Operations
Impairments
The Group recognised an impairment charge of $54.5m
during the period. This included a charge of $7.3m
relating to Continued Operations and a charge of $47.2m
relating to Discontinued Operations.
Provision for onerous contracts
Net cash used in operating activities was impacted by a
reduction in Receipts from Customers from $233.9m in the
prior year to $145.9m this year. The reduction was caused
by projects ending and lower than expected receipts on
continuing projects. In particular, due to delays in achieving
contract milestones, receipts from a significant overseas
customer in the Middle East were lower than expected.
Payments to Suppliers and Employees of $188.6m, were
down from $225.2m in the prior year.
The Discontinued Operations also recorded a provision
for onerous contracts, of $2.9m.
Contract Asset
Foreign Exchange
The results included a foreign exchange gain in the year of
$12.7m (2021: gain of $9.8m), which predominantly arose
on the translation of US$ assets in into Australian Dollars.
Discontinued Operations
During the year, the Company sought strategic funding
partners to support continued investment in Spacelink.
The company did not succeed in securing investment, and
as a result the Company ceased investment in SpaceLink
during the year. Accordingly, on 16 November 2022, EOS
announced that SpaceLink had ceased normal operations
and that an orderly wind-up process had been initiated in
the United States, by way of an Assignment for the Benefit
of Creditors (“ABC”).
Under the ABC process, at 31 December 2022, SpaceLink
was controlled by an Assignee, and the Assignee acts
in the interests of creditors. As a result of the decision
to cease investment, and the ABC process, EOS expects
that future EOS cash outflows related to SpaceLink will be
approximately nil.
SpaceLink has been treated as a Discontinued Operation.
The results of Discontinued Operations include:
z Operating expenses of $34.5m arising during the year
z An impairment provision of $47.2m
z A gain arising on the Assignment and effective
disposal of SpaceLink, of $19.7m, which arose when
SpaceLink, with net liabilities, was put into the ABC
processes noted above.
Cash Flow Used in Operating Activities
During the year, the Group had cash used in operating
activities of $51.6m. Of this, $15.3m was represented
by net cash used by the Discontinued Operations of
SpaceLink.
The Group recognises a contract asset, being revenue
recognised on projects that has not yet been invoiced
to customers. Revenue is recognised under Australian
Accounting Standards. Amounts are invoiced to customers
in accordance with legal arrangements specified in
customer contracts.
At 31 December 2022, the Group had a contract asset
totalling $164.4m, being revenue earned but not invoiced,
mainly on a project with a significant overseas customer
in the Middle East. The Contract Asset increased by
$36.1m during the year, due to the fact more revenue
was recognised during the year than was invoiced to the
customer. This was because of delays in achieving contract
milestones, mainly because of the impact of COVID-19 and
supply chain challenges on the customer.
The Group expects to realise cash from the Contract Asset
following the invoicing and collection of these amounts in
future periods, in accordance with the legal arrangements
specified in customer contracts.
The realisation of this asset is one of the most critical tasks
for the Group. Work on this includes seeking contract
amendments and other changes with customers to bring
forward Cash Receipts where possible and optimising the
achievement of relevant milestones.
During February 2023, a contract amendment was agreed
with a significant overseas customer in the Middle East,
and this is expected to help improve cash realisations in
2023 and 2024.
Contract Liabilities – Amounts Received
in Advance
The Group recognises Contract Liabilities for amounts that
have been received from customers as advance payments
on projects. During the year, the amount of Contract
Liabilities increased from $7.7m at 31 December 2021 to
$22.2m at 31 December 2022.
25
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Review of Operations
1. Results for Full Year Ended
31 December 2022 (cont)
2. Changes in Directors and
Management
Cash Flow Used in Investing Activities
The Group used $28.3m of net cash in investing activities
during the year, including $11.4m net cash used in the
Discontinued Operations of SpaceLink. In Continuing
Operations, the main investing cash payments were
the $11.2m paid as Security Deposits for bonds, mainly
required under contracts with overseas customers, and
capital expenditure of $7.9m. This was partially offset by
$2.6m received on repayment of loan from an associate
entity.
Funding and Cash Balances
As a result of the funds used in Operating and Investing
Cash flows, the Group was required to seek additional
funding during the year.
The Group raised $14.6m in cash proceeds from the
issuance of new equity share capital during the year.
The Group repaid $35.8m of Group borrowings during
the year and raised $75.7m in proceeds from new
borrowings. During the year, the Group established the
following borrowing facilities:
z Working Capital Facility, with $20.0m principal
drawn, maturing on 6 September 2023
z Working Capital Facility, with $15.0m principal
drawn, maturing on 11 April 2024
z Term Loan Facility, with $35.0m principal drawn,
maturing on 11 October 2025.
The total borrowings under these facilities, including
capitalised initial fees and interest were $83.6m at 31
December 2022. At 31 December 2022, these facilities
were fully drawn.
The facilities are secured on certain Group assets, and
terms of these facilities include financial covenants, and
minimum earn amounts. These are disclosed in the
Notes to the Financial Statements.
The cash balance fell from $59.3m at the start of the year
to $21.7m at the end of the year.
The Group continues to closely monitor the cash flow of
the Group and the outlook for the business, to ensure that
adequate funding is in place.
The Group will continue to regularly review and, if
necessary, seek to amend the EOS capital structure to
allow operations to continue.
During the year, Dr Ben Greene resigned as Chief
Executive Officer of the Company, and on 1 August 2022,
Dr Andreas Schwer was appointed as Chief Executive
Officer of the Company.
On 24 November 2022, Mr Peter Leahy AC stepped down
as an Independent Non-Executive Director and Chair of
the Board of Directors of the Company and Mr Garry
Hounsell was appointed to both roles. Mr Robert Kaye SC
was appointed as an Independent Non-Executive Director
of the Company on 13 September 2022. On 31 January
2023, after the end of the year, Ms Deena Shiff stepped
down from her role as an Independent Non-Executive
Director of the Company. On 20 March 2023, Mr Robert
Kaye SC stepped down from his role as an Independent
Non-Executive Director of the Company. On 27 March
2023, after the end of the year, Dr Ben Greene stepped
down from his role as a Director of the Company. Ms.
Leanne Ralph was appointed Company Secretary on 25
August 2022.
In the management team, during the year, Mr Clive
Cuthell was appointed as Chief Financial Officer, Mr Matt
Jones was appointed Acting Executive Vice President
of Defence Systems, Dr James Bennett was appointed
Acting Executive Vice President of Space Systems,
and Dr Ben Greene became Head of Innovation. As
part of the work to reduce the size of the Executive
Management Team and reduce costs, the roles of Deputy
Chief Executive Officer, Chief Operating Officer and Chief
Technology Officer ended during the year.
3. Strategic Review and
Implementation
During the third and fourth quarters of the year the
Company commenced a strategic review, under the
leadership of new Chief Executive Officer Dr Andreas
Schwer. As part of this:
z A restructuring program was implemented, aimed
at achieving annual cost savings of $25m. As
part of this focus on cost reduction and improving
profitability, over 100 roles were made redundant
during the year.
z The Group ceased investment in SpaceLink and
established an ABC process. As a result, EOS
expects that future cash outflows related to
SpaceLink will be approximately nil.
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Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Review of Operations
Further work is continuing in a number of areas, aimed
at improving cash flow, profitability, funding, and returns,
including:
z Strengthened focus on realising cash from the
Group’s Contract Asset. This includes seeking
contract amendments with customers where
possible, and optimising the achievement of
relevant milestones
z Careful management of costs, in line with the
Revenue and activity levels of the business
z Initiatives to secure new customer contracts,
including improving sales and marketing
effectiveness
z Rationing and prioritising capital expenditure,
including R&D spending, towards core defence and
space businesses, using commercial investment
criteria.
4. Strategic Growth Partnerships
and/or Capital Transactions
EOS has received approaches from several parties in
relation to potential strategic growth partnerships and/or
capital transactions.
During the second half of 2022, a confidential process
was commenced to develop and assess potential
strategic partners, having particular regard to their ability
to support diversification into new geographic markets
and/or to complement our existing products in existing
markets. This is expected to continue during the first
half of 2023. There is no certainty that any particular
outcome or transaction will result from the process.
5. Detailed Business Unit Update -
EOS Defence Systems
Defence Systems had a challenging year in 2022, with
Revenue falling from $184.5m in 2021 to $105.9m in
2022, a decrease of $78.6m. The decrease was caused
by the impact of supply chain constraints on continuing
projects, where constraints impacted customers, third
party suppliers to customers, and the Defence Systems
business. In addition, new projects were secured and
initiated, but the impact of these was less than the impact
of projects that were completed.
The main activity during the year was the manufacture
and delivery of Remote Weapon Systems (“RWS”) for a
large customer in the Middle East. The gross margin ratio
in 2022 was lower than 2021 due to changes in project
mix and other items, but consistent with levels achieved
in 2020.
Market Overview and Sales Activity –
Defence Systems
During 2021 and 2022, some contract awards were
delayed as governments deferred program awards and
announcements. This was due to a range of political,
economic and global geopolitical factors, including the
impact of Ukraine and ongoing global supply chain is-
sues. This meant that some opportunities that were pre-
viously expected to be signed, and commence delivering
revenue, in 2022 have been delayed by customers. These
opportunities are now expected to deliver order intake
and revenue in 2023 and beyond.
The global market outlook strengthened as the 2022
year progressed, as many nations announced planned in-
creases in defence spending. This may lead to increased
opportunities in future.
Work continued during the year on sales opportunities,
including significant projects in Australia and overseas.
In Australia, the Commonwealth of Australia has not yet
published the outcome of the Defence Strategic Review.
This review is expected to clarify the Australian Defence
Force’s (“ADF”) future plans on key projects, including
some that may benefit EOS. The outcome of this review
is currently expected to be published before 30 June
2023. As part of this review, the ADF’s plans for some
projects that may benefit EOS are now expected to be
announced later than previously expected.
Regarding Ukraine, EOS continues to be in active discus-
sions and contract negotiations on the potential provision
of a significant number of RWS and related components
and spares. This includes opportunities for direct supply
to Ukraine, and to other countries providing support to
Ukraine. These opportunities have the potential to mate-
rially improve future revenue and cash flow. There is no
certainty that any particular outcome or transaction will
result from these discussions and negotiations.
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Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Review of Operations
5. Detailed Business Unit Update -
EOS Defence Systems (cont)
Product Development – Defence Systems
Defence Systems continued work during the year to
widen its RWS product range from its longstanding
successful R400 RWS product:
z Defence Systems worked to secure an initial order
for the new lightweight R150 RWS product. This
new product has been completed and is now
entering the marketplace. An order of fourteen
R150 gimbals was received in January 2023, as
part of the L3Harris Vampire program, under which
the US is providing support to Ukraine. The order is
for less than $10m and is expected to be completed
in 2023.
z Following supply in previous years, a follow-on
order was secured during the fourth quarter for
fourteen new heavyweight R600 RWS, plus spares,
for a customer in Southeast Asia. The R600 RWS
order is being manufactured in EOS US facilities
in Huntsville, Alabama. The total order is for up to
$15m and is expected to be completed in 2023.
z Defence Systems also supported the integration
and subsequent deployment of four R400 RWS
equipped uncrewed ground vehicles (UGV) for
a NATO customer. This deployment in Lithuania
represents the first NATO operational deployment
for a UGV equipped with lethality systems.
z Defence Systems continued to develop the new
R800 RWS product with evaluation by potential
customers ongoing in North America.
Defence Systems worked closely with Space Systems
to further develop and demonstrate Directed Energy
products. This included the ‘Titanis’ Counter Drone
Defence System, which includes both the established
RWS product, as well as new Directed Energy
components. The market for these products continues to
develop positively. During the year, demonstrations were
held with potential customers and further discussions
continue. Similar to the commercialisation program
for previous EOS products, it is expected to take some
time for Directed Energy products to achieve significant
commercial scale.
Further product development work is intended to
continue on a range of opportunities. The business is
focussed on obtaining third party funding for product
development work.
Supply Chain, Operations and Facilities –
Defence Systems
Delivery against existing contracts in 2022 continued
to be impacted by supply chain constraints. The
normalisation of global supply chains has taken longer
to occur than previously expected and supply chain
challenges continue in many markets, impacting the
timing of EOS revenue recognition. Whilst in some areas
supply chain challenges have started to show signs of
easing, in other areas the impact of previous challenges
continues to be felt, and new challenges have emerged.
In the US, the EOS facility in Huntsville, Alabama,
secured a facility clearance from the US Defence
Counterintelligence Security Agency. This allows the
facility to compete for classified US contracts and to work
with other cleared defence contractors on classified work
for the US military.
Organisational Structure – Defence
Systems
During the year, Mr Grant Sanderson stepped down as
CEO Defence Systems and Mr Matt Jones was appointed
Acting Executive Vice President of Defence Systems.
6. Detailed Business Unit Update -
EOS Space Systems
Revenue in the Space segment increased on prior year
(2022: $32.0m, 2021: $27.8m). EOS Space Systems
comprises two business units, Space Technologies and
EM Solutions.
Space Technologies
Space Technologies delivers space domain services
(providing information on objects in space) and advanced
manufacturing, (which includes the design, building and
deployment of telescope and observatory equipment).
Space Technologies also develops technologies that
support Optical Communications (using lasers) and
Space Control activities.
During 2022, Space Technologies continued to grow and
commercialise its technology. This included:
z Delivering satellite laser ranging services to
longstanding customers.
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Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Review of Operations
z The award of two contracts from the United States
National Oceanic and Atmospheric Administration
(NOAA) government agency’s Office of Space
Commerce. These new contract values are for less
than $1m.
This includes developing proposals to support the
forthcoming SEA1442 Phase 5 program, under which
there is an opportunity for EM Solutions to assist in the
modernisation of maritime communications for the Royal
Australian Navy.
z The design and build of prototype Directed Energy
gimbals for a large international customer.
Organisational Structure – Space
Systems
z Developing technology demonstrations for space
control systems, under a research program funded
by customers.
z Continuing to develop and demonstrate Directed
Energy products and seek funding for further
development activities.
z Completing the acquisition of the assets and
business of KiwiStar Optics. This business
produces precision optics for astronomy purposes.
The consideration for the acquisition was $318,000.
Space Technologies continues to develop sales
opportunities on potentially significant future projects for
Australian and overseas customers. Typically, it can take
up to, and more than, twelve months for opportunities to
be developed and converted to signed sales agreements.
EM Solutions
EM Solutions designs, builds, deploys and maintains on-
the-move satellite communication equipment systems
for defence forces. EM Solutions’ main products include
satellite communication terminals and antennae for naval
vessels and other marine applications.
During 2022, EM Solutions continued to focus on
delivering growth:
z EM Solutions continued to deliver satellite
communication systems to naval customers
in Australia and Europe, working closely with
customers to deliver leading products and continue
to deliver profitable growth.
z In addition to receiving a number of smaller
orders, EM Solutions signed a $26m three-
year sustainment contract with the Australian
Commonwealth’s Capability Acquisition and
Sustainment Group (CASG) for the Royal Australian
Navy’s existing fleet of Cobra Maritime SATCOM
terminals.
EM Solutions continues to work closely with the ADF to
support the Royal Australian Navy.
During the year, Mr Glen Tindall finished working with the
Company and Dr James Bennett was appointed as Acting
Executive Vice President of Space Systems.
7. Subsequent Events
There were no significant subsequent events arising after
31 December 2022 and up to the date of this report.
8. Material Business Risks
The following is a summary of the material business risks
of the Consolidated Entity. These are not listed in any
order of importance and do not constitute an exhaustive
list. Any of these risks may adversely impact on the
financial and operating performance and prospects of
the group and on the ability of the group to continue
operating as a going concern.
(i) Cash Receipts, Liquidity, Borrowing
Covenants, Funding and Going Concern
The group incurred a Loss Before Tax from Continuing
Operations of $62.9m for the year ended 31 December
2022 and had a net cash outflow from Operating
Activities of $51.6m. The group has borrowings that are
repayable as follows:
z $26.9m on 6 September 2023
z $20.5m on 11 April 2024
z $52.1m on 11 October 2025
In addition, the group is required to comply with certain
borrowing covenants.
The group is heavily reliant on cash collections from a
single customer in the Middle East.
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Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Review of Operations
8. Material Business Risks (cont)
(i) Cash Receipts, Liquidity, Borrowing
Covenants, Funding and Going Concern
(cont)
The receipt of cash from this and other customers
depends on customers making timely payments for the
goods supplied in accordance with contractual terms, the
continued realisation of the group’s contract asset, and on
the agreement of contract variations from time to time as
required. In particular, the group has significant forecast
Cash Receipts in April, May and June 2023.
If adequate cash is not received, including in April,
May and June 2023, the group may breach borrowing
covenants and/or may not have sufficient liquidity and
funds to continue operations. In addition, it may be
required to renegotiate with lenders and other finance
providers and to complete further debt or equity raisings.
There is no assurance that the group will be successful
in any potential future recapitalisation and/or refinancing
should this be required. If the group is unable to receive
adequate cash receipts from customers, or to obtain
additional funding as required, it may have a material
adverse effect on the group’s ability to continue operating
and its ability to continue as a going concern.
The group is working to mitigate this risk to the best of
its ability including by the restructuring undertaken during
the second half of 2022, by regular and constructive
discussions with customers including in relation to
contract amendments to improve the cash collection
process, by regular and constructive discussions
with lenders, pro-active cash management and
exploring profitable new business opportunities that, if
converted, will be cash flow positive. The group has set
management performance targets for cash collected in
the year.
More information on this risk is included in the Financial
Statements and Notes thereto.
(ii) Customer Concentration & Future
Sales Revenue Risks
Currently, the group’s activities are concentrated with
two customers in two markets and the group has a
sales order backlog of over $300m. The group’s ability
to continue operating depends on its ability to secure
profitable future sales contracts.
The Defence Strategic Review in Australia has been
completed by the Federal government but not published.
The outcomes of this review delayed some contract
awards in 2022 and could have a material impact on
future sales opportunities in Australia.
The group participated in the review and made a
submission to the reviewers.
The group is working to mitigate this risk to the best of
its ability by implementing plans to diversify the business
with new customers. The group has a detailed pipeline of
potential future opportunities and has set management
performance targets for new business won in the year
(which may span over multiple years) and revenue
delivered in the year. Management incentive schemes
have been established and are updated regularly.
In 2021 and 2022, cash receipts from customers were
delayed due to the unavailability of customer vehicles
upon which the group’s systems were to be installed.
Future sales revenue and cash receipts are likely to
continue to be dependent on the performance of
customers and others. The group assesses this risk and
takes steps to mitigate this risk, for example by securing
customer contract amendments where possible.
There is no guarantee that the group will be successful
in securing new sales orders, diversifying the business or
mitigating potential future non-performance of customers
and others.
(iii) Foreign Exchange Risks
The group typically incurs costs in Australian dollars
and United States dollars, and sells products priced
in Australian dollars, United States dollars and other
currencies. This can create a foreign exchange exposure,
particularly as costs are often incurred prior to sales
proceeds being received, and the group holds assets
(including contract assets) denominated in foreign
currency. The group works to monitor foreign exchange
exposures and mitigates these by including pricing based
on assumed unfavourable foreign exchange movements.
In addition, receipts and payments with foreign exchange
risks are often incurred over extended periods of time,
protecting the group from the impact of short-term
movements in foreign exchange rates. Except for the
natural hedge afforded by having operating assets in
different countries, the group does not hedge foreign
exchange transactions. The group may incur exchange
gains and losses as a result of this approach.
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Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Review of Operations
(iv) Human Resources Risks
During 2022 the group conducted a restructuring
program and significantly reduced the group headcount.
The group’s ability to continue operating depends on its
ability to retain and attract (where required) high quality
managers and staff with skills aligned to the future needs
of the group.
During 2022 some staff left the organisation and other
new hires joined. The market for hiring new staff remains
challenging in several key areas. The group employs
a range of initiatives to attract and retain appropriate
resources, including implementing remuneration
strategies and other employee benefits. These are
reviewed regularly.
There is no guarantee that the group will be able to retain
or attract key managers and staff. This may have an
adverse impact on the group’s financial and operating
performance.
The group operates in the defence industry and has
a higher inherent geo-political risk profile than other
organisations. The group is also exposed to political
and economic instability in foreign markets, inconsistent
product regulation by foreign agencies or governments,
imposition of product tariffs and burdens, difficulty in
enforcing intellectual property rights, foreign taxes, and
language and other cultural barriers.
Changes in geopolitical situations or legal requirements
could have an adverse impact on market development,
sales opportunities, revenues, operations, costs, profits,
and cash receipts and net cash flows, including the
ability of customers to pay for products and services
supplied. The group addresses this by monitoring global
developments, including meeting with senior defence and
political leaders in different countries. The group also
considers potential future situations, particularly when
developing and adapting market strategies and plans,
as well as working to influence critical decisions through
appropriate channels.
(v) Cyber / Information Technology
(vii) Operational Continuity and Supply
Risks
Chain Risks
The group is dependent on the performance, reliability
and availability of technology platforms, data centres and
technology systems, including services provided by third
parties. The group operates in the defence industry and
has a higher inherent Cyber / Information Technology risk
profile than other organisations.
There is a risk that technology systems may be adversely
affected by disruption, including by factors outside the
group’s control. This could lead to a prolonged disruption
to the group’s activities, with adverse effects on the
group’s products and services, operations, delivery to
customers, cash receipts and net cash flows, interactions
with suppliers, employees and others and on the group’s
reputation.
The group employs expert personnel and third-party
service providers to help mitigate these risks. This
includes monitoring threats and other processes. The
technical nature of this risk is subject to ongoing rapid
evolution. If this risk arose, there is no guarantee that
the mitigation activities would be effective and in this
situation, it could have an adverse effect on the ability of
the group to continue operating
(vi) Geopolitical Change Risks
The group is exposed to changes in geopolitical risks,
including changes in the operating environment that arise
from wars, terrorist acts and tensions between states
that impact global security.
During 2020, 2021 and 2022, the group’s operations
were impacted by the COVID-19 pandemic. This led to
disruptions in the group’s supply chain, interrupting the
group’s access to some materials. In particular, it also
disrupted product testing and demonstrations and led
to extended and ongoing delays to access to certain
customer vehicles (upon which the group’s systems were
to be installed).
In future, the group’s continuing operations may be
affected by a range of factors, including the interruption
of availability of materials and components caused by
supply chain issues, access to operational premises and
access to high-level engineering skills and personnel and
to customer and supplier facilities and equipment. The
group’s products are also subject to obsolescence risks,
including the ongoing availability of critical components
that may no longer be being manufactured by suppliers.
The group continues to monitor these risks and develop
plans to mitigate them, including working to source
and hold inventories of critical parts. In addition, the
group continues to negotiate contract amendments with
customers to address the adverse financial impacts of
delays in access to customer firing ranges and vehicles.
There is no guarantee that the group’s plans will cover all
scenarios or be successful in fully mitigating these risks,
should they arise in future.
31
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Review of Operations
8. Material Business Risks (cont)
(viii) Stakeholder Dissatisfaction Risks
The group interacts with a wide range of stakeholders.
These include customers (including various government,
defence force and other buyers) suppliers, industrial
partners, regulators, lenders and funding providers,
employees, equity investors and others. The ongoing
operation of the group depends on the level of trust and
confidence of stakeholders in the group.
To improve relationships with stakeholders, the group
appointed new leadership during 2022 including a new
Chair of the Board of Directors, a new Chief Executive
Officer and a new Chief Financial Officer. The group
is working to renew and improve relationships with
stakeholders and this work will continue during 2023 and
2024. There is no guarantee that the group will be able to
satisfy stakeholder requirements. Ultimately this could
lead to stakeholders withholding co-operation and could
disrupt the group’s ability to continue operating.
(ix) Product Development Risks
Ongoing sales of existing products to customers require
the maintenance and development of these existing
products and services to ensure that they remain
effective and saleable. In order to continue operating,
existing products require the maintenance of legacy
software, and the implementation of new software. The
group employs software engineers to do this.
The group sells high technology products and services
and there is the risk that fundamental technology
changes occur over time rendering the group’s existing
products obsolete. For example, global security
endeavours could become more focussed on missiles
than land-based technologies, presenting a risk and an
opportunity. The group addresses this by monitoring
market trends and developing new technology products.
Product development work is subject to risk, including
that if the group does not have access to the necessary
investment funding and the necessary skills and
capabilities, this could disrupt product development
programs and ultimately the ongoing operation of the
group.
The technical and commercial development of new
products depends on the assessment of evolving
market needs and a range of complex factors. Product
development can consume significant amounts of
investment and may not result in the development of
commercially viable products for extended periods of
time or ever.
32
The group’s access to appropriate sources of
development funding and technical, commercial and
strategic capability is a key determinant of future product
viability and the group may not be able to access these.
The group regularly reviews it product portfolio, evolving
market trends and develops product plans to mitigate
these risks. There is no guarantee that the group will be
able to maintain or develop commercially viable products.
(x) ESG: Environmental, Social and
Governance Risks
The group is exposed to a wide range of Environmental,
Social and Governance risks. The group’s products
(including Remote Weapons Systems) and other services
may be used in ways that impact human rights. The
group is required to comply with export controls in
Australia, the United States and other countries and has
implemented controls designed to ensure compliance.
The group is exposed to other social risks, including
evolving community expectations and obligations
relating to supply chain ethics, modern slavery, diversity
rights and behaviour of Directors and employees. The
group works to monitor social risks and take steps to
monitoring evolving social expectations and ensure
compliance with obligations in good time.
The group is subject to the impacts of changes in
environmental requirements and compliance obligations
(including reporting) and to the impacts of changes in
the environment on supply chain availability. The group’s
activities, products and services may have an adverse
impact on the environment. The group’s exposure to
environmental and climate change risks is set out in more
detail below.
The group is exposed to governance risks, including those
relating to Board governance and diversity and the ability
to retain and attract Board Directors with the requisite
skills and experience. In addition, there is the risk that
Board review and decision-making processes may not be
effective in ensuring compliance with relevant obligations
and the ongoing viability of the group at all times. The
Board monitors its composition, skills and processes to
assess this risk and take steps to mitigate risks where
possible.
ESG risks continue to evolve rapidly and there is no
guarantee that the group will be able to continue to
anticipate or fully mitigate these risks.
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Review of Operations
(xi) Regulatory and Legal Risks
The group is subject to a wide range of regulatory and
legal obligations in different countries.These include
regulations relating to Export Licenses for its products,
security obligations (including relating to sites, people,
data and classified activities) and compliance with the
requirements of the Australian Securities Exchange and
the Corporations Act 2001 (Cth) in Australia (and similar
legislation in other countries).
The group’s relationships with counterparties (including
customers, suppliers, and others) are governed by
contracts and relevant legislation in Australia, the United
States and other countries. In addition, the group’s
ongoing operations depend on continuing to meet
regulatory and licencing requirements in different parts
of the business and different jurisdictions. In particular,
the group requires specific government permits (including
Export Licences) under applicable international export
laws from the country of manufacture for each export
of defence equipment. Such permits are issued and
occasionally withdrawn for political and strategic reasons
by the issuing government. Delivery contracts must be
declined or avoided if an export license is not granted and
the group works to manage this risk.
There is the risk that the group could be subject to
disputes, legal claims, litigation, investigations, class
actions and sanctions from customers, suppliers,
investors, lenders and other funding providers,
regulators, governments and others. These may relate
to past, current or future events or activities of the
group, including actions or omissions by Directors and
employees. There is no guarantee that any past, current
or future such matters arising will be resolved in a way
that allows the group to continue operating.
(xii) Additional Information on Climate
....Change and Climate-related Risks
The group is exposed to climate change and climate-
related risks. Directors are responsible for providing
oversight of the group’s risks and opportunities in this
area.
The main climate risks that the group face in the short
term include compliance with evolving legislation,
including reporting obligations in different jurisdictions.
Reporting obligations are evolving and jurisdiction-
specific and the group works to ensure compliance with
these requirements. Over the medium and long term, the
group has identified the risk that additional obligations
will arise relating to potential mitigation of adverse
environmental activity within the group’s supply chains.
The group has an extensive and fragmented supply chain
base which is involved in the manufacture of electronic
and other equipment.
The group’s strategy for managing climate-related risks
requires to be reviewed and updated. The group has not
yet fully developed a comprehensive strategy and has not
modelled different climate-related scenarios, such as a ‘2
degrees centigrade or lower’ scenario.
The group has a risk management process which
is overseen by the Directors, and this has identified
ESG (including climate risks) as a risk to the group.
Assessing this risk and developing mitigations and
other actions (current and planned) is the responsibility
of management. The Directors are responsible for
monitoring compliance with the various evolving
requirements (including reporting obligations), progress
being made and the development of future plans.
During 2023 and 2024 the group plans to renew its
climate risk goals, strategy and detailed plans, including
setting metrics and targets.
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Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Review of Operations
9. Business Outlook
Outlook for Revenue and Cash Receipts
In order to improve the outlook, the Company made
changes detailed above, including:
z Appointing a new CEO and management team.
z Implementing a restructuring program aimed at
achieving annual cost savings of $25m.
z Ceasing investment in SpaceLink to reduce future
cash outflows to approximately nil.
In addition, work is continuing on several initiatives,
(outlined in sections 3 to 6 above), to improve cash flow,
profitability, funding, and returns.
Market & Customer Outlook
During 2022, the market outlook for EOS products
continued to develop positively. This was partly due
to the conflict in Ukraine and the impact on customer
demand in NATO countries and other important markets.
Some contract awards that were expected in 2022 were
delayed as governments deferred program awards and
announcements. This was due to a range of political,
economic and global geopolitical factors, including
the impact of Ukraine and ongoing global supply chain
issues.
EOS continues to work on potential sales opportunities,
including those that were previously expected to come to
fruition during 2022.
Typically, EOS operates in an industry where it can take
an extended period of time (including up to, and beyond,
twelve months) for opportunities to be converted into
signed sales contracts.
The Group’s activities include the sale of products under
a small number of relatively large projects. Typically,
both the recognition of Revenue and Cash Receipts from
Customers are governed by the achievement of project
milestones with legal arrangements specified in customer
contracts.
Changes in project timing, and the timing of the Group’s
Revenue and cash receipts, can arise due to unplanned
changes in circumstances. This can include delays at the
customer, delays at the customer’s other suppliers, delays
at the Group and delays at the Group’s suppliers.
As noted above, at 31 December 2022, the Group
had a contract asset of $164.4m, representing work
done but not yet invoiced to customers. Management
remains focussed on the progressive realisation of this
significant asset, in the form of future Cash Receipts from
Customers. This is an important aspect of improving the
Group’s financial position.
The level of future revenue and future cash receipts from
Customers will depend on the achievement of product
manufacturing and delivery milestones, compliance
with detailed contractual requirements, ongoing
customer relationships and the outcome of commercial
discussions and negotiations. Historically, owing to
a high level of customer concentration and specific
contractual arrangements, both revenue and cash
receipts have been difficult to predict with certainty.
The Group intends to continue providing regular updates
during the year in line with its continuous disclosure
obligations.
This announcement has been authorised for release to
ASX by the Board of Directors.
Dr Andreas Schwer
Chief Executive Officer
30 March 2023
34
Electro Optic Systems Holdings Limited Annual Report 2022 The Defence Space Command, Australian Public Service and Industry representatives inside the Electro Optic Systems (EOS) facility at Mount Stromlo
Observatory, Canberra. © Department of Defence
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Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Section Heading EOS Annual Report 2022 | Directors’ Report
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 2022.
In order to comply with the provisions of the Corporations Act 2001 (Cth), 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
Experience and Expertise
Garry is currently Chair of the Commonwealth Superannuation Corporation, Chair of
Helloworld Travel Limited (since 2016) and Chair of HiroBrands Limited (since December
2021). He is also a Non-Executive Director at Treasury Wine Estates Limited (since 2012),
a Director of Findex (since January 2020), and a member of Commencer Capital’s (formally
Investec Emerging Companies) Investment Committee (since 2019).
Garry was previously the Chair of Myer Holdings Limited (2017-2020; Executive Chair Feb-
Jun 2018), Chair and a Non-Executive Director of Spotless Group Holdings Limited (2014-
2017), and Chair of Emitch Limited (2006-2008) and PanAust Limited (2008-2015). He was
also previously an Advisory Board Member of PanAust Limited (2015-2017), Rothschild
Australia Limited (2012-2017), and Investec Global Aircraft Fund (2007-2019). He was a
Director at Orica Limited (2004-2013), Nufarm Limited (2004-2012), Qantas Airways Limited
(2005-2015), Mitchell Communication Group Limited (2008-2010), Integral Diagnostics
Limited (2015-2017), Dulux Group Limited (2010-2017) and Investec Aircraft Syndicate
Limited (2012-2018). Garry was a Senior Partner at Ernst & Young (2002-2004), CEO and
Managing Partner of Arthur Andersen (2001-2002) and a Partner at Arthur Andersen (1989-
2002).
Garry has a Bachelor of Business (Accounting) from the Swinburne Institute of Technology
(1975) and is a Fellow of Chartered Accountants Australia and New Zealand and a Fellow
of the Australian Institute of Company Directors.
Directorships of other listed entities in the last three years:
Treasury Wine Estates Limited (01 September 2012 to present), Helloworld Travel Limited
(04 October 2016 to present), Hiro Brands Limited (06 December 2021 to present), Myer
Holdings Limited (20 September 2017 to 28 October 2020).
Experience and Expertise
Geoffrey 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 Institution of Engineers Australia and is a Fellow
of the Royal Aeronautical Society. He is Chair of the Sir Richard Williams Foundation and
Chairman of the Advisory Board of CAE Asia Pacific. He is Chair of the Nomination and
Remuneration Committee and a member of the Audit and Risk Committee.
Directorships of other listed entities in the last three years:
Nil
Garry Hounsell
B Bus (Acc), FCA, FAICD
Independent
Non-Executive
Chair
Appointed:
24 November 2022
Board Committees:
Nil
Air Marshal Geoffrey
Brown AO
BEng (Mech), MA
(Strategic Studies)
Independent
Non-Executive
Director
Appointed:
21 April 2016
Board Committees:
Member Audit and Risk
Committee
Chair Nomination
and Remuneration
Committee
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Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
Name
Particulars
The Hon Kate Lundy
HonLittD, GAICD
Independent
Non-Executive
Director
Appointed:
23 March 2018
Board Committees:
Member Audit and Risk
Committee
Member Nomination
and Remuneration
Committee
David Black
BA(Hons) (Economics),
FCA, MBA
Independent
Non-Executive
Director
Appointed:
1 January 2021
Board Committees:
Chair Audit and Risk
Committee
Member Nomination
and Remuneration
Committee
Experience and Expertise
Kate 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 and the Cyber Security Research Centre. Kate is the Chair of the
National Youth Science Forum and Deputy Chair to the Board of the Canberra Institute of
Technology. Kate is also a member of ACT Defence Industry Advisory Board and ACT Defence
Industry Ambassador.
Directorships of other listed entities in the last three years:
Nil
Experience and Expertise
Before retiring from the Deloitte Touche Tohmatsu Australia partnership in 2016, David spent 25
years with Deloitte in the UK and Australia. During that time David provided services to a range
of clients including in the Defence, Manufacturing and Government sectors. David’s experience
includes working with growing start-up businesses, multinational corporations and the boards
of ASX listed entities on complex accounting, internal and external auditing, risk management,
corporate governance and due diligence engagements. David previously served as the audit
partner of Deloitte Touche Tohmatsu for the Company for the periods ending from June 2005
to December 2009 and June 2012 to June 2016.
Since his retirement from Deloitte, David has established a growing family business, The
Coastal Brewing Company, and serves on three Government sector audit committees as the
independent member, chairing one of those committees.
Directorships of other listed entities in the last three years:
Nil
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Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
Name
Particulars
Lt Gen Peter Leahy AC
BA (Military Studies)
Independent
Non-Executive
Director
Appointed:
04 May 2009
Retired:
24 November 2022
Deena Shiff
MSc (Econ), BA (Law)
Independent
Non-Executive
Director
Appointed:
7 December 2021
Resigned:
31 January 2023
Mr Robert Kaye
LLB LLM
Independent
Non-Executive Director
Appointed:
13 September 2022
Resigned:
20 March 2023
Board Committees:
Nil
Experience and Expertise
Peter 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 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, the Australian Student’s Veterans Association and
is a member of the Advisory Council of China Matters. He was Chairman of the Board
from 27 July 2021 until his retirement on 24 November 2022. He was also Chairman
of the Company’s Audit and Risk Committee and a member of the Nominations and
Remuneration Committee until his appointment as Chairman.
Directorships of other listed entities in the last three years:
Codan Limited (19 September 2008 to 26 October 2022)
Experience and Expertise
Deena has enjoyed a distinguished business career covering senior roles in corporate
positions and the legal profession. She was the founding CEO of Telstra’s corporate venture
capital arm, Telstra Ventures, and Group Managing Director, Telstra Business. Previously,
Deena was a partner in the leading law firm, Mallesons Stephen Jaques. She is currently
Chair of the Advisory Board for the ARC Centre of Excellence for Automated Decisions and
Society, Chair of the Advisory Board of the Australian Centre for China in the World, and
Chair of the Australian Broadband Advisory Council.
Directorships of other listed entities in the last three years:
Chair of Marley Spoon A.G. (15 June 2018 to present), Pro Medicus Limited (1 August 2020
to present), Appen Limited (15 May 2015 to 27 May 2022).
Experience and Expertise
Robert is a barrister, mediator and professional Non-Executive Director. Recognised for
his strategic and commercially focused advice, Mr Kaye has acted for various commercial
enterprises – both public and private – across media, retail, FMCG, property development,
mining and engineering sectors.
Drawing on his experience as a senior member of the NSW Bar, including serving on the
Professional Conduct Committee and Equal Opportunity Committee, he has a strong
emphasis on Board governance and is well versed in Board processes.
Mr Kaye has significant cross-border experience, including corporate restructuring and
M&A across North America, Europe, Asia, and the Australia and New Zealand region.
In addition to his role as Non-Executive Director of Electro Optic Systems Holdings Limited,
he is Chair and Non-Executive Director of Collins Foods Limited, and a Non-Executive
Director of Magontec Limited, and FAR Limited. Mr Kaye was formerly Non-Executive Chair
of Spicers Limited and Non-Executive Director of UGL Limited, HT&E Limited and Blue Sky
Alternative Investments Limited and the Chair of the Macular Disease Foundation Australia.
Directorships of other listed entities in the last three years:
Collins Foods Limited (7 October 2014 to present), Magontec Limited (29 July 2020 to
present), FAR Limited (30 June 2021 to present).
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Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
Name
Particulars
Dr Ben Greene
BE (Hons), PhD in
Applied Physics
Executive
Director
Appointed:
11 April 2002
Resigned:
27 March 2023
Board Committees:
Nil
Experience and Expertise
Ben was involved in the formation of Electro Optic Systems Pty Limited. 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. He 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.
Directorships of other listed entities in the last three years:
Nil
Company Secretary
Name
Particulars
Leanne Ralph
BBus (Acc & Fin
majors), FGIA, GAICD
Leanne was appointed as Company Secretary on 23 August 2022. She is an experienced
Company Secretary with over 15 years in this field and holds this position for a number
of ASX-listed entities. Ms Ralph is a fellow of the Governance Institute of Australia and a
Graduate Member of the Australian Institute of Directors.
Appointed:
23 August 2022
Morgan Bryant
LLB, BIntST
Appointed:
28 May 2021
Resigned:
25 August 2022
Morgan was Company secretary from 28 May 2021 until 25 August 2022. Morgan holds
a Bachelor of Arts in Political Science and International Studies, Bachelor of Laws and
Graduate Diploma of Legal Practice and is admitted to the High Court of Australia as a
Barrister and Solicitor.
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Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
Principal Activities
The principal activities of the Consolidated Entity are in the space systems and defence systems business.
The Company is listed on the Australian Securities Exchange.
Review of Operations
A detailed review of operations is included on pp. 24 to 34 of this financial report.
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. Note 1c to
the financial statements details the specific factors upon which the Consolidated Entity’s ability to continue as a going
concern is dependent upon.
Rounding of Amounts
The Company is a company of the kind referred to in ASIC Corporations (Rounding in Financials/Directors’ Reports)
Instrument 2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument amounts in the
financial report are rounded to the nearest thousand dollars, unless otherwise indicated.
Changes to the State of Affairs
There were no significant changes in the state of affairs of the Consolidated Entity during the financial period.
Share Issues
On 4 July 2022 the Company received the net proceeds of $14.4m from the placement of 12,500,000 fully paid ordinary
shares at $1.20 per share.
On 5 July 2022 the Company announced a Share Purchase Plan for existing holders which closed on 19 July 2022. The
Plan resulted in the placement of a further 168,737 fully paid ordinary shares, also at $1.20 per share, raising $0.2m,
which was received on 27 July 2022.
As consideration for the entry into the new term loan facility on 13 October 2022, the Company agreed to issue 7,653,040
new fully paid ordinary shares in the Company to Washington H. Soul Pattinson and Company (WHSP) for no cash
consideration. The fair value of the shares issued is approximately $3.9m, based on EOS volume weighted average price
in the five days prior to 13 October 2022.
Subsequent Events
There have been no transactions or events of a material and unusual nature between the end of the reporting period and the date
of the report likely, in the opinion of the Directors of the Company, to significantly affect the operations of the Consolidated Entity,
the results of those operations, or state of affairs of the Consolidated Entity in future years.
Deed of Cross Guarantee
On 6 April 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. On
28 November 2019, EM Solutions Pty Limited entered into an Assumption Deed and became a party to the Deed of Cross
Guarantee.
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Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
Future Developments
The Company will continue to operate in the space systems and defence systems businesses. 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.
Ethical Labour
The Consolidated Entity has established measures regarding fair labour practices and guidelines that create a respectful
and safe work environment for our employees globally. The Consolidated Entity is committed to treating all of its
employees with respect and strictly prohibits the use of slavery, forced labour and human trafficking. To prevent the
occurrence of forced, compulsory or child labour, the Consolidated Entity has implemented local labour policies and
practices to comply with the Modern Slavery Act. Any person who applies for employment with the Company does so on
a voluntary basis and all employees are legally entitled to leave upon reasonable notice without penalty. In accordance
with the Company’s global recruiting guidelines, offers of employment must be conditional upon successful completion
of required background checks. Background checks are required to protect the safety of employees and to ensure that
employees meet the Company’s standards.
Diversity
The Company values diversity and recognises the benefits it can bring to the organisation’s ability to achieve its goals.
Accordingly, The Company’s diversity policy (“Diversity Policy”) was updated on 23 March 2020 and outlines its diversity
objectives in relation to gender, age, cultural background, ethnicity, employment of veterans and other factors to leverage
the widest pool of available talent. A copy of the Company’s Diversity Policy is available on the Company’s website.
Section 6 of the Diversity Policy states that the Company will establish appropriate and meaningful objectives for
achieving gender and other forms of diversity.
The Company’s current objectives are to:
z improve the participation of women in the workforce by measuring the percentage of female employees and the
percentage of those females in management positions;
z reduce the number of workplace harassment complaints by measuring annual occurrences and reducing these to
zero;
z improve retention of staff by measuring the percentage of employees who access flexible workplace arrangements
including flexible hours and alternative work cycles; and
z encourage retention of staff by measuring the number of staff who access company education and study
assistance to enhance personal and corporate development opportunities.
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Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
As at 31 December 2022, the Group’s gender diversity mix was as follows:
EOS Directors and Staff 2022
Number
Female
Female %
Male
Male %
Board
Senior Management (CEO/EVP)
Australia
New Zealand
Singapore
United States
United Arab Emirates
Germany
Totals
Commentary
7
5
285
9
15
41
48
1
411
2
0
58
0
4
11
12
1
88
29%
0%
21%
0%
27%
27%
25%
100%
21%
5
5
227
9
11
30
36
0
323
71%
100%
79%
100%
73%
73%
75%
0%
79%
“Senior Management” is defined as a manager who has a relatively high leadership role in the day-to-day responsibilities
of managing the Company.
Section 8 of the Diversity Policy requires the Company to disclose in each of its annual reports a summary of the Diversity
Policy and the achievement of the objectives of the Diversity Policy. The Company achievements in meeting two of the
objectives are as follows:
z The proportion of women to total workforce has remained stable at 21% over the last 3 years.
z In 2022 (2021: nil) there were no harassment complaints reported across the Consolidated Entity.
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 of Electro Optic Systems Holdings Limited during the year.
No options were granted to executives and employees of Electro Optic Systems Holdings Limited’s subsidiaries during
the year.
Share Options on Issue at Year End or Exercised During the Year
There were 720,000 unlisted options outstanding at year end, all of which were granted in previous reporting periods, as
per the table on opposite page.
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Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
Options
220,000
435,000
65,000
720,000
Issue Date
20 June 2018
19 May 2020
15 March 2021
Expiry Date
31 March 2023
18 May 2025
16 March 2026
Exercise Price
$2.99
$4.75
$5.27
No options were exercised during the year.
There were no shares or interests issued during the financial year as a result of exercise of an option.
Loan Funded Share Plan (“LFSP”)
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 and including the trading day immediately prior to the date of issue.
On 19 May 2020 the Company issued 2,270,000 ordinary shares to staff under the LFSP at a price of $4.75 being the same
price as the institutional placement announced on 15 April 2020.
On 29 May 2020 shareholders approved the issue of 2,500,000 ordinary shares to directors at a price of $4.92 being the 20-
day volume weighted average price up to and including the trading day immediately prior to the date of issue.
On 10 August 2020 the Company issued 860,000 ordinary shares to staff under the LFSP at a price of $5.62 being the 20-
day volume weighted average price up to and including the trading day immediately prior to the date of issue.
On 14 October 2020 the Company issued 150,000 ordinary shares to staff under the LFSP at a price of $5.47 being the 20-
day volume weighted average price up to and including the trading day immediately prior to the date of issue.
On 15 March 2021 the Company issued 1,185,000 ordinary shares to staff under the LFSP at a price of $5.27 being the 20-
day volume weighted average price up to and including the trading day immediately prior to the date of issue.
On 31 May 2021 the Company issued 150,000 ordinary shares to a Director under the LFSP and in accordance with a
resolution passed by shareholders at the Annual General Meeting on 28 May 2021 at a price of $4.06 being the 20-day
volume weighted average price up to and including the trading day immediately prior to the date of issue.
As no Loan Funded shares were issued during the year, the Company provided no interest free loans to the Directors (2021:
$609,000) and staff (2021: $6,244,950) to enable them to acquire the shares under the Loan Funded Share Plan. As a
result of a number of performance conditions and shares price hurdles not being met, as well as the resignation of certain
employees, 4,607,500 shares lapsed during the year. This resulted in the total amount of the loans outstanding under the
Loan Funded Share Plan at year-end being $27,785,506 (2021: $50,224,331).
Loan funds under the LFSP are limited recourse in nature, meaning that the Company’s recourse is limited to the shares. 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
EOS Loan Plan Pty Ltd 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.
The Shares issued to Directors are subject to both ‘Vesting Conditions’ and ‘Forfeiture Conditions’. Directors are 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 Consolidated Entity or Group company in certain circumstances.
Fred Bart, Ian Dennis and Peter Leahy were assessed by the Board as good leavers upon their retirement. Therefore, they did
not forfeit their loan funded shares and these are included in outstanding balances at 31 December 2022.
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Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
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).
Reconciliation of Loan Funded Shares Balances:
Balance of shares
outstanding at 31
December 2021
Lapses and other
movements *
Balance of shares
outstanding at 31
December 2022
Directors
Mr Garry Hounsell (Chairman)
-
-
-
Dr Ben Greene
Mr David Black
3,000,000
(1,000,000)
2,000,000
150,000
-
150,000
Air Marshall Geoffrey Brown AO
250,000
(50,000)
200,000
The Hon Kate Lundy
250,000
(50,000)
200,000
Ms Deena Shiff
Mr Robert Kaye
-
-
-
-
-
-
Lt Gen Peter Leahy AC (Retired)
250,000
(50,000)
200,000
Other retired directors
450,000
(100,000)
350,000
Directors Total
4,350,000
(1,250,000)
3,100,000
Employees
Dr James Bennett
Mr Matthew Jones
Mr Pete Short
Mr Glen Tindall
125,000
(27,500)
97,500
50,000
(10,000)
40,000
420,000
-
420,000
330,000
(330,000)
-
Mr Grant Sanderson
420,000
(45,000)
375,000
Mr Michael Lock
Mr Tahir Khan
165,000
-
165,000
100,000
(100,000)
-
Other senior employees
4,332,500
(1,128,125)
3,204,375
Employees Total
5,942,500
(1,640,625)
4,301,875
Total, Directors and Employees
10,292,500
(2,890,625)
7,401,875
*The following conditions were not met:
2022
•
•
•
The share price hurdle of $11.50 by 31 December 2022, resulting in 1,250,000 shares issued to Directors lapsing.
The Space Systems sector EBIT was negative in 2022, resulting in 112,500 shares issued to Space Systems staff lapsing.
The Defence Systems sector EBIT was negative in 2022, resulting in 272,500 shares issued to Defence Systems staff lapsing.
• Certain employees resigned from subsidiaries of the Consolidated Entity, resulting in 1,255,625 shares issued to them lapsing.
2021
The share price hurdle of $9.50 by 31 December 2021, resulting in 1,250,000 shares issued to Directors lapsing.
Space systems profit exceeds $3m for 2021, resulting in 117,500 shares issued to Space Systems staff lapsing.
EBIT of $36m by 2021, resulting in 432,500 shares issued to KMP and other senior employees lapsing.
•
•
•
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Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
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.
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, 48 Board meetings, 5 Audit and Risk Committee meetings and 1 Nominations and
Remuneration Committee meetings were held.
Directors
Lt Gen Peter Leahy AC1
Dr Ben Greene2
Air Marshal Geoff Brown AO
The Hon Kate Lundy
Mr David Black
Ms Deena Shiff3
Mr Robert Kaye4
Mr Garry Hounsell5
Board of directors
Audit and Risk committee
Nominations and
Remuneration committee
Eligible to
attend
Attended
Eligible to
attend
Attended
Eligible to
attend
Attended
47
48
48
48
48
48
12
1
44
45
45
42
48
47
9
1
-
-
5
5
5
5
-
-
-
-
5
4
5
5
-
-
1
-
1
1
1
-
-
-
1
-
1
1
1
-
-
-
1 Resigned 24 November 2022
2 Resigned 27 March 2023
3 Resigned 31 January 2023
4 Appointed 13 September 2022, resigned 20 March 2023
5 Appointed 24 November 2022
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Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
Remuneration Report (Audited)
The key management personnel (KMP) of Electro Optic Systems Holdings Limited during the year were:
Mr Garry Hounsell (Chairman, Non-executive Director) (appointed 24 November 2022)
Dr Ben Greene (Chief Executive Officer until 11 July 2022, Executive Director) (resigned from the Board on 27 March 2023)
Air Marshal Geoffrey Brown AO (Non-executive director)
The Hon Kate Lundy (Non-executive director)
Mr David Black (Non-executive Director)
Ms Deena Shiff (Non-executive Director) (resigned 31 January 2023)
Mr Robert Kaye (Non-executive Director) (appointed 13 September 2022, resigned 20 March 2023)
Lt Gen Peter Leahy AC (Chairman, Non-executive Director) (retired 24 November 2022)
Dr Andreas Schwer (Chief Executive Officer) appointed 1 August 2022
Mr Clive Cuthell (Chief Financial Officer) commenced on 5 September 2022
Dr James Bennett (Acting EVP Space Systems Pty Limited) appointed 8 August 2022
Mr Matthew Jones (Acting EVP Defence Systems Pty Limited) appointed 11 July 2022
Mr Grant Sanderson (Chief Executive Officer - EOS Defence Systems Pty Limited) until 11 July 2022
Mr Glen Tindall (Chief Executive Officer – EOS Space Systems Pty Limited) until 11 November 2022
Mr Michael Lock (Chief Financial Officer – Electro Optic Systems Pty Limited) until 8 April 2022
Mr Pete Short (Chief Operating Officer – Electro Optic Systems Pty Limited) until 14 September 2022
Mr Tahir Khan (Acting Chief Financial Officer – Electro Optic Systems Pty Limited) from 9 April 2022 until 10 August 2022
Lt Gen Peter Leahy AC stepped down as Chairman on 24 November 2022. Mr Garry Hounsell was appointed as Chairman
on the same date.
Ms Deena Shiff resigned from the Board on 31 January 2023. Mr Robert Kaye resigned from the Board on 20 March
2023. Dr Ben Greene resigned from the Board on 27 March 2023.
Mr Michael Lock left the Company on 8 April 2022. Mr Tahir Khan acted as Chief Financial Officer (CFO) from 9 April 2022
until 10 August 2022. Another manager assisted in the CFO role between 11 August and 5 September 2022 but did not
meet the criteria for disclosure as KMP. Mr Clive Cuthell was appointed as CFO and commenced on 5 September 2022.
Mr Glen Tindall left the Company 11 November 2022. Dr James Bennett assumed the role of Acting EVP Space Systems
Pty Limited from 8 August 2022.
Mr Grant Sanderson stepped down as Chief Executive Officer – EOS Defence Systems Pty Limited on 11 July 2022. Mr
Matthew Jones assumed the role of Acting EVP Defence Systems Pty Limited on the same date.
Mr Pete Short left the Company 14 September 2022.
This report outlines the remuneration arrangements in place for Directors and Executives of the Consolidated Entity.
The Directors are responsible for remuneration policies and packages applicable to the Board members and Executives
of the Consolidated Entity. The Consolidated Entity has a separate Nominations and Remuneration Committee. The
remuneration policy is to ensure the remuneration package properly reflects the persons duties and responsibilities.
Our Response to the 2021 “First Strike” Against the Remuneration Report.
At the Company’s last Annual General Meeting, the group failed to secure 75% support for our remuneration report.
While this resolution is advisory only under the Corporations Act, the Board takes this signal from our shareholders very
seriously. We have engaged with a number of our major investors to better understand their concerns and address those
in our practices going forward.
46
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
Remuneration Report (Audited) (cont)
We note, aside from the issues highlighted below, that that 2021 was a difficult year for the group. During 2022, a number
of significant changes occurred, including:
z the appointment of Dr Andreas Schwer as Chief Executive Officer as well as the appointment of Clive Cuthell as
Chief Financial Officer and a material renewal throughout the management team,
z Board renewal was undertaken including the appointment of Garry Hounsell as the Chair of the Board of Directors;
and
z A deep restructuring- and rightsizing program which included a significant reduction in managerial overhead and a
simplified organisation structure
z a strategic review of our business resulted in the cessation of our investment in SpaceLink, securing of new
financing arrangements and execution of the Program of Change outlined to investors on 8 September 2022.
As a result of all of these changes EOS is now a simplified and focussed business, pursuing our core defence and space
technology businesses with a revised market approach. The Board and management believe that these changes are in
the best interests of shareholders and should help alleviate some of the more fundamental concerns investors raised.
We outline below the key remuneration concerns raised by investors and explain how we have responded:
Key concern raised
Executive pay issues
High quantum of remuneration for Australian executives
Non-executive pay issues
Management overheads were too high in the Defence
Systems US subsidiary and SpaceLink
Cash flow issues
Concerns over financial position
How we have responded and why
z As part of our cost reduction initiatives, we have
reduced overall workforce by 100 roles, including
restructuring and reduction of the size of the senior
management team by more the 50%.
z At the KMP level, this team currently comprises the
CEO, the CFO, the two Executive-Vice-Presidents
and the Chief Innovation Officer.
z These actions have reduced our overall
remuneration expense.
z No fixed pay increases will be provided in 2023 to
Executive KMP.
z Following a strategic review into the operations
and activities of SpaceLink, the group has ceased
its investment as of November 2022, ending
further expenditure in relation to this business, with
expected improvement to profits and cash flow in
2023.
z The workforce right sizing exercise has reduced
management overheads together across the
business. The restructuring program implemented
in 2022 is expected to deliver $25m in annual
savings.
z In addition to the increased 2023 focus on cash
flow and profitability, new financing arrangements
were secured in October 2022.
47
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
Remuneration Report (Audited) (cont)
Remuneration 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
Non-Executive director remuneration reflects the Company’s desire to attract, motivate and retain experienced directors
and to ensure their active participation in advocating for the interests of shareholders, in areas such as corporate
governance, remuneration, compliance, risk and Company strategy. The size of the remuneration pool that can be paid to
non-executive directors is governed by resolutions passed at a General Meeting of shareholders.
At the AGM held on 29 May 2020, shareholders approved an increase in the total non-executive director remuneration
pool from $500,000 to $1,000,000 per annum. The level of director remuneration is as follows:
Role
Board Chair
Non-executive director
Committee Chair
Committee Member
Fee
2022
$140,000
$70,000
-
-
Fee
2021
$140,000
$70,000
-
-
All fees presented above include statutory superannuation. There are no anticipated changes to the level of non-executive
director fees proposed for 2023.
Directors’ Shareholdings
The following table sets out each Director’s relevant interest in shares, restricted ordinary shares under the LFSP of the
Company or a related body corporate as at the date of this report.
Director
Mr Garry Hounsell
Lt Gen Peter Leahy AC1
Dr Ben Greene2
Air Marshal Geoffrey Brown AO
The Hon Kate Lundy
Mr David Black
Ms Deena Shiff3
Mr Robert Kaye4
Fully paid ordinary shares
Fully paid ordinary shares restricted – LFSP
500,000
60,077
4,012,139
15,856
18,860
12,963
-
112,555
-
200,000
2,000,000
200,000
200,000
150,000
-
-
1 Resigned 24 November 2022. These shareholdings reflect his interests as at the date of resignation.
2 Resigned 27 March 2023. These shareholdings reflect his interests as at the date of resignation.
3 Resigned 31 January 2023. These shareholdings reflect her interests as at the date of resignation.
4 Resigned 20 March 2023. These shareholdings reflect his interests as at the date of resignation.
48
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
Remuneration Report (Audited) (cont)
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 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 29 May 2020, when shareholders approved a maximum aggregate remuneration of
$1,000,000 per year excluding options.
The amount of aggregate remuneration provided to Directors is approved by shareholders. The manner in which it is
apportioned amongst Directors, and the policy of granting options to Directors, is determined by Directors within the limits
set by shareholders.
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.
Executive Director and Senior Management Remuneration
Objective
The Consolidated Entity aims to award Executives with a level and mix of remuneration commensurate with their position
and responsibilities within the Consolidated Entity so as to:
z reward Executives for Group and individual performance against targets set by reference to suitable benchmarks;
z align the interests of Executives with those of shareholders; and
z ensure that the total remuneration paid is competitive by market standards.
Structure
The remuneration paid to Executives is set with reference to prevailing market levels and typically comprises a fixed
salary and option component. Options have previously been 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 Consolidated Entity. 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 and the other senior management have 90-day notice periods under their employment contracts.
49
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
Remuneration Report (Audited) (cont)
Director Remuneration
The following tables disclose the remuneration of the Directors of the Company during the year:
Short term
Employment
Equity
Total
Post
Salary & Fees
Non-monetary
annuation
Share Plan
Super-
Loan Funded
2022
Mr Garry Hounsell
Lt Gen Peter Leahy AC
Dr Ben Greene*
Air Marshal Geoffrey Brown AO
The Hon Kate Lundy
Mr David Black
Ms Deena Shiff
Mr Robert Kaye
$
13,190
126,985
787,170
63,491
63,491
63,491
63,491
23,928
$
-
-
26,163
-
-
-
-
-
$
1,385
13,015
27,500
6,509
6,509
6,509
6,509
2,512
$
-
1,321
14,700
1,470
1,470
3,847
-
-
Other Long
Term Benefits
$
-
-
29,216
-
-
-
-
-
$
14,575
141,321
884,749
71,470
71,470
73,847
70,000
26,440
1,205,237
26,163
70,448
22,808
29,216
1,353,872
* Executive Director during the financial year
Short term
Employment
Equity
Total
Post
Salary & Fees
Non-monetary
annuation
Share Plan
Super-
Loan Funded
2021
Lt Gen Peter Leahy AC
Dr Ben Greene*
Air Marshal Geoffrey Brown AO
The Hon Kate Lundy
Mr David Black
Ms Deena Shiff
Mr Fred Bart
Mr Ian Dennis#
$
91,260
703,878
63,782
63,782
63,782
4,359
95,745
116,636
1,203,224
$
-
26,163
-
-
-
-
-
-
$
8,966
27,498
6,218
6,218
6,218
436
9,255
2,530
$
32,641
593,214
32,641
32,641
23,941
-
18,512
13,146
Other
Long Term
Benefits
$
-
$
132,867
178,410
1,529,163
-
-
-
-
-
-
102,641
102,641
93,941
4,795
123,512
132,312
26,163
67,339
746,736
178,410
2,221,872
* Executive Director during the financial year
# Includes fees of $90,000 for company secretarial and accounting consultancy services provided
Other long-term benefits include annual leave and long service leave expensed during the year.
50
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
Remuneration Report (Audited) (cont)
Executive Remuneration
No executives are employed by the holding company. The following table discloses the remuneration of the Executives of
the Consolidated Entity for the period during which they were considered key management personnel:
Short term
Employment
Equity
Total
Post
Salary &
Other
Super-
Loan
Funded
Fees
Incentive
benefits
annuation
Share Plan
Other
Long Term
Termination
Benefits
Benefits
2022
$
Dr Andreas Schwer
291,666
$
-
Mr Clive Cuthell
171,541
100,000
$
41,030
26,265
Dr James Bennett
Mr Matthew Jones
Mr Michael Lock
Mr Peter Short
181,137
167,622
202,117
260,458
Mr Grant Sanderson
229,625
Mr Glen Tindall
Mr Tahir Khan
338,000
122,542
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
27,500
15,835
16,881
18,831
38,374
21,269
22,131
11,623
$
-
-
(7,109)
(8,784)
4,301
(20,321)
(16,549)
-
-
$
-
3,171
28,706
8,197
-
19,953
11,788
-
-
$
-
-
-
-
-
193,537
-
-
-
$
332,696
328,477
218,569
183,916
225,249
492,001
246,133
360,131
134,165
Total
1,964,708
100,000
67,295
172,444
(48,462)
71,815
193,537
2,521,337
Short term
Employment
Equity
Total
Post
Salary & Fees
Non-monetary
annuation
Share Plan
Super-
Loan Funded
Other Long
Term Benefits
$
266,948
56,059
347,032
347,032
508,835
350,000
56,059
294,923
2,226,888
$
-
-
-
-
-
-
-
-
-
$
25,827
5,326
33,836
33,702
44,120
34,125
5,326
28,779
$
5,508
2,143
42,698
48,958
62,167
33,860
2,766
53,979
$
22,596
(4,913)
12,484
46,099
-
20,267
6,247
22,615
$
320,879
58,615
436,050
475,791
615,122
438,252
70,398
400,296
211,041
252,079
125,395
2,815,403
2021
Dr Craig Smith
Mr Scott Lamond
Mr Grant Sanderson
Mr Peter Short
Mr Neil Carter
Mr Glen Tindall
Mr Tahir Khan
Mr Michael Lock
Total
No options were granted to or exercised by any director or executive during 2022 and 2021. Ordinary shares in relation to
the LFSP were granted during 2021.
51
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
Remuneration Report (Audited) (cont)
Loan Funded Share Plan
Vesting Principles
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 employees 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; or
(c) Directors resolve to extend and/or waive performance hurdles as set out below for staff only, noting that Directors
cannot resolve to extend or waive any requirements relating to Directors.
Further measures, hurdles and sale restrictions
Staff and Directors may be subject to individualised measures and hurdles associated with any shares issued to them
under to the LFSP. To the extent Shares vest, they will be subject to sale restrictions as outlined in the tables below for
each separate issue of Loan Funded Shares.
Phase 1: Issue of 5,180,000 shares on 20 June 2018 at $2.99 per share
TRANCHE A (applies to 50% of the total number of Shares issues)
Measures and hurdles
Vested Shares can be sold after:
(i) EBIT of $5m for 12 months ending 31 December 2018
(met); and
(ii) a Share Price Hurdle of $4.50 by 31 December 2019
(met)
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 issues)
Measures and hurdles
Vested Shares can be sold after:
(i) EBIT of $15m for 12 months ending 31 December
2019; (met) and
(ii) a Share Price Hurdle of $7.50 by 31 December
2021(met)
(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)
* This price hurdle was extended by three years by the Directors on 16 November 2021 for Executives and staff, only, and not for
directors.
52
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
Remuneration Report (Audited) (cont)
Phase 2: Issue of shares during the year ended 31 December 2020, including:
On 19 May 2020, the issue of 2,270,000 ordinary restricted shares to employees at an issue price of $4.75.
On 29 May 2020, the issue of 2,500,000 ordinary restricted shares to directors at an issue price of $4.92.
On 10 August 2020, the issue of 860,000 ordinary restricted shares to employees at an issue price of $5.62.
On 14 October 2020, the issue of 150,000 ordinary restricted shares to employees at an issue price of $5.47.
TRANCHE A (applies to 50% of the total number of Shares issued )
Measures and hurdles
A Share Price Hurdle of $9.50 by 31
December 2021 (this hurdle must be
reached on at least 30 trading days,
not necessarily consecutive, by 31
December 2021)*
Vesting period
The period of
two calendar
years ending 31
December 2021
Vested Shares can be sold after:
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)
TRANCHE B (applies to 50% of the total number of Shares issued )
Measures and hurdles
A Share Price Hurdle of $11.50 by 31
December 2022 (this hurdle must be
reached on at least 30 trading days,
not necessarily consecutive, by 31
December 2022)*
Vesting period
The period of
four calendar
years ending 31
December 2023
Vested Shares can be sold after:
30 June 2024
(25% of Vested Shares)
30 September 2024
(50% of Vested Shares)
31 December 2024
(75% of Vested Shares)
31 March 2025
(100% of Vested Shares)
* This price hurdle was extended by three years by the Directors on 16 November 2021 for executives and staff, only, and not for directors.
If the above Vesting Conditions are not satisfied, or if the Board determines that they cannot be satisfied, Directors will
forfeit their unvested Shares.
Under Phase 2 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 the Company. These conditions are
outlined in Note 25 of the financial statements and are in addition to the above Vesting Conditions for Directors.
53
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
Remuneration Report (Audited) (cont)
Phase 3: Issue of shares on 15 March 2021
On 15 March 2021, the issue of 1,185,000 ordinary shares to staff at a price of $5.27 being the 20-day volume weighted
average price up to and including the trading day immediately prior to the date of issue.
TRANCHE A (applies to 50% of the total number of Shares issued )
Measures and hurdles
A Share Price Hurdle of $9.50 by
30 June 2023 (this hurdle must be
reached on at least 30 trading days, not
necessarily consecutive, by 30 June
2023)*
Vesting period
The period of two
calendar years
ending 30 June
2023
Vested Shares can be sold after:
30 June 2023
(25% of Vested Shares)
30 September 2023
(50% of Vested Shares)
31 December 2023
(75% of Vested Shares)
31 March 2024
(100% of Vested Shares)
TRANCHE B (applies to 50% of the total number of Shares issued )
Measures and hurdles
A Share Price Hurdle of $11.50 by
30 June 2025 (this hurdle must be
reached on at least 30 trading days, not
necessarily consecutive, by 30 June
2025)*
Vesting period
The period of four
calendar years
ending 30 June
2025
Vested Shares can be sold after:
30 June 2025
(25% of Vested Shares)
30 September 2025
(50% of Vested Shares)
31 December 2025
(75% of Vested Shares)
31 March 2026
(100% of Vested Shares)
* This price hurdle was extended by three years by the Directors on 16 November 2021 for executives and staff.
If the above Vesting Conditions are not satisfied, or if the Board determines that they cannot be satisfied, Directors will
forfeit their unvested Shares.
Directors have also imposed 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 are outlined in Note 25 of the financial
statements are in addition to the above Vesting Conditions for Directors.
54
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
Remuneration Report (Audited) (cont)
Phase 4: Issue of shares on 31 May 2021
On 31 May 2021 the issue of 150,000 ordinary shares to a director as approved by shareholders at a price of $4.06 being
the 20-day volume weighted average price up to and including the trading day immediately prior to the date of issue.
TRANCHE A (applies to 50% of the total number of Shares issued )
Measures and hurdles
A Share Price Hurdle of $9.50 by
30 June 2023 (this hurdle must be
reached on at least 30 trading days, not
necessarily consecutive, by 30 June
2023)
Vesting period
The period of two
calendar years
ending 30 June
2023
Vested Shares can be sold after:
30 June 2023
(25% of Vested Shares)
30 September 2023
(50% of Vested Shares)
31 December 2023
(75% of Vested Shares)
31 March 2024
(100% of Vested Shares)
TRANCHE B (applies to 50% of the total number of Shares issued )
Measures and hurdles
A Share Price Hurdle of $11.50 by
30 June 2025 (this hurdle must be
reached on at least 30 trading days, not
necessarily consecutive, by 30 June
2025)
Vesting period
The period of four
calendar years
ending 30 June
2025
Vested Shares can be sold after:
30 June 2025
(25% of Vested Shares)
30 September 2025
(50% of Vested Shares)
31 December 2025
(75% of Vested Shares)
31 March 2026
(100% of Vested Shares)
55
Electro Optic Systems Holdings Limited Annual Report 2022
EOS Annual Report 2022 | Directors’ Report
Remuneration Report (Audited) (cont)
The following table sets out each key management personnel’s equity holdings (represented by holdings of fully paid
ordinary unrestricted shares in Electro Optic Systems Holdings Limited).
1 January 2022
Purchased during the year
Sold during the year
Ceased to be KMP
31 December 2022
Mr Garry Hounsell
Lt Gen Peter Leahy AC1
Dr Ben Greene
Air Marshal Geoffrey Brown AO
The Hon Kate Lundy
Mr David Black
Ms Deena Shiff2
Mr Robert Kaye3
Dr Andreas Schwer
Mr Clive Cuthell
Dr James Bennett
Mr Matthew Jones
Mr Grant Sanderson
Mr Pete Short
Mr Glen Tindall
Mr Michael Lock
Mr Tahir Khan
Total
-
60,077
3,987,139
19,335
6,694
10,880
-
-
-
-
-
-
-
937
-
24,000
-
500,000
4,166
25,000
2,083
12,166
2,083
-
112,555
-
-
-
2,696
-
-
-
-
-
-
-
-
5,562
-
-
-
-
-
-
-
899
-
937
-
-
-
4,109,062
660,749
7,398
-
64,243
-
-
-
-
-
-
-
-
-
-
-
-
-
24,000
-
88,243
500,000
-
4,012,139
15,856
18,860
12,963
-
112,555
-
-
-
1,797
-
-
-
-
-
4,674,170
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 under the LFSP).
1 January
2022
Purchased
during the year
Sold during the
year
Lapsed during
the year
Ceased to KMP
31 December
2022
Mr Garry Hounsell
Dr Ben Greene
Lt Gen Peter Leahy AC1
Air Marshal Geoffrey Brown AO
The Hon Kate Lundy
Mr David Black
Ms Deena Shiff2
Mr Robert Kaye3
Dr Andreas Schwer
Mr Clive Cuthell
Dr James Bennett
Mr Matthew Jones
Mr Michael Lock
Mr Grant Sanderson
Mr Pete Short
Mr Glen Tindall
Mr Tahir Khan
Total
-
3,000,000
250,000
250,000
250,000
150,000
-
-
-
-
125,000
50,000
165,000
420,000
420,000
330,000
100,000
5,510,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,000,000)
-
-
-
(250,000)
(50,000)
(50,000)
-
-
-
-
-
(27,500)
(10,000)
-
(45,000)
-
(330,000)
(100,000)
-
-
-
-
-
-
-
-
-
(165,000)
(375,000)
(420,000)
-
-
-
2,000,000
-
200,000
200,000
150,000
-
-
-
-
97,500
40,000
-
-
-
-
-
(1,612,500)
(1,210,000)
2,687,500
1 Retired on 24 November 2022, 2 Resigned on 31 January 2023, 3 Resigned 20 March 2023
56
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
Remuneration Report (Audited) (cont)
Elements of remuneration related to performance
There are service conditions and performance conditions both market and non-market conditions attached to the
restricted fully paid ordinary shares issued under the LFSP.
The overall performance of the Company as measured by the share price will determine whether the shares are exercised
and whether the director or executive receives any benefit from these shares. The time service condition has been chosen
by the Board as an appropriate condition as it helps in the retention and motivation of staff.
The ordinary restricted shares were issued to directors, senior executives and senior staff under the LFSP. These ordinary
restricted shares are subject to performance and vesting conditions.
Other transactions with key management personnel
In December 2022, an invoice amount of $14,575 from Latour Pty Ltd, a company associated with Mr Garry Hounsell, in
respect of directors’ fees and superannuation for Garry Hounsell, was accrued and subsequently paid in January 2023.
During the year, the Company paid $70,000 (2021: $70,000) 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 $70,000) (2021: $17,500) to Technology Innovation Partners Pty Ltd, a company
associated with Ms Kate Lundy in respect of directors’ fees and superannuation for Kate Lundy.
During the year, no amounts were paid to 4F Investments Pty Limited (2021: $105,000), a company associated with Mr
Fred Bart in respect of directors’ fees and superannuation for Fred Bart, a former Director.
During the year, no amounts were paid to Dennis Corporate Services Pty Limited (2021: $29,166), a company associated
with Mr Ian Dennis in respect of directors’ fees and superannuation for Ian Dennis, a former Director.
During the year, no amounts were paid to Dennis Corporate Services Pty Limited (2021: $90,000), a company associated
with Mr Ian Dennis in respect of consulting fees for company secretarial and accounting services.
Company Performance and Shareholder Returns, Last Five Financial Years
The table below sets out summary information about the Company’s earnings and movements in shareholder wealth for
the last five financial years.
Revenue
Net profit/(loss) before tax
Net profit/(loss) after tax
31 December 2022
31 December 2021
31 December 2020
31 December 2019
31 December 2018
$’000
137,912
(124,839)
(115,561)
$’000
212,331
(4,612)
(13,843)
$’000
180,182
(29,901)
(25,208)
$’000
165,385
21,397
17,643
$’000
87,130
15,081
15,081
Share price at start of year
Share price at end of year
Dividends
paid
31 December 2022
31 December 2021
31 December 2020
31 December 2019
31 December 2018
$
2.34
0.49
-
$
5.91
2.34
-
$
7.42
5.91
-
$
2.45
7.42
-
$
2.45
2.45
-
57
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Directors’ Report
Audit and Risk Committee
The current members of the Committee during the year were Mr David Black (Chairman), Air Marshal Geoffrey Brown AO,
the Hon Kate Lundy and Ms Deena Shiff. Ms Deena Shiff resigned from the Board, and therefore the Committee, on 31
January 2023.
The Audit and Risk Committee have reviewed the Consolidated Entity’s risk management profile during the year to satisfy
themselves that it continues to be sound and that the Consolidated Entity is operating with due regard to the risk appetite
set by the Board. The Chief Financial Officer prepares a risk profile for regular review by the Committee and the Board of
Directors.
Nominations and Remuneration Committee
The current members of the Committee are Air Marshal Geoffrey Brown AO (Chairman), Mr David Black and the Hon Kate
Lundy.
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 10 to the financial statements.
Auditor’s Independence Declaration
The auditor’s independence declaration is included on page 59 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
Gary Hounsell
Director and Chair of the Board of Directors
Dated at Canberra this 30th day of March 2023
58
Electro Optic Systems Holdings Limited Annual Report 2022 Deloitte Touche Tohmatsu
ABN 74 490 121 060
477 Collins Street
Melbourne, VIC, 3000
Australia
Phone: +61 3 9671 7000
www.deloitte.com.au
The Board of Directors
Electro Optic Systems Holdings Limited
18 Wormald Street
Symonston ACT 2609
30 March 2023
Dear Board Members
AAuuddiittoorr’’ss IInnddeeppeennddeennccee DDeeccllaarraattiioonn ttoo EElleeccttrroo OOppttiicc SSyysstteemmss HHoollddiinnggss LLiimmiitteedd
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following
declaration of independence to the directors of Electro Optic Systems Holdings Limited.
As lead audit partner for the audit of the financial report of Electro Optic Systems Holdings Limited for
the year ended 31 December 2022, I declare that to the best of my knowledge and belief, there have
been no contraventions of:
(i)
the auditor independence requirements of the Corporations Act 2001 in relation to the
audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours faithfully
DELOITTE TOUCHE TOHMATSU
Chris Biermann
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte organisation.
46
Electro Optic Systems Holdings Limited Annual Report 2021
59
Deloitte Touche Tohmatsu
ABN 74 490 121 060
477 Collins Street
Melbourne, VIC, 3000
Australia
Phone: +61 3 9671 7000
www.deloitte.com.au
Independent Auditor’s Report to the members of Electro Optic
Systems Holdings Limited
RReeppoorrtt oonn tthhee AAuuddiitt ooff tthhee FFiinnaanncciiaall RReeppoorrtt
Opinion
We have audited the financial report of Electro Optic Systems Holdings Limited (the “Company”) and its
subsidiaries (the “Consolidated Entity”) which comprises the consolidated statement of financial position as at
31 December 2022, the consolidated statement of profit or loss and other comprehensive income, the
consolidated statement of changes in equity and the consolidated statement of cash flows for the year then
ended, and notes to the financial statements, including a summary of significant accounting policies and the
directors’ declaration.
In our opinion, the accompanying financial report of the Consolidated Entity is in accordance with the Corporations
Act 2001, including:
• Giving a true and fair view of the Consolidated Entity’s financial position as at 31 December 2022 and of its
financial performance for the year then ended; and
• Complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of
our report. We are independent of the Consolidated Entity in accordance with the auditor independence
requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the
Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical
responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been given to
the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s
report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note 1 in the financial report, that indicates a material uncertainty exists that may cast
significant doubt on the Consolidated Entity’s ability to continue as a going concern. Our opinion is not modified
in respect of this matter.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte organisation.
47
60
Electro Optic Systems Holdings Limited Annual Report 2022
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the financial report for the current period. These matters were addressed in the context of our audit of the
financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters. In addition to the matter described in the Material Uncertainty Related to Going Concern section,
we have determined the matters described below to be the key audit matters to be communicated in our report
KKeeyy AAuuddiitt MMaatttteerr
HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy
AAuuddiitt MMaatttteerr
RReevveennuuee rreeccooggnniittiioonn ffoorr ssiiggnniiffiiccaanntt ccoonnttrraaccttss
Electro Optic Systems Holdings Limited (EOSH) has
four significant agreements with customers (key
contracts) that account for approximately 66% of the
consolidated total revenue. These key contracts are
complex, span over several years and the accounting
implications thereof are of significance to the
performance of the consolidated entity.
There are judgements associated with interpreting the
revenue recognised for contracts entered into by the
Consolidated Entity against the requirements of AASB
15 Revenue from Contracts with Customers. This
results in a significant level of management judgement
and estimation in relation to:
•
•
for
terms,
including
complex
Interpreting and accounting
contractual
multiple
performance obligations, clauses with regards to
cancellations, penalties for late delivery and
warranties (amongst others); and
Accounting
in
relation to the application of AASB 15 including
the assessment of performance obligations,
allocation of revenue, variable consideration and
consideration of revenue recognition as being at
a point in time or over time.
judgements and
treatments
RReeccoovveerraabbiilliittyy ooff ggooooddwwiillll aanndd iinnttaannggiibbllee aasssseettss
AASB 136 Impairment of Assets requires goodwill
acquired in a business combination to be tested
annually for impairment. The standard also applies to
assessing impairment of intangible assets.
The determination of the recoverable amount
requires management judgement in determining and
applying:
• Cash flow projections;
• Expected future growth in the product market; and
• Discount rates.
Our procedures included, but were not limited to:
•
•
•
•
Enquiring and performing a walkthrough of the
process for recording revenue and assessing
judgements applied to the key contracts to
identify and test relevant controls;
Reviewing key contracts and assessing revenue
recognition against the requirements of the
relevant accounting standard;
Testing on a sample basis, revenue transactions
recorded in relation to the key contracts and
assessing whether
been
appropriately accounted for with regard to the
accounting policy adopted, including agreeing
these to underlying records, including shipment
and milestone documentation; and
Assessing the application of any adjustments in
relation
to variable elements of revenue
recognition, including the application of the late
delivery clauses.
these
have
We also assessed the adequacy of the disclosures in
Notes 1(f) and 2(a) to the financial statements.
Our procedures included, but were not limited to:
• Enquiring and performing a walkthrough of the
process to prepare management’s cash flow
forecasts to identify and test relevant controls;
• Challenging management’s assessment on the
underlying inputs and assumptions applied when
making key judgements and estimates;
• Assessing the status of any new/ongoing/potential
contracts based on discussions with management
and external research (where available);
• Performing an independent sensitivity analysis to
foreseeable
determine whether
reasonably
48
Electro Optic Systems Holdings Limited Annual Report 2022
61
KKeeyy AAuuddiitt MMaatttteerr
CCoonnttrraacctt aasssseett rreeccoovveerraabbiilliittyy
As a result of the timing of revenue recognition for a
contract with a customer in a foreign jurisdiction,
recognised a contract asset of
EOSH have
$150,525,000 (refer Note 1(y)(c)) in the statement of
financial position. The contract asset represents
amounts reflected in revenue on a milestone basis but
not billed to the customer.
AASB 9 Financial Instruments requires that contract
assets are subject to an assessment in relation to the
expected credit loss (ECL). Impairment is required to
be recognised where an ECL exists.
The determination of the ECL requires management
judgement in considering management’s ability to
realise the contract asset.
HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy
AAuuddiitt MMaatttteerr
changes to the key inputs and assumptions would
trigger impairment;
• Engaging our internal valuation specialists to assist
in the evaluation of management’s assumptions
applied in their assessment in calculating the
recoverable amount of the
identified CGUs,
including future cash flows, growth rates, discount
rates and terminal value calculations; and
• Comparing the recoverable amount of the CGUs to
the carrying value to determine whether an
impairment is required.
We also assessed the adequacy of the disclosures in
Notes 13 and 14 to the financial statements.
Our procedures included, but were not limited to:
• Enquiring and performing a walkthrough of the
process to assess the recoverability of the contract
asset to identify and test relevant controls;
and
• Obtaining
assessing management’s
assessment of the factors impacting the ECL in
relation to the contract asset and any required ECL
charges;
• Recalculating
recorded by
contract
asset
management; and
• Enquiring,
obtaining
evaluating
documentation in relation to the performance
against the contract including any variations of the
contract.
and
We also assessed the adequacy of the disclosures in
Note 1(y)(c) and Note 7 to the financial statements.
Other Information
The directors are responsible for the other information. The other information comprises the information included
in the Corporate Directory, Review of Operations, Directors’ Report and ASX Additional Information which we
obtained prior to the date of this auditor’s report, and also includes information which has been included in
the Consolidated Entity’s annual report (but does not include the financial report and our auditor’s report
thereon) which was made available to us after that date.
Our opinion on the financial report does not cover the other information and we do not and will not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information identified
above and, in doing so, consider whether the other information is materially inconsistent with the financial report
or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we
62
62
Electro Optic Systems Holdings Limited Annual Report 2022
have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude
that there is a material misstatement of this other information, we are required to report that fact. We have
nothing to report in this regard.
When we read the annual report if we conclude that there is a material misstatement therein, we are required to
communicate the matter to the directors and use our professional judgement to determine the appropriate
action.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true and fair
view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal
control as the directors determine is necessary to enable the preparation of the financial report that gives a true
and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Consolidated Entity
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the Consolidated Entity or to cease
operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and
maintain professional scepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Consolidated Entity’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on
the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may
cast significant doubt on the Consolidated Entity’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures
in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based
on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions
may cause the Consolidated Entity to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and
whether the financial report represents the underlying transactions and events in a manner that achieves fair
presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express an opinion on the financial report. We are responsible for the direction,
supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion.
50
Electro Optic Systems Holdings Limited Annual Report 2022
63
We communicate with the directors regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we identify during our
audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards
applied.
From the matters communicated with the directors, we determine those matters that were of most significance
in the audit of the financial report of the current period and are therefore the key audit matters. We describe
these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
RReeppoorrtt oonn tthhee RReemmuunneerraattiioonn RReeppoorrtt
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 46-57 of the Directors’ Report for the year ended
31 December 2022..
In our opinion, the Remuneration Report of Electro Optic Systems Holdings Limited, for the year ended 31
December 2022, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration Report
in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.
DELOITTE TOUCHE TOHMATSU
Chris Biermann
Partner
Chartered Accountants
Canberra, 30 March 2023
51
64
Electro Optic Systems Holdings Limited Annual Report 2022
EOS Annual Report 2022 | Directors’ Declaration
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 31 to the financial statements
will, as a consolidated entity, 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
Gary Hounsell
Director and Chair of the Board of Directors
Dated at Canberra this 30th day of March 2023
Electro Optic Systems Holdings Limited Annual Report 2022
65
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME
For the financial year ended 31 December 2022
Continuing operations
Revenue
Other income
Foreign exchange gain
Raw materials and consumables used
Changes in inventory work in progress and finished goods
Employee benefits expense
Occupancy costs
Administration expenses
Other expenses
Finance cost
Depreciation of property, plant and equipment
Depreciation of right of use assets
Amortisation of intangible assets
Impairment of assets
(Loss)/Profit before tax from continuing operations
Income tax benefit/(expense)
(Loss)/Profit for the year from continuing operations
Discontinued operations
(Loss) after tax for the year from Discontinued Operations
(Loss) for the year
Attributable to:
Owners of the Company
Non‑controlling interests
Other comprehensive income
31 December
2022
31 December
2021
Note
$ ’000
$ ’000
2(a)
2(b)
2(c)
2(c)
2(c)
2(c)
2(c)
2(c)
14
4
5
27
137,912
1,860
12,666
(87,455)
(3,942)
(63,005)
(1,891)
(23,262)
(3,142)
(14,252)
(4,324)
(5,138)
(1,597)
(7,315)
(62,885)
212,331
975
9,797
(117,202)
5,663
(59,092)
(1,708)
(15,795)
(2,343)
(6,601)
(3,892)
(4,562)
(1,597)
‑
15,974
9,278
(9,231)
(53,607)
6,743
(61,954)
(20,586)
(115,561)
(13,843)
(114,540)
(1,021)
(115,561)
(13,006)
(837)
(13,843)
Items that may be reclassified in future to profit or loss
Exchange differences on translation of foreign operations
2,100
1,344
Total comprehensive (Loss) for the year
(113,461)
(12,499)
Attributable to:
Owners of the Company
Non‑controlling interests
66
(112,440)
(1,021)
(113,461)
(11,662)
(837)
(12,499)
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME
For the financial year ended 31 December 2022
Earnings (loss)/profit per share
Basic
From Continuing Operations
From Discontinued Operations
Total
Diluted
From Continuing Operations
From Discontinued Operations
Total
Notes to the financial statements are included on pages 73 to 148.
31 December
2022
31 December
2021
Note
Cents per
share
Cents per
share
3
3
3
3
(35.8 cents)
5.4 cents
(42.2 cents)
(14.8 cents)
(78.0 cents)
(9.4 cents)
(35.8 cents)
5.4 cents
(42.2 cents)
(14.8 cents)
(78.0 cents)
(9.4 cents)
67
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2022
31 December
2022
31 December
2021
Note
$ ’000
$ ’000
28
6
7
8
9
7
4
37
11
12
13
15
16
21,681
7,419
12,245
59,261
23,533
196
127,899
106,844
74,841
17,591
74,579
20,399
261,676
284,812
36,520
3,326
35,588
‑
18,252
12,373
12,446
37,217
21,453
4,506
28,141
2,513
28,601
14,878
17,109
56,078
155,722
173,279
417,398
458,091
Current assets
Cash and cash equivalents
Trade and other receivables
Tax receivable
Contract asset
Inventories
Prepayments
Total current assets
Non‑current assets
Contract asset
Deferred tax asset
Security deposits
Loan to associate
Right of use assets
Goodwill
Intangible assets
Property, plant and equipment
Total non‑current assets
Total assets
68
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2022
Current liabilities
Trade and other payables
Contract liabilities
Secured borrowings
Unsecured borrowings
Lease liabilities
Provisions
Total current liabilities
Non‑current liabilities
Secured Borrowings
Lease 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 73 to 148.
31 December
2022
31 December
2021
Note
$ ’000
$ ’000
17
18
19
19
20
21
19
20
21
23
26
27
43,179
22,168
21,391
1,904
3,939
12,212
104,793
49,443
20,507
9,563
79,513
35,371
7,666
34,448
‑
5,160
14,178
96,823
‑
24,864
7,249
32,113
184,306
128,936
233,092
329,155
432,248
12,545
(208,499)
236,294
(3,202)
233,092
413,728
11,567
(93,959)
331,336
(2,181)
329,155
69
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2022
Accumulated
losses
$’000
Issued
capital
$’000
Foreign
currency
translation
reserve
(FCTR)
Employee
equity
settled
benefits
reserve
Attributable
to owners
of the
parent
Non‑
controlling
interests
$’000
$’000
$’000
$’000
Total
Equity
$’000
(93,959)
413,728
(1,823)
13,390
331,336
(2,181)
329,155
(110,365)
(4,175)
(114,540)
‑
(114,540)
‑
‑
‑
‑
‑
‑
‑
(110,365)
(1,021)
(111,386)
4,175
4,175
(2,075)
‑
‑
‑
‑
‑
‑
(110,365)
(1,021)
(111,386)
(2,075)
‑
(2,075)
2,100
‑
(112,440)
(1,021)
(113,461)
‑
‑
‑
‑
14,417
‑
14,417
‑
203
‑
203
‑
3,900
‑
3,900
‑
14,417
‑
203
3,900
‑
‑
‑
‑
(1,122)
(1,122)
‑
(1,122)
(208,499)
432,248
277
12,268
236,294
(3,202)
233,092
2022
Balance at
1 January 2022
Loss for the year
before reclassification
from FCTR
Reclassification of
FCTR Loss on disposal
of foreign operations
(Loss)/Profit for
the year
Exchange differences
arising on translation of
foreign operations
Total comprehensive
(loss)/profit for
the year
Issue of 12,500,000
equity shares at
$1.20 per share on
4 July 2022 (Net of
issuance cost of
$583,000)
Issue of 168,737 equity
shares at $1.20 per
share on 27 July 2022
under the share
purchase plan
Issue of 7,653,040
equity shares at
$0.5096 per share
on 13 Oct 2022 under
financing arrangements
Recognition of
share‑based payments
expense (reversal)
Balance at
31 December 2022
70
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2022
Accumulated
losses
$’000
Issued
capital
$’000
Foreign
currency
translation
reserve
(FCTR)
Employee
equity
settled
benefits
reserve
Attributable
to owners of
the parent
Non‑
controlling
interests
$’000
$’000
$’000
$’000
Total
Equity
$’000
(80,953)
413,479
(3,167)
11,580
340,939
(1,344)
339,595
(13,006)
‑
(13,006)
‑
‑
‑
‑
‑
(13,006)
(837)
(13,843)
1,344
1,344
‑
‑
1,344
‑
1,344
(11,662)
(837)
(12,499)
‑
‑
249
‑
‑
‑
‑
249
1,810
1,810
‑
‑
249
1,810
(93,959)
413,728
(1,823)
13,390
331,336
(2,181)
329,155
2021
Balance at
1 January 2021
Loss for the year
Exchange differences
arising on translation of
foreign operations
Total comprehensive
profit for the year
Repayment of loans
in respect of Loan
Funded Share Plan
83,125 shares at
$2.99 per share
Recognition of
share‑based
payments expense
Balance at
31 December 2021
Notes to the financial statements are included on pages 73 to 148.
71
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
31 December
2022
31 December
2021
Note
$ ’000
$ ’000
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Income tax paid
Interest and bill discounts received
Interest and other costs of finance paid
Net cash inflows from operating activities
28(b)
Cash flows from investing activities
Payment for property, plant and equipment
Security deposit for performance bond
Repayment of loan by associated entity
Payment to acquire a business
145,889
(188,637)
(1,014)
230
(8,040)
(51,572)
(19,253)
(11,212)
2,576
(421)
233,934
(225,251)
(2,627)
30
(5,865)
221
(29,007)
(8,701)
‑
‑
Net cash (outflows) from investing activities
(28,310)
(37,708)
Cash flows from financing activities
Proceeds from issue of new shares
Repayment of loans in respect of loan funded share plan shares
Repayment of lease liabilities
Proceeds from borrowings
Repayment of borrowings
Transaction costs related to borrowings
Net cash inflows from financing activities
14,620
‑
(5,045)
75,687
(35,807)
(4,104)
45,351
‑
249
(3,852)
35,000
‑
(812)
30,585
Net (decrease) in cash and cash equivalents
(34,531)
(6,902)
Cash and cash equivalents at the beginning of the financial year
59,261
65,933
Effects of exchange rate fluctuations on the balances of cash held in
foreign currencies
(3,049)
230
Cash and cash equivalents at the end of the financial year
28(a)
21,681
59,261
Notes to the financial statements are included on pages 73 to 148.
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Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
1. Summary of Accounting Policies
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 Consolidated Entity. 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 30 March 2023.
b. Basis of Preparation
The financial report has been prepared on the basis of
historical cost unless otherwise stated. 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. The functional currency
of the Consolidated Entity is Australian dollars. Certain
comparative amounts have been restated to apply with
the method of computation in the current year.
The Company is a company of the kind referred to in ASIC
Corporations (Rounding in Financials/Directors’ Reports)
Instrument 2016/191, dated 24 March 2016, and in
accordance with that Corporations Instrument amounts
the financial report are rounded to the nearest thousand
dollars, unless otherwise indicated.
c. 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 incurred a Loss Before Tax from
Continuing Operations of $62,885,000 (December 2021:
Profit before tax of $15,974,000).
In addition, the Consolidated Entity had a net cash
outflow from operating activities of $51,572,000
(December 2021: net cash inflow received of $221,000)
and a net decrease in cash and cash equivalents
held of $37,580,000 (December 2021: net decrease
of $6,672,000).
During the second half of the year the Company took
steps to:
z reduce the ongoing level of cash outflows in relation
to SpaceLink;
z reduce the operating cost base by reducing
headcount; and
z focus on improving the core business, including cash
collections from customers.
On 6 September and 12 October 2022, the Company
entered into binding agreements with a new financier
for new borrowing facilities. These facilities are detailed
in Note 19 Borrowings. As at the date of this report, the
facilities were fully drawn.
Under the borrowing facilities, repayment of the expected
balances (including capitalised fees and interest) are
required as follows:
z $26.9m on 6 September 2023
z $20.5m on 11 April 2024
z $52.1m on 11 October 2025
Under these new borrowing arrangements, the
Company is required to comply with certain Borrowing
Covenants. If the covenants are not complied with then
the lender (and the other funding provider), together
“the lenders” have the right to seek immediate repayment
of outstanding amounts. As part of the covenant
requirements, the Company was obliged to provide
the lenders in January 2023 with Cash Flow Forecasts
for the six months to 31 July 2023. The Company
complied with this obligation. Covenant compliance is
measured each month against these forecasts, using a
rolling three‑month period. In the event of a breach of
a covenant, the Company has a limited period in which
to take action to resolve the breach and/or negotiate
with lenders. If the breach is not resolved, the lender can
unilaterally amend the Borrowing Agreement and demand
immediate repayment of outstanding amounts.
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Policies (cont)
c. Going Concern (cont)
The Company complied with lending covenants
at 31st January 2023 and 28 February 2023.
During March 2023, due to timing delays the Company
expected that cash receipts for the rolling three‑month
period ended 31st March 2023 would be lower than
required under the Borrowing Covenant. As a result, the
Company submitted a revised Cash Flow Forecast to
the lenders in March 2023 and the lenders agreed to
accept the revised Cash Flow Forecast. Based on this,
the Company does not expect to breach the covenants
at 31 March 2023.
Compliance with the Borrowing Covenant will continue to
be measured each month during 2023. An updated Cash
Flow Forecast is required to be provided to lenders by
31 July 2023 for the period to 31 December 2023.
The Consolidated Entity has prepared a Cash flow Forecast
that supports the ability of the Consolidated Entity to
continue as a going concern. The underlying assumptions
of the forecast include acknowledgement of the intrinsic
operational risks of the business, the existing cash position
of the Consolidated Entity, the need to convert the Contract
Asset into cash, the ongoing loan repayment requirements
and the need to obtain further funding if required.
Subsequent to 31 December 2022, an amount of $45.1m
has been received in respect of the contract asset.
Based upon the information available at the date of this
report, including current estimates of contract wins and
cash inflows, the Company forecasts it will generate
sufficient net cash flows to fund required borrowing
repayments of $47.4m in September 2023 and April 2024.
In the event that forecast contract wins and forecast cash
inflows do not occur, the Company will seek to secure a
covenant waiver, and/or secure a rollover/refinancing of
the borrowings, and/or an equity injection to ensure the
repayment obligations are met.
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:
z The receipt of significant cash collections from
customers as a result of:
a) The continued realisation of the Contract Asset,
particularly including significant forecast cash
receipts in April, May and June 2023;
b) Key military and government customers making
timely payments for the goods supplied in
accordance with contractual terms;
z The continued adherence to borrowing covenants
by the Consolidated Entity, which is dependent
on significant forecast cash receipts in
April, May and June 2023, and the forbearance of
lenders regarding future covenant breaches should
any arise,
z The continued ability of the Consolidated Entity
to deliver contracts on time, to the required
specifications and within budgeted costs,
z The continued support of the lenders in accepting
Cash flow Forecasts in July 2023, as required under
the Borrowing Agreements,
z To the extent required to meet the repayment
obligations under borrowing arrangements (Note
19), the successful completion of further debt or
equity raisings,
z The continued forbearance of certain creditors in
respect of amounts which are beyond normal
payment terms, and
z Conversion of key opportunities within the Defence
and Space sector pipelines.
The Directors note that whilst the Consolidated Entity
has been successful in securing debt finance and raising
capital in the past, there is no assurance that it will be
successful in any potential future recapitalisation and/
or refinancing of the Consolidated Entity should this
be required.
If the Consolidated Entity is unable to achieve successful
outcomes in relation to the above matters (in particular, the
ability to convert the Contract Asset into cash, the ability
to secure the continued support of the financiers to the
Consolidated Entity, and the ability to secure debt finance
or raise capital should that be required), then material
uncertainty exists that may cast significant doubt as to the
ability of the Consolidated Entity to continue as a going
concern and therefore, it may be required to realise its
assets and extinguish its liabilities other than in the normal
course of business and at amounts different from those
stated in the financial report.
No adjustments have been made to the financial report
relating to the recoverability and classification of recorded
asset amounts or to the amounts and classification
of liabilities that might be necessary should the
Consolidated Entity not continue as a going concern.
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Policies (cont)
d. Impact of COVID‑19 and Related
Supply Chain Challenges
During the period since the outbreak of the COVID‑19
pandemic, the Consolidated Entity has been affected
in multiple ways. This includes increasing supply
chain costs, product delivery delays, delays in contract
negotiations and execution, reduced access to customers
and reduced production.
The normalisation of global supply chains has taken
longer to occur than previously expected and supply chain
challenges continue in many markets, impacting the timing
of EOS Revenue recognition. Whilst in some areas supply
chain challenges have started to show signs of easing, in
other areas the impact of previous challenges continues to
be felt, and new challenges have emerged.
While the specific areas of judgement did not change, the
impact of COVID‑19 resulted in the application of further
judgement by the Directors in preparing the financial
report in areas such as revenue recognition, the review
of the expected credit losses on receivables and the
collectability of contract assets, as well as the impairment
assessment on goodwill and intangibles.
For EOS’ largest customer contract, in the Middle East,
timing delays arose during the year. These were mainly
due to supply chain issues impacting both the customer
and EOS. This means that some revenue that was
previously expected to be recognised during 2022 has
been delayed until later periods.
The Directors have reviewed the collectability of the total
Contract Asset as at 31 December 2022 of $164,419,000,
including both current and non‑current amounts.
The Directors have concluded that no provisions or
adjustments to revenue should be recognised on the
basis of cash received to date and the creditworthiness
of the counterparty, amongst other factors. Furthermore,
the Directors are of the view that the estimates used in
preparing this financial report are reasonable.
Estimates and outcomes that have been applied in the
measurement of the Consolidated Entity’s Contract Asset
may change in the future and any 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 that period and future periods.
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Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 1. Summary of Accounting Policies (cont)
e. Adoption of New and Revised Standards
New and amended IFRS Standards that are effective for the current year
The Consolidated Entity 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 the current year summarised
below. These standards do not materially affect the Consolidated Entity’s accounting policies or any of the amounts
recognised in the financial statements.
New and revised AASB Standards in issue but not yet effective
At the date of authorisation of the financial statements, the Consolidated Entity has not applied the following new and
revised Australian Accounting Standards, Interpretations and amendments that have been issued but are not yet effective:
Standard/amendment
z AASB 2020‑1 Amendments to Australian Accounting Standards ‑
Classification of Liabilities as Current or Non‑current, and
z AASB 2020‑6 Amendments to Australian Accounting Standards ‑
Classification of Liabilities as Current or Non‑current ‑ Deferral of
Effective Date
z 2021‑2 Amendments to Australian Accounting Standards ‑ Disclosure
of Accounting Policies and Definition of Accounting Estimates
z 2021‑5 Amendments to Australian Accounting Standards ‑ Deferred
Tax related to Assets and Liabilities arising from a Single
Transaction
z 2022‑1 Amendments to Australian Accounting Standards ‑ Initial
Application of AASB 17 and AASB 9 ‑ Comparative Information
z 2022‑6 Amendments to Australian Accounting Standards ‑
Non‑current Liabilities with Covenants
z 2022‑7 Editorial Corrections to Australian Accounting Standards and
Repeal of Superseded and Redundant Standards
z 2022‑8 Amendments to Australian Accounting Standards ‑ Insurance
Contracts: Consequential Amendments
z AASB 2014‑10 Amendments to Australian Accounting Standards
‑ Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture,
z AASB 2015‑10 Amendments to Australian Accounting Standards ‑
Effective Date of Amendments to AASB 10 and AASB 128,
z AASB 2017‑5 Amendments to Australian Accounting Standards
‑ Effective Date of Amendments to AASB 10 and AASB 128 and
Editorial Corrections, and
z AASB 2021‑7 Amendments to Australian Accounting Standards
‑ Effective Date of Amendments to AASB 10 and AASB 128 and
Editorial Corrections
Effective for
annual reporting
periods beginning
on or after
Expected to be
initially applied
in the financial
year ending
1 January 2023
31 December 2023
1 January 2023
31 December 2023
1 January 2023
31 December 2023
1 January 2023
31 December 2023
1 January 2023
31 December 2023
1 January 2023
31 December 2023
1 January 2023
31 December 2023
1 January 2025
31 December 2025
1 January 2025
31 December 2025
1 January 2025
31 December 2025
1 January 2025
31 December 2025
These are not expected to have a material impact on the Consolidated Entity’s accounting policies or any of the amounts
recognised in the financial statements.
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Policies (cont)
f. Revenue Recognition
The Consolidated Entity recognises revenue from the
following major sources:
z engineering design, manufacture and supply of
remote weapon systems and related installation,
integration and support services;
z design, manufacture, delivery and operation of
sensors for space domain awareness and space
control; and
z design, development and provision of satellite
communications products, systems and services.
Customer contracts across all segments, including both
products and services, are highly customised and are
configured specifically for each client’s operational and
commercial requirements.
Transaction price
Revenue is measured based on the consideration to
which the Consolidated Entity expects to be entitled in
a contract with a customer. This transaction price is
updated for changes in scope or price (or both) that are
approved by all parties to the contract, either in writing or
by oral agreement.
Revenue recognition is constrained for negative
variable consideration in relation to delays in formal
customer acceptance or potential late delivery penalties/
liquidated damages. Once the constraint is removed, a
cumulative catch‑up adjustment is made to recognise the
related revenue.
There is no significant financing component in the
Consolidated Entity’s contracts with customers as the
period between provision of goods and services and the
receipt of cash from customers is usually less than a
year. Payment terms which extend beyond a year are for
reasons other than the provision of a significant financing
component.
Timing of revenue recognition
The timing of revenue recognition (i.e., over time or
at a point in time) is determined by the nature and
specifications of the contracts that the Consolidated
Entity enters into with its customers.
Revenue recognition over time
Goods manufactured and services delivered under the
Consolidated Entity’s major contracts do not have an
alternative use for EOS and EOS has an enforceable right
to payment for performance completed to date, therefore,
the Consolidated Entity recognises revenue for its major
contracts over time.
z The transaction price is allocated to performance
obligations based on standalone selling prices.
The output method, based on the delivery of goods
or services to customers or the achievement
of contract milestones, best depicts progress
under these contracts as it represents the best
measurement of value to the customer of goods or
services to date relative to the remaining goods or
services promised under the contract.
z For other contracts the input method offers the
best depiction of progress under the contract. For
such contracts, the Consolidated Entity recognises
revenue by reference to costs incurred to date
relative to total expected contract costs.
Revenue recognition at a point time
For contracts where revenue at a point in time offers the
best depiction of EOS’s satisfaction of its performance
obligations, the Consolidated Entity recognises revenue
when control transfers to the customer. Control is
assessed as transferred to the customer when the
Consolidated Entity has a present right to payment for
the asset, typically upon delivery of goods and services
to customers.
Under bill and hold arrangements, revenue is recognised
once formal acceptance is received from customers.
Interest revenue is recognised using the effective interest
rate method.
g. Discontinued Operations
A disposal Group qualifies as a discontinued operation
if it is a component of an entity that either has been
disposed of, or it is classified as held for sale and:
a. represents a separate major line of business or
geographical area of operations,
b.
is part of a single co‑ordinated plan to dispose of
a separate major line of business or geographical
area of operations, or
c.
is a subsidiary acquired exclusively with a view
to resale.
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Debt instruments
Policies (cont)
g. Discontinued Operations (cont)
Discontinued Operations are excluded from the results
of Continuing Operations and are presented as a single
amount as profit or loss after tax from Discontinued
Operations in the statement of profit or loss.
Additional disclosures are provided in Note 5. All other
notes to the financial statements include amounts for
Continuing Operations, unless indicated otherwise.
Subsequent measurement of debt instruments depends
on the Consolidated Entity’s business model for
managing the asset and the cash flow characteristics
of the asset. The consolidate entity measures its debt
instruments using the amortised cost basis. Using this
method, 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.
h. Financial Instruments
Impairment
Financial assets
Classification
The Consolidated Entity classifies its financial assets in
the following measurement categories:
z those to be measured subsequently at fair value
(through profit or loss or other comprehensive
income); and
z those to be measured at amortised cost.
The classification depends on the Consolidated Entity’s
business model for managing financial assets and the
contractual cash flow characteristics of the financial
assets. For assets measured at fair value, gains and
losses will either be recorded through 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 not held for trading,
this will depend on whether the Consolidated Entity 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 Consolidated Entity
reclassifies debt investments when and only when its
business model for managing those assets changes.
Measurement
At initial recognition, the Consolidated Entity 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 trade and
other receivables remains at amortised cost consistent
with the comparative period.
The Consolidated Entity assesses on a forward‑looking
basis the expected credit losses associated with its debt
instruments carried at amortised cost. The impairment
methodology applied depends on whether there has been
a significant increase in credit risk. For trade receivables,
contract assets, loans to associates and lease
receivables, the Consolidated Entity applies the simplified
approach permitted by AASB 9, which requires expected
lifetime losses to be recognised from initial recognition of
the receivables.
Financial liabilities
Interest bearing liabilities
All loans and borrowings are initially recognised at fair
value less 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
Consolidated Entity’s countries of operation.
i. 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 equivalents
are short‑term (generally with original maturity of three
months or less), highly liquid investments that are readily
convertible to a known amount of cash and which are
subject to an insignificant risk of changes in value.
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j. 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.
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.
Contributions to defined benefit contribution
superannuation plans are expensed when incurred.
k. Foreign Currency
Foreign currency transactions
Transactions in foreign currencies are recorded at the
exchange rate prevailing on the date of transaction.
Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency
closing rates of exchange at the reporting date. Exchange
differences arising on settlement or translation of
monetary items are recognised in Statement of Profit
and Loss. Non‑monetary items that are measured in
terms of historical cost in a foreign currency are recorded
using the exchange rates at the date of the transaction.
Non‑monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the
date when the fair value was measured.
The gain or loss arising on translation of non‑monetary
items measured at fair value is treated in line with the
recognition of the gain or loss on the change in fair
value of the item (i.e. translation differences on items
whose fair value gain or loss is recognised in Other
Comprehensive Income or Statement of Profit and Loss
are also recognised in Other Comprehensive Income or
Statement of Profit and Loss, respectively).
Foreign operations
For the purpose of presenting consolidated financial
statements, the assets and liabilities of the Company’s
foreign operations (having non‑AUD functional currency)
are translated to Australian dollars at the exchange
rate prevailing on the balance sheet date, income and
expenses items are translated at the average rate
of exchange for the respective months. Exchange
differences arising on such translation are recognised
as currency translation reserve under equity. Exchange
differences arising from the translation of a foreign
operation previously recognised in currency translation
reserve in equity are not reclassified from equity to
the consolidated profit or loss until the disposal of
the operation.
l. Goods and Services Tax
Revenues, expenses and assets are recognised net of the
amount of goods and services tax (GST), except:
z 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
z for receivables and payables which are recognised
inclusive of GST.
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.
m. Government Grants
Government grants are recognised in profit or loss on
a systematic basis over the periods in which the costs
for which the grants are intended to compensate are
recognised. Where a grant’s primary condition is that
the Consolidated Entity should purchase, construct or
otherwise acquire non‑current assets (including property,
plant and equipment), the grant is recognised as deferred
income in the consolidated statement of financial
position, which is subsequently transferred to profit or
loss on a systematic basis over the useful lives of the
related assets.
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 the grants
becomes receivable.
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Deferred tax
Policies (cont)
n. Impairment of Assets
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 and intangible assets with indefinite useful
lives 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.
The 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 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.
If the recoverable amount of an asset or CGU is estimated
to be less than its carrying amount, the carrying amount
of the asset or CGU is reduced to its recoverable
amount. An impairment loss is recognised in profit or
loss immediately.
Other than goodwill, where an impairment loss
subsequently reverses the carrying amount of the
asset or CGU 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 or CGU in
prior years. A reversal of an impairment loss is recognised
in profit or loss immediately.
o. 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, using tax rates
and tax laws that have been enacted or substantively
enacted by the 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 is recognised on temporary differences
arising from differences between the carrying amount of
assets and liabilities in the financial statements and their
corresponding tax base.
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 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 the 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 settle 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 bargain purchase gain.
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Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes The following estimated useful lives are used in the
calculation of amortisation on a straight‑line basis:
Core technology (not patented)
Patented technology
Software
10 years
15 years
5 years
Customer contracts and relationships
15 years
Licences
4 years
q. Inventories
Inventories are measured at the lower of cost and net
realisable value. Costs are assigned on a weighted
average cost basis for raw material inventory and
standard cost for finished goods and work in process.
Net realisable value represents the estimated selling
price less all estimated costs of completion, costs to
be incurred in marketing, selling and distribution, and
provision for obsolescence.
r. Leased Assets
The Consolidated Entity assesses whether a contract
is or contains a lease, at inception of a contract.
The Consolidated Entity recognises a right‑of‑use asset
and a corresponding lease liability with respect to all lease
agreements in which it is the lessee, except for short‑term
leases (defined as leases with a lease term of 12 months
or less) and leases of low value assets. For these leases,
the Consolidated Entity recognises the lease payments
as an operating expense on a straight‑line basis over the
term of the lease unless another systematic basis is more
representative of the time pattern in which economic
benefits from the leased asset are consumed.
The lease liability is initially measured at the present
value of the lease payments that are not paid at the
commencement date, discounted by using the rate
implicit in the lease. If this rate cannot be readily
determined, the Consolidated Entity uses its incremental
borrowing rate.
1. Summary of Accounting
Policies (cont)
o. Income Tax (cont)
Tax consolidation
The Company and all its wholly‑owned Australian 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 Consolidated Entity’ approach.
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 the head entity in the
tax‑consolidated Group).
There are formal tax funding and tax sharing
arrangements between the companies comprising
the Australian tax‑Consolidated Entity as at
31 December 2022.
p. 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.
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Policies (cont)
r. Leased Assets (cont)
Lease payments included in the measurement of the
lease liability comprise:
z fixed lease payments (including in‑substance fixed
payments), less any lease incentives;
z variable lease payments that depend on an index or
rate, initially measured using the index or rate at the
commencement date;
z the amount expected to be payable by the lessee
under residual value guarantees;
z the exercise price of purchase options, if the lessee is
reasonably certain to exercise the options; and
z payments of penalties for terminating the lease, if
the lease term reflects the exercise of an option to
terminate the lease.
The lease liability is presented as a separate line in the
consolidated statement of financial position.
The lease liability is subsequently measured by increasing
the carrying amount to reflect interest on the lease liability
(using the effective interest method) and by reducing the
carrying amount to reflect the lease payments made.
The Consolidated Entity remeasures the lease liability
(and makes a corresponding adjustment to the related
right‑of‑use asset) whenever:
z the lease term has changed or there is a change in
the assessment of exercise of a purchase option,
in which case the lease liability is remeasured by
discounting the revised lease payments using a
revised discount rate.
z the lease payments change due to changes in an
index or rate or a change in expected payment
under a guaranteed residual value, in which case
the lease liability is remeasured by discounting the
revised lease payments using the initial discount
rate (unless the change in lease payments is due to
a change in a floating interest rate, in which case a
revised discount rate is used).
z a lease contract is modified, and the lease
modification is not accounted for as a separate
lease, in which case the lease liability is remeasured
by discounting the revised lease payments using a
revised discount rate.
The right‑of‑use assets comprise the initial measurement
of the corresponding lease liability, lease payments made
at or before the commencement day and any initial direct
costs. They are subsequently measured at cost less
accumulated depreciation and impairment losses.
Whenever the Consolidated Entity incurs an obligation for
costs to dismantle and remove a leased asset, restore the
site on which it is located or restore the underlying asset
to the condition required by the terms and conditions
of the lease, a provision is recognised and measured
under AASB 137. The costs are included in the related
right‑of‑use asset, unless those costs are incurred to
produce inventories.
Right‑of‑use assets are depreciated over the shorter
period of the lease term and the useful life of the
underlying asset. If a lease transfers ownership of the
underlying asset or the cost of the right‑of‑use asset
reflects that the Consolidated Entity expects to exercise
a purchase option, the related right‑of‑use asset is
depreciated over the useful life of the underlying asset.
The depreciation starts at the commencement date of
the lease.
The right‑of‑use assets are presented as a separate line in
the consolidated statement of financial position.
The Consolidated Entity applies AASB 136 Impairment
of Assets (as per Note 1(n)) to determine whether a
right‑of‑use asset is impaired and accounts for any
identified impairment loss per that accounting policy.
As a practical expedient, AASB 16 permits a lessee not
to separate non‑lease components, and instead account
for any lease and associated non‑lease components as a
single arrangement.
s. 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:
z has power over the investee;
z is exposed, or has rights, to variable returns from its
involvement with the investee; and
z 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.
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Policies (cont)
s. Basis of Consolidation (cont)
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.
All intra‑Group assets and liabilities, equity, income,
expenses, and cash flows relating to transactions
between members of the Consolidated Entity are
eliminated in full on consolidation.
Non‑controlling interests in subsidiaries are identified
separately from the Consolidated Entity’s equity
therein. The interests of non‑controlling shareholders
with present ownership interests entitling them 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 an acquisition‑by‑acquisition
basis. Other non‑controlling interests are initially
measured at fair value. Subsequent to acquisition,
the carrying amount of non‑controlling interests 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.
t. Property, Plant and Equipment
Plant and equipment and leasehold improvements
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.
shorter, using the straight‑line method. The estimated
useful lives, residual values and depreciation method are
reviewed at the end of each annual accounting period.
The following estimated useful lives are used in the
calculation of depreciation:
Plant and equipment
Leasehold improvements
Office equipment
Furniture, fixture and fittings
Motor vehicles
Computer equipment
Test equipment
5 to 15 years
3 to 5 years
5 to 15 years
5 to 15 years
5 to 15 years
3 to 4 years
3 to 4 years
u. 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. Sales‑related warranties cannot be
purchased separately, and they serve as an assurance
that the products sold comply with agreed‑upon
specifications.
Contract losses
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
Present obligations arising under onerous contracts are
recognised and measured as a provision. An onerous
contract is considered to exist where the Consolidated
Entity 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.
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Policies (cont)
When a Group entity undertakes its activities under joint
operations, the Consolidated Entity as a joint operator
recognises in relation to its interest in a joint operation:
u. Provisions (cont)
Make good provisions and decommissioning costs
A make good provision, including decommissioning costs,
is recognised when there is a present obligation which it
is probable that an outflow of economic benefits will be
required to settle and the amount of the provision can
be measured reliably. The estimated future obligations
include the costs of dismantling and removing leasehold
improvement, decommissioning plant and equipment,
or otherwise restoring facilities and premises as required
in accordance with the underlying agreements.
v. 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.
z its assets, including its share of any assets
held jointly;
z its liabilities, including its share of any liabilities
incurred jointly;
z its Revenue from the sale of its share of the output
arising from the joint operations;
z its share of the Revenue from the sale of the output
by the joint operation; and
z its expenses, including its share of any expenses
incurred jointly.
The Consolidated Entity accounts for the assets,
liabilities, revenues and expenses relating to its interest
in a joint operation in accordance with the Standards
applicable to the particular assets, liabilities revenues
and expenses.
When a consolidated entity transacts with a joint
operation in which a consolidated entity is a joint
operator (such as a sale or contribution of assets),
the consolidated entity 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 consolidated entity’s consolidated
financial statements only to the extent of other parties’
interest in the joint operation.
Ordinary shares issued under the LFSP are accounted for
as an in‑substance option and initially measured using
a Monte Carlo simulation model. Directors reassess
the non‑market inputs and adjust throughout the life for
likely eventuality.
When a consolidated entity transacts with a joint
operation in which a consolidated entity is a joint operator
(such as a purchase of assets), the consolidated entity
does not recognise its share of the gains and losses until
it resells those assets to a third party.
w. Interests in Joint Operations
x. Goodwill
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.
Goodwill is initially recognised and measured as the excess
of the sum of the consideration transferred, the amount
of any non‑controlling interests in the acquirer, and the
fair value of the acquirer’s previously held equity interest
(if any) over the net of the acquisition‑date amount of the
identifiable assets acquired and liabilities assumed.
Goodwill is not amortised but is reviewed for impairment
at least annually. For the purpose of impairment testing,
goodwill is allocated to each of the Consolidated Entity
or Group’s cash generating units expected to benefit
from the synergies of the combination. Cash generating
units to which goodwill has been allocated are tested for
impairment annually, or more frequently when there is an
indication that the unit may be impaired.
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Policies (cont)
y. 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 circumstances, 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 judgement and 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:
a. Recoverability of goodwill and Impairment of assets
The Directors made a critical judgement in relation to
the recoverable amount of goodwill in Note 13 and the
allocation of goodwill to the three CGUs.
EOS assesses each CGU and individual asset level, where
possible, at period end, to determine whether there are
any indications of impairment or reversal of impairment.
Where an indicator of impairment or reversal exists,
a formal estimate of the recoverable amount is made.
Goodwill and indefinite life intangible assets are assessed
at least on an annual basis.
Recoverable amount is the higher of the fair value
less cost of disposal and value in use calculated
in accordance with our accounting policy. These
assessments require the use of estimates and
assumptions such as our pipeline of sales opportunities,
discount rates applied to estimated free cash flows, and
long‑term growth rates applied in estimating the future
value of our CGUs.
Impairment of discontinued operations
As reported in its 30 June 2022 half year report, as the
result of a significant deterioration in the risk appetite in
debt and equity markets, and delays in obtaining funding
required for SpaceLink, the Consolidated Entity reviewed
its plans in relation to SpaceLink.
Also during the half year ended 30 June 2022,
management identified impairment indicators relating
to individual assets of SpaceLink, and an impairment
expense of $47,181,000 was recognised at that
time in the Statement of Profit or Loss and Other
Comprehensive Income.
On 15 November 2022, EOS assigned SpaceLink to an
assignee under an ABC process in the United States,
and accordingly the activities relating to SpaceLink
have now been classified as a discontinued operation.
More information is included in Note 5.
Impairment of continuing operations
For the CGU impairment assessment, management
performed an assessment of the recoverable amount of
its Defence CGU as at 30 June 2022. This assessment
resulted in impairments in relation to all of the goodwill
allocated to the Defence CGU of $2,505,000 and an
impairment in relation to a Defence CGU property right
of use asset of $1,284,000. These were reported in the
30 June 2022 half year report.
In addition, in relation to a property right of use asset
at the Canberra Head Office, an impairment expense
of $3,526,000 was recognised during the year ended
31 December 2022.
As part of the preparation of its 31 December 2022
Annual Report, management noted that the carrying
amount of the Consolidated Entity’s net assets
continued to be more than its market capitalisation as
at 31 December 2022, and that performance for the
year continued to be below budget. These are specific
indicators of impairment under AASB 136 Impairment
of Assets. As a result, management performed an
assessment of the recoverable amount of each of its
three CGUs, Defence, EM Solutions (EMS) and Space
as at 31 December 2022. No further impairments, or
reversals of impairments, were recognised as a result of
the Consolidated Entity’s 31 December 2022 assessment.
Consequently, the Loss After Tax for the year from
Continuing Operations included a total impairment
expense of $7,315,000. See note 2(c) and 14 below for
detailed information.
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Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 1. Summary of Accounting
Policies (cont)
y. Critical Accounting Judgements (cont)
b. Capitalisation and recoverable amount of capital
work in progress
A critical judgement exists in the decision to capitalise
work in progress (see Note 16). The Consolidated Entity
capitalises work in progress when the Directors believe that
the expenditure in question creates or enhances an asset
from which future economic benefits will flow, and that
the Consolidated Entity controls the asset. The capital
works in progress asset balance at 31 December 2022
was $21,906,000. The asset is driven by capital works
undertaken by Defence Systems and Space Systems.
A critical judgement also exists in relation to the
recoverability of capital work in progress.
During the year, as the result of a significant deterioration in
the risk appetite in debt and equity markets, including from
parties with whom the Consolidated Entity was previously
in advanced stages of negotiation, and consequential
delays in obtaining required funding for SpaceLink, the
Consolidated Entity carried out a review of its plans in
relation to SpaceLink and the recoverable amount of
assets of SpaceLink. This review led to the impairment
of carrying amounts of capital work in progress of
$31,931,000 (Refer note 14 for further details).
The Company also continued to invest through EOS
Defence Systems Australia (EOSDS) in the ongoing
engineering development of counter drone defence,
predominantly in the areas of directed energy (DE) and
counter uninhabited aerial strike (CUAS) technologies.
The Directors have assessed the recoverable amount
of the EOSDS capital works in progress asset on
31 December 2022 and concluded that no impairments
should be recognised. This judgement is based on the
engagements completed during the year and feedback
received from industry partners and potential customers.
Actual results may differ from this estimate.
Estimates and outcomes that have been applied in the
measurement of the Consolidated Entity’s Contract
Asset may change in the future. 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.
c. Contract asset
A critical judgement exists in relation to the recoverability of
the contract assets described in Note 7. Of the total contract
assets of $164,419,000, an amount of $150,525,000 relates
to a contract with a customer in a foreign jurisdiction. As
outlined in Note 1(d), as a result of COVID‑19 and related
supply chain challenges, the Company has experienced
delays in relation to this contract. These delays have resulted
in delays in the conversion of the Contract Asset into cash
and judgement and estimation uncertainty in relation to
recoverability. The Directors have reviewed the collectability
of the total Contract Asset as at 31 December 2022 of
$164,419,000, including both current and non‑current
amounts. The Directors have concluded that no provisions
or adjustments to revenue should be recognised on the
basis of cash received to date and the creditworthiness
of the counterparty, amongst other factors. Furthermore,
the Directors are of the view that the estimates used in
preparing this financial report are reasonable.
Timing differences between revenue recognition and
invoicing are expected to arise due to differences between
the Consolidated Entity’s Revenue recognition policies
(see Note 1(f)) and the terms of the underlying contracts.
The Directors have concluded that any estimated credit
losses against the Contract Asset are immaterial.
This judgement is based on the nature of the counterparties
involved (primarily sovereign entities), the payments received
during the year, and continuing communications with clients
regarding administration of the underlying contracts.
d. Judgements in determining revenue recognised
in the period
The Directors make judgements in terms of the nature and
timing of revenue recognised under contracts between
the Consolidated Entity and its clients, in accordance with
the provisions of AASB15. A summary of the accounting
policies adopted by the Consolidated Entity in regard to
revenue recognition is set out in Note 1(f).
In 2021, the Directors made a critical judgement in relation
to the Revenue recognised under a major production
contract with a foreign customer. Under the contract,
late deliveries against the contracted schedule may result
in the application of late delivery penalties. Given the
delays and other impacts experienced from the COVID‑19
pandemic there was a possibility that late delivery penalties
could possibly be applied and so the Consolidated Entity
had therefore constrained revenue recognised under
the contract before and during the 2021 year, some of
which were applied and recognised in the first half of
2021. In September 2021 the client formally confirmed
that any remaining penalties that may otherwise have
accrued against deliveries through to 31 December 2021
would be waived. Given the Company’s positive operating
performance under the contract, good relationships
with the client, and track record of payments received
during 2021, the Directors determined that all variable
consideration withheld against this contract should be
released in the year ended 31 December 2021, resulting in
a cumulative catch‑up of the previously withheld variable
consideration (see Note 7).
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Policies (cont)
y. Critical Accounting Judgements (cont)
e. Consolidation of EOS Defence Systems USA
Effective from 17 October 2022, EOS Defence Systems
USA (EOSDS USA), a United States based subsidiary, is
managed through a Special Security Agreement (SSA) as
required by the US National Industrial Security Program
(“NISPOM”). The SSA enables EOSDS USA to enter
into contracts with the US Department of Defence that
contain certain classified information.
The SSA is an instrument designed to mitigate the
risk of foreign ownership, control or influence over a
US entity that has security clearance under the NISPOM.
The SSA denies the foreign owner unauthorized access
to classified and export‑controlled information while
preserving the foreign owner’s voice in the business
management of the company. Under the SSA, EOS has
the right to appoint a representative (Inside Director)
along with three Outside Directors. The Outside Directors
must be US citizens approved by the US Defense
Counterintelligence and Security Agency (DCSA).
The Group maintains its involvement with EOSDS
USA’s activities through normal business activity and
liaison with the Chair of the SSA and through the
Inside Director(s). The operational and governance
activities and results are reviewed by EOS management.
These activities are all performed within the confines
of the SSA such that EOSDS USA operates its business
within the requirements necessary to protect the US
national security interest.
An assessment has been performed in accordance with
AASB 10 Consolidated Financial Statements of whether,
for accounting purposes, the Consolidated Entity controls
EOSDS USA. The Consolidated Entity is exposed to
variable returns from its investment in EOSDS USA and
there is deemed to be sufficient power within the confines
of the Proxy agreement for the Group to use its influence
to affect those returns. As such, under AASB 10, it is
deemed that the Consolidated Entity controls EOSDS USA
and therefore the results of EOSDS USA are consolidated
into the Consolidated Entity’s consolidated accounts.
i. Deferred tax
The Directors made a critical judgement in relation to
recognising some of the deferred tax balances described
in Note 4(b). The Directors currently consider it probable
that sufficient taxable amounts will be available against
which deductible temporary differences can be utilised in
the Australian tax Consolidated Entity. The Directors also
made a critical judgement in relation to not recognising
deferred tax balances on tax losses. No deferred tax
assets have been recognised in the foreign subsidiaries.
The Directors also made judgements in estimating the
tax loss carry back amount of $11,200,000 recognised as
a receivable.
ii. Warranty provision
The Directors made a critical judgement in relation to the
valuation of the provision for warranty costs described
in Note 22. The valuation is determined based on the
Directors’ best estimate of the expenditure required
to settle the Consolidated Entity’s liability under its
warranty obligations.
Estimates and outcomes that have been applied in the
assessing warranty provisions may change in the future
and the Consolidated Entity will recognise any revisions
deemed necessary as a result.
z. Derivative Liabilities
Derivative liabilities are initially recognised at fair value
on issue. After initial recognition, they are subsequently
measured at fair value through profit or loss.
aa. Investments in Associates
An associate is an entity over which the Consolidated
Entity has significant influence and that is neither a
subsidiary nor an interest in a joint venture. Significant
influence is the power to participate in the financial
operating policy decisions of the investee but is not
control or joint control over these policies.
The Consolidated Entity measures the loan to an
associate at fair value through profit and loss from
the date which significant influence is obtained.
The Consolidated Entity applies AASB 9, including the
impairment requirements, to long‑term interests in an
associate or joint venture to which the equity method is
not applied and which form part of the net investment in
the investee.
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Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes
2. (Loss)/Profit Before Tax‑Continuing Operations
(a) Revenue
Revenue from operations
Revenue from operations consisted of the following items:
Revenue from the sale of goods
Revenue from the rendering of services
Total revenue
Disaggregation of revenue
2022
$ ’000
111,292
26,620
137,912
2021
$ ’000
162,186
50,145
212,331
The Consolidated Entity derives its Revenue from the transfer of goods and services both (i) Over Time and (ii) at a Point
in Time, as shown below.
Revenue Recognition Over Time
Defence Segment
Sale of goods
Providing of services
Space Segment
Sale of goods
Providing of services
Total Revenue Recognised Over Time
All other revenue is recognised at a point in time:
Revenue Recognition at a Point in Time
Defence Segment
Sale of goods
Providing of services
Space Segment
Sale of goods
Providing of services
Total revenue recognised at a Point in Time
2022
$ ’000
83,512
8,887
22,132
3,301
117,832
2022
$ ’000
2,100
11,452
3,548
2,980
20,080
2021
$ ’000
103,059
38,682
15,053
3,627
160,421
2021
$ ’000
36,941
5,834
7,132
2,003
51,910
Total revenue recognised
137,912
212,331
88
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 2. (Loss)/Profit Before Tax‑Continuing Operations (cont)
(b) Other Income
Interest:
Bank deposits
Other
Grant income
Bargain purchase (Note 30)
Other
Total other income
(c) Expenses
The loss/(profit) for the year from continuing operations
includes the following expenses:
Employee benefits expense:
Share based payments (equity settled) (reversal)/expense
Contributions to defined contribution superannuation plans
Other employee benefits
Total employee benefits expense
Interest expense
Interest expense on lease liabilities
Interest on secured borrowings
Other finance costs
Finance Cost
Amortisation of intangibles
Depreciation of property, plant and equipment
Depreciation on right of use assets
Impairment loss
Foreign exchange (gain)
2022
$ ’000
41
189
480
870
280
1,860
2022
$ ’000
(1,122)
5,200
58,927
63,005
1,317
5,905
7,030
14,252
1,597
4,324
5,138
7,315
2021
$ ’000
30
426
133
‑
386
975
2021
$ ’000
1,810
4,750
52,532
59,092
1,174
975
4,452
6,601
1,597
3,892
4,562
‑
(12,666)
(9,797)
89
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 3. Earnings per Share
Basic
Continuing Operations
Discontinued Operations
Total
Diluted
Continuing Operations
Discontinued Operations
Total
2022
cents per
share
2021
cents per
share
(35.8 cents)
5.4 cents
(42.2 cents)
(14.8 cents)
(78.0 cents)
(9.4 cents)
(35.8 cents)
5.4 cents
(42.2 cents)
(14.8 cents)
(78.0 cents)
(9.4 cents)
Calculation of basic and diluted total earnings per share
The earnings and weighted average number of ordinary shares used in the calculation of basic and diluted earnings
per share are as follows:
Earnings
Earnings ‑ net loss attributable to equity holders of parent
Adjustments to exclude loss for the year from Discontinued Operations
Earnings from Continuing Operations for the purpose of basic and
diluted earnings per share excluding Discontinued Operations
Number of shares
Weighted average number of ordinary shares used in the
calculation of basic earnings per share
Note
(a)
5
2022
$’000
2021
$’000
(114,540)
61,954
(13,006)
20,586
(52,586)
7,580
2022
2021
Note
No. of shares
No. of shares
(b), (c)
146,853,905
138,876,922
(a) (Loss)/ Profit attributable to the owners of the parent entity used in the calculation of basic earnings per share is the
same as net profit in the statement of profit or loss and other comprehensive income.
(b) The 1,830,000 unlisted options outstanding are not considered dilutive as all the conditions of exercise have not
been met at the reporting date and given the Consolidated Entity made a loss in the period.
(c) Shares issued under the LFSP are not included in the weighted average number of ordinary shares as they are
treated as in‑substance options for accounting purposes. The options are not considered dilutive given the
Consolidated Entity made a loss in the period. These include the 2,270,000 ordinary shares issued on 19 May 2020
at a price of $4.75 each, the 2,500,000 ordinary shares issued on 29 May 2020 at $4.92 each, the 860,000 ordinary
shares issued on 10 August 2020 at $5.62 each, the 150,000 ordinary shares issued on 14 October 2020 at
$5.47 each, the 1,185,000 ordinary shares issued on 15 March 2021 at $5.27 each and the 150,000 ordinary
shares issued on 31 May 2021 at $4.06 each.
90
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 4. Income Tax
Corporation income tax
Current year expense/(benefit)
2022
$ ’000
2021
$ ’000
(9,278)
9,231
(a) The Prima Facie Income Tax Expense on Pre‑Tax Accounting (Loss)/Profit from
Operations Reconciles to the Income Tax Expense in the Financial Statements as follows:
Profit/(Loss) before income tax from Continuing Operations
Profit/(Loss) before income tax from Discontinued Operations
Profit/(Loss) before income tax
Income tax (benefit) calculated at 30%
Effect of different tax rates of subsidiaries operating in other jurisdictions
Non‑deductible capital expenditure
Bargain purchase on acquisition
Impairment of goodwill
Impact of discontinued operations
Share based payments
Amortisation of intangible assets in other jurisdictions
Other non‑deductible/non‑assessable items
Recognition of tax losses carry back receivable
Temporary differences not recognised
Adjustment in respect of prior years
Unused Australian tax losses and tax offsets now brought to account
Unused tax losses and tax offsets not recognised as deferred tax assets
Income tax expense/(benefit) attributable to operating profit/(loss)
Income tax attributable to a discontinued operation
2022
$ ’000
(62,885)
(61,954)
(124,839)
(37,452)
(2,070)
254
(261)
751
9,239
(336)
120
1,698
(28,057)
(11,200)
(155)
(49)
‑
30,183
(9,278)
‑
2021
$ ’000
15,974
(20,586)
(4,612)
(1,383)
2,066
‑
‑
‑
‑
543
368
(2,065)
(471)
‑
‑
238
(99)
9,563
9,231
‑
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, 0% in United Arab Emirates and 28% in
New Zealand. Tax rates in the USA apply at a Federal, State and local level and can vary depending upon location. The tax
rates applicable to the Consolidated Entity’s USA operations haves been assumed to approximate a combined rate
of 40%. There has been no change in the corporate tax rate when compared with the previous reporting period.
91
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 4. Income Tax (cont)
(b) Deferred Tax Balances
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against
currents tax liabilities and when they relate to income taxes levied by the same taxation authority and the Consolidated
Entity intends to settle current tax assets and liabilities on a net basis.
The following are the major deferred tax liabilities and assets recognised by the Consolidated Entity and movements
thereon during the current and prior period.
Charge/
(credit) to
profit and loss
Recognised
in other
comprehensive
income
$ ’000
$ ’000
Deferred tax assets
Accruals
Business capital expenditure
deductible over five years
Provision for annual leave
Provision for long service leave
Provision for estimated credit losses
Provision for decommissioning costs
Provision for obsolete stock
Provision for make good costs
Provision for warranty
Contract asset
Income tax losses
Foreign exchange gain arising from
tax fair value adjustment
Deferred tax liabilities
Prepaid insurance
Right of use assets
Property plant and equipment
Other
Acquired intangible assets
2021
$ ’000
243
1,703
2,374
1,446
‑
75
162
331
1,927
366
‑
355
8,982
(25)
270
(1,079)
(183)
(3,459)
(4,476)
(68)
(748)
(228)
(152)
(40)
‑
(24)
80
277
459
‑
(3,115)
(3,559)
63
(1,228)
2,974
137
433
2,379
Total
4,506
(1,180)
92
2022
$ ’000
175
955
2,146
1,294
(40)
75
138
411
2,204
825
‑
(2,760)
5,423
38
(958)
1,895
(46)
(3,026)
(2,097)
3,326
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 4. Income Tax (cont)
Deferred tax assets
Accruals
Business capital expenditure
deductible over five years
Provision for annual leave
Provision for long service leave
Provision for estimated credit losses
Provision for decommissioning costs
Provision for obsolete stock
Provision for make good costs
Provision for warranty
Contract asset
Income tax losses
Foreign exchange gain arising from
tax fair value adjustment
Deferred tax liabilities
Prepaid insurance
Right of use assets
Property plant and equipment
Other
Acquired intangible assets
Charge/
(credit) to
profit and loss
Recognised
in other
comprehensive
income
$ ’000
$ ’000
2020
$ ’000
441
(198)
2,460
1,868
1,192
38
75
29
151
3,678
86
44
6,083
16,145
(117)
266
(1,074)
‑
(3,877)
(4,802)
(757)
506
254
(38)
‑
133
180
(1,751)
280
(44)
(5,728)
(7,163)
92
4
(5)
(183)
418
326
2021
$ ’000
243
1,703
2,374
1,446
‑
75
162
331
1,927
366
‑
355
8,982
(25)
270
(1,079)
(183)
(3,459)
(4,476)
4,506
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
Total
11,343
(6,837)
At the reporting date the Consolidated Entity has unused tax losses emanating from its non‑Australian entities.
No deferred tax asset has been recognised in respect of these balances as it is not considered probable that there will be
future taxable profits available in these jurisdictions.
93
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes
4. Income Tax (cont)
(c) Unrecognised Deferred Tax Balances
The following cumulative deferred tax assets have not been brought
to account as assets
Tax losses ‑ revenue
Temporary differences
Total
(d) Franking Account Balance
Adjusted franking account balance
Tax consolidation
Relevance of tax consolidation to the consolidated entity
2022
$ ’000
37,889
926
38,815
2022
$ ’000
17,443
2021
$ ’000
40,315
1,022
41,337
2021
$ ’000
18,055
The Company and some of its wholly‑owned Australian resident taxable 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 31.
Nature of tax funding arrangements and tax sharing agreements
As at 31 December 2022, there were formal tax funding and tax sharing arrangements within the Australian
tax‑consolidated Group.
5. Discontinued Operations
On 15 November 2022, EOS assigned its US subsidiary SpaceLink Corporation (SpaceLink) to an assignee under an
Assignment for the Benefit of Creditors (ABC) process in the United States. Under this process, the Assignee became
responsible for the disposal of SpaceLink assets, the distribution of proceeds to the creditors, as well as the management
of all of the winding up activities of the company. The Consolidated Entity therefore effectively lost control over SpaceLink
as a result of this Assignment and there was an effective disposal.
The activities relating to SpaceLink have been classified as a discontinued operation. SpaceLink was not previously classified
as held‑for‑sale or as a discontinued operation. The comparative consolidated statement of profit and loss and other
comprehensive income has been re‑presented to show the discontinued operation separately from Continuing Operations.
A gain arose on the assignment and effective disposal of SpaceLink as the assignment process allowed the Group to
dispose of net liabilities for nil proceeds and at no cost.
The intra‑Group transactions between Discontinued Operations and Continuing Operations have been fully eliminated in
the consolidated financial results.
In the analysis below, management has elected to attribute the elimination of transactions between Continuing and
Discontinued Operations before the Assignment and effective disposal of SpaceLink.
In the results shown below, there were no material transactions with the Continuing Operations during the current year or
the prior year.
94
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes Notes
14
5. Discontinued Operations (cont)
The results of SpaceLink Corporation are presented below:
Other income
Raw materials and consumables used
Employee benefit expenses
Occupancy costs
Administration expenses
Other expenses
Amortisation of Intangible assets
Depreciation of property plant and equipment
Depreciation of right of use assets
Finance cost
Impairment loss
Onerous contract provision
Loss before tax from discontinued operations
Tax expense
Loss for the year from discontinued operations
Gain on assignment and effective disposal of SpaceLink
Tax expense on gain on assignment and effective disposal of SpaceLink
Gain after tax
Net loss for the year attributable to discontinued operations
(attributable to owners of the company)
The net cash flows incurred by SpaceLink were:
Cash flow ‑ discontinued operations
Operating cash flows
Investing cash flows
2022
$ ’000
39
‑
(12,525)
(240)
(17,068)
(568)
(401)
(159)
(438)
(197)
(47,181)
(2,932)
2021
$ ’000
‑
(19)
(10,111)
(255)
(6,453)
(232)
(1,227)
(62)
(423)
(14)
(1,790)
‑
(81,670)
(20,586)
‑
‑
(81,670)
(20,586)
19,716
‑
19,716
‑
‑
‑
(61,954)
(20,586)
2022
$ ’000
(15,321)
(11,373)
(26,694)
2021
$ ’000
(32,114)
(1,747)
(33,861)
Financing cash flows (provided by the Continuing Operations)
26,478
34,254
95
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 6. Trade and Other Receivables
Current
Trade receivables
GST receivable
Employee receivables
Other debtors
2022
$ ’000
2021
$ ’000
6,373
22,391
933
113
‑
931
181
30
7,419
23,533
The average debtor days on sales of goods is 20 days. No interest is charged on outstanding late receivables.
The Consolidated Entity measures the loss allowance for trade receivables at an amount equal to the lifetime expected
credit loss (ECL). The ECL on trade receivables are estimated using a provision matrix by reference to past known default
experience of the debtors and an analysis of the debtors’ current financial position, adjusted for factors that are specific
to the debtors. Based on this analysis, any ECLs on trade receivable balances at the end of the period are immaterial.
There has been no change in the estimation techniques or significant assumptions made during the current
reporting period.
The Consolidated Entity 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).
There were no receivables written off during the year and no receivables balances, as at the end of the period, are subject
to enforcement activities.
7. Contract Asset
Unbilled revenue ‑ current
Unbilled revenue ‑ non‑current
Total
2022
$ ’000
127,899
36,520
164,419
2021
$ ’000
106,844
21,453
128,297
The Contract Asset reflects amounts recognised in revenue on a milestone or a delivery basis in the defence and space
segments, but not yet billed to the customer. Timing differences between the satisfaction of performance obligations and
receipt of cash are expected to arise due to differences between the Consolidated Entity’s Revenue recognition policies
(see Note 1(f) and the terms of the underlying contracts. This is because contracts typically bill on a milestone basis that
may not necessarily reflect progress under the contract.
The Consolidated Entity measures the loss allowance for the Contract Asset at an amount equal to the lifetime expected
credit loss (ECL). The ECL on unbilled revenue is estimated using a provision matrix by reference to past known default
experience with customers and an analysis of customers’ current financial position, adjusted for factors that are specific
to the customers. There has been no change in the estimation techniques or significant assumptions made during the
current reporting period.
The Directors have concluded that any ECL against the Contract Asset is immaterial. This judgement is based on the
nature of the counterparties involved, the payments received during the year, and continuing communications with the
clients regarding administration of the underlying contracts.
96
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 7. Contract Asset (cont)
The movement in the Contract Asset during the financial year is set out below.
Opening balance
Invoicing during the financial year
Net revenue recognised during the year
Variable consideration previously constrained, now recognised
Impact of foreign exchange and other movements
Impact of discounting ‑ net
Closing balance
8. Inventories
Raw materials ‑ at net realisable value and cost
Work in progress ‑ at cost
Total
9. Prepayments and Other Assets
Current Prepayments*
2022
$ ’000
128,297
(59,611)
88,816
‑
6,917
‑
2021
$ ’000
137,897
(99,259)
63,359
18,316
8,308
(324)
164,419
128,297
2022
$ ’000
26,420
48,421
74,841
2022
$ ’000
17,591
2021
$ ’000
30,100
44,479
74,579
2021
$ ’000
20,399
*Prepayments include prepayments made to suppliers for the delivery of component parts in relation to current orders.
10. Remuneration of Auditors
(a) Deloitte and related network firms*
Audit or review of the financial reports:
In relation to the current year
In relation to the 2021 audit paid in 2022
‑ Consolidated Entity
Other assurance services
Other services
‑ Tax consulting services
2022
$ ’000
2021
$ ’000
888
200
1,088
218
71
1,377
448
‑
448
‑
58
506
97
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes
10. Remuneration of Auditors (cont)
(b) Other auditor and their related network firms
Audit or review of the financial reports
Other services
‑ Taxation services
* The auditor of Electro Optic Systems Holdings Limited is Deloitte Touche Tohmatsu.
11. Loan to Associate
Unsecured convertible note to associate ‑ AEI Air (Holdings) Limited
2022
$ ’000
2021
$ ’000
17
9
26
15
4
19
2022
$ ’000
‑
2021
$ ’000
2,513
During the year ended 31 December 2022 Electric Optic Systems Pty Ltd and AEI Air (Holdings) Limited entered into a
Settlement Deed in relation to a prior arrangement. As a result of that settlement deed, these arrangements have ended.
Details are as follows:
On 23 April 2019 the Consolidated Entity entered into an Unsecured Convertible Note deed with a supplier, AEI Air
(Holdings) Limited (”AEI”). See Note 34 for details of AEI.
The terms of the deed required AEI to issue to the Consolidated Entity up to five convertible notes, subject to certain
conditions, of which $2,780,265 (£1,500,000) was paid, representing only four convertible notes. All five notes could be
converted, in aggregate, into such number of shares which represents 51% of the issued share capital of AEI at the date
of conversion. Following payment of the first note the Consolidated Entity appointed two out of five directors of AEI and
had the right to appoint, remove or replace such number of directors which represented 50% of the Board of Directors
(equivalent to 50% of directors’ voting rights under the revised articles of association).
The meeting of certain conditions, including product specifications, would enable the Consolidated Entity to request the
issuance of the remaining notes at their discretion, and convert these into equity. The convertible notes are redeemable
upon an event of default or at the maturity date (being 36 months after the date of issue of the first note above ‑
23 April 2019), and on redemption AEI must repay the face value of the notes to the Consolidated Entity.
On 23 April 2019 the Consolidated Entity also entered into a Put and Call Option deed with the shareholders of AEI. This
deed allowed the Consolidated Entity to call the remaining 49% of the shareholding in AEI at an aggregate exercise price
based on an adjusted net profit after tax (NPAT) multiple. The shareholders also had a put option over the same interest.
Further, under this agreement, should certain conditions be met, the shareholders are able to request the drawdown
of loan advances to a maximum of $3,177,843 (£1,714,500), payable to the shareholders in four equal tranches. Had
the loans been called, the agreement contains an offset clause under which the Consolidated Entity can offset against
amounts payable should the put and call options be exercised. The put and call options could be exercised by the
Consolidated Entity (or the shareholders) at any time up to and including 30 June 2022 but were conditional on the
exercise of the Unsecured Convertible Notes as referred to above. The put and call option liability (in relation to the option)
was carried at fair value through profit and loss.
The nature of the arrangement with AEI was as an associate, as the nature of the Consolidated Entity’s interest was that
of significant influence rather than accounting control.
98
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 11. Loan to Associate (cont)
On 30 December 2019, the Consolidated Entity entered into an agreement with an entity in the United Arab Emirates
(who is a joint venture partner to EOS) to acquire a 2% interest in AEI should the Consolidated Entity exercise its
Unsecured Convertible Note to acquire 51% of AEI, leaving the Consolidated Entity with a potential 49% interest.
The Consolidated Entity also formally rescinded its right to appoint, remove or replace such number of directors which
represent 50% of the Board of Directors (equivalent to 50% of directors’ voting rights under the revised articles of
association) via deed poll.
On 13 July 2022 Electro Optic Systems Pty Ltd and AEI Air (Holdings) (AEI) Limited entered into a settlement deed and
release agreement wherein it was agreed that AEI would compensate EOS an amount of $3,181,000 (£1,642,000) for:
z the principal amount of the convertible notes of $2,905,000 (£1,500,000) referred to in note 36(i),
z interest of $261,000 (£135,000), and
z payment for ammunition used by AEI to date of $15,000 (£7,000).
This effectively cancelled both the Unsecured Convertible Note Deed and the Put and Call Option Deed thereby
terminating the relationship between the Consolidated Entity and AEI.
AEI therefore ceased being an associate of the Consolidated Entity on this date.
Between 29 July and 2 August 2022 EOS received an amount of $2,843,000 (£1,615,000) representing the full settlement
amount above of $2,891,000 (£1,642,000) less withholding tax of $47,000 (£27,000) (20% of the interest amount).
$2,576,000 was allocated to the loan to AEI whilst the rest ($267,000) was allocated to the 2% interest in AEI, interest,
and ammunition.
12. Right of Use Assets
(a) Office premises ‑ at cost
Less accumulated depreciation and impairment
(b) Office equipment ‑ at cost
Less accumulated depreciation and impairment
2022
$ ’000
29,117
(11,414)
17,703
1,402
(853)
549
2021
$ ’000
37,151
(9,384)
27,767
1,612
(778)
834
18,252
28,601
99
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 12. Right of Use Assets (cont)
Cost
Office premises
Balance at the beginning of the year
Adjustment due to lease modification
Additions
Disposals
Impairments
Net foreign exchange differences
Balance at the end of the year
Office equipment
Balance at the beginning of the year
Additions
Write‑offs
Net foreign currency exchange differences
Balance at the end of the year
Accumulated depreciation/amortisation/ impairment
Office premises
Balance at the beginning of the year
Adjustment due to lease modification
Depreciation (continuing and discontinued operations)
Disposals
Impairments
Net foreign exchange differences
Balance at the end of the year
Office equipment
Balance at the beginning of the year
Depreciation (continuing and discontinued operations)
Disposals
Net foreign exchange differences
Balance at the end of the year
100
2022
$ ’000
2021
$ ’000
37,151
1,931
1,658
(185)
(12,492)
1,054
29,117
1,612
‑
(136)
(74)
1,402
2022
$ ’000
9,384
(105)
5,291
(185)
(3,625)
654
11,414
777
285
(136)
(73)
853
24,353
32
13,251
(835)
‑
350
37,151
1,658
64
(110)
‑
1,612
2021
$ ’000
5,378
4
4,636
(835)
‑
201
9,384
490
348
‑
(60)
778
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 13. Goodwill
Opening balance
Less impairment
Closing balance
2022
$ ’000
14,878
2,505
12,373
2021
$ ’000
14,878
‑
14,878
Management has identified the following as the Consolidated Entity’s cash generating units (“CGUs”):
CGU
EM Solutions
Operations
EMS specialises in innovative optical, microwave and on‑the‑move radio and satellite
products that help deliver high speed, resilient and assured telecommunications anywhere
in the world.
Space Technologies
EOS’s laser‑based surveillance systems with space tracking capability; manufactures and
sells telescopes and dome enclosures for space projects.
Defence Systems
Develops, manufactures and markets advanced fire control, surveillance, and weapon
systems to approved military customers
The carrying amount of goodwill has been allocated to CGUs as follows:
Defence
Space
EM Solutions
14. Impairment of Assets
Impairment indicators and testing
2022
$ ’000
‑
2,505
9,868
12,373
2021
$ ’000
2,505
2,505
9,868
14,878
At each period end, the Consolidated Entity assesses whether indicators of impairment or impairment reversal exist at an
individual asset level, where possible, and a CGU level.
During the year ended 31 December 2022, management identified indicators of impairment in regard to certain individual
assets within SpaceLink and a company‑wide indicator of impairment in relation to the Consolidated Entity’s market
capitalisation and performance against budgets for the financial year.
Discontinued operations ‑ SpaceLink
During the year, as the result of a significant deterioration in the risk appetite in debt and equity markets, including from
parties with whom the Consolidated Entity was previously in advanced stages of negotiation, and consequential delays in
obtaining required funding for SpaceLink, the Consolidated Entity carried out a review of its plans in relation to SpaceLink
and the recoverable amount of assets of SpaceLink
As reported in the 30 June 2022 half year report, this review led to the carrying amounts of several assets being
impaired in full. These included capital work in progress ($31,931,000), intangible assets ($2,785,000), FCC security bond
($5,804,000), Right of Use assets ($4,057,000) and other assets ($2,604,000).
101
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes
14. Impairment of Assets (cont)
On 15 November 2022, SpaceLink was assigned to an Assignee. This resulted in a loss of control of SpaceLink, and it
has been treated as a discontinued operation (see note 5 for further details). Accordingly, the amounts above have been
recognised as part of the reported Loss After Tax for the Year from Discontinued Operations.
As a result, an impairment loss of $47,181,000 has been recognised in the Loss After Tax for the Year from
Discontinued Operations.
Continuing operations
Defence
As reported in the 30 June 2022 half year report, management performed an assessment of the recoverable amount of
its Defence CGU as at 30 June 2022. This assessment resulted in impairment charges being recognised in relation to
all of the goodwill allocated to the Defence CGU of $2,505,000 and in relation to a Defence property Right of Use asset
of $1,284,000.
Corporate head office
During the year, as the result of a reduction in an overall headcount of the Company as part of its Strategic Review,
the Company identified an impairment indicator in relation to its lease for its Canberra Head Office property.
While the Company continues to assess options for the lease, it concluded that the carrying value of the Right of
Use asset exceeded its recoverable amount. As a result, an impairment expense of $3,526,000 was recognised at
31 December 2022. The Corporate assets are allocated to the CGU’s for CGU level impairment testing.
The total impairment expense recorded during the year for Continuing Operations was $7,315,000.
Market capitalisation deficiency and performance against budget
In addition to the indicators noted above, management noted that the carrying amount of the Consolidated Entity’s net
assets continues to be more than its market capitalisation as at 31 December 2022, and that financial performance for
the current financial year was below budget. These are specific indicators of impairment under AASB 136 Impairment
of Assets. As a result, management performed an assessment of the recoverable amount of each of its three CGUs,
Defence, EM Solutions and Space as of 31 December 2022.
The 31 December 2022 assessment showed the recoverable amount for all CGUs being higher than their carrying values
and as such the Consolidated Entity did not identify any further impairments as at 31 December 2022.
Key assumptions and sensitivities used for impairment assessment performed during the year ended
31 December 2022
The recoverable amount of the CGUs of the Consolidated Entity have been assessed by reference to the higher of value
in use and fair value less cost of disposal arrived by discounting a cash flow forecast with the weighted average cost of
capital of each CGU.
102
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 14. Impairment of Assets (cont)
Assumption
Basis of Assumption
Future sales levels
Derived from the Company’s multi‑year revenue outlook.
Discount rate
Long‑term growth rate
Takes into account the risk‑free rate, equity market risk and the specific risk premium
for each CGU.
Represents the rate relevant to market conditions and business plans. The long‑term
growth rate included in the terminal value in calculating the value in use for each CGU
was 2.5%.
Management reviewed the discount rates used based on the prevailing market conditions as of 31 December 2022,
the risk profile related to assumed future cash flows and other relevant considerations. The discount rates used in
calculating the value in use for each CGU are given below:
Defence
Space
EM Solutions
Sensitivity analysis
14.5%
21.4%
17.0%
The Consolidated Entity conducted a sensitivity analysis to test changes in the key assumptions used to determine the
recoverable amount for each of the CGUs. Sensitivity testing for CGUs included reducing our future sales levels by 10%,
reducing the long‑term growth rate to 0.5% and increasing the discount rate by an additional 3%.
For the Defence CGU, the recoverable amount as derived using the cash flow model, was assessed as being higher than
the carrying value. As expected, and following the impairment provision recorded at 30 June 2022, sensitivity analysis
indicated that a reasonable change in the key assumptions noted above would cause further impairment. As a result, and
in light of the market capitalisation being significantly lower than the carrying value, management reviewed the carrying
value of specific individual assets within the Defence CGU for impairment. In conclusion, it was determined that no further
impairment charges were required at this time.
For the Space CGU, management observed that a reasonable change in future sales levels and discount rates would
cause impairment. In applying these sensitivities, the maximum expected of the goodwill impairment is $2.5m.
These sensitivities in each case do not cause the recoverable amount of the EMS CGU to fall below its carrying value.
103
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 15. Intangible Assets
Core
technology
(not patented)
Patented
technology
Software
Customer
contracts and
relationships
Licences
$ ’000
$ ’000
$ ’000
$ ’000
$ ’000
Cost
At 1 January 2021
10,772
3,556
Exchange differences
‑
‑
At 31 December 2021
10,772
3,556
Exchange differences
Disposal
‑
‑
‑
‑
486
‑
486
‑
‑
2,776
‑
2,776
‑
‑
At 31 December 2022
10,772
3,556
486
2,776
Amortisation
At 1 January 2021
Exchange differences
Charge for the year
At 31 December 2021
Exchange differences
Charge for the year
(Continuing and
Discontinued Operations)
Impairment and write‑off
Disposal
1,317
‑
1,077
2,394
‑
290
‑
237
527
‑
119
‑
97
216
‑
226
‑
185
411
‑
1,077
237
97
185
‑
‑
‑
‑
‑
‑
‑
‑
At 31 December 2022
3,471
764
313
596
Carrying Amount
At 31 December 2022
7,301
2,792
173
2,180
4,835
241
5,076
427
(5,503)
‑
750
32
1,227
2,009
308
401
2,785
(5,503)
‑
‑
Total
$ ’000
22,425
241
22,666
427
(5,503)
17,590
2,702
32
2,823
5,557
308
1,997
2,785
(5,503)
5,144
12,446
At 31 December 2021
8,378
3,029
270
2,365
3,067
17,109
104
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 16. Property, Plant and Equipment
(a) Plant and equipment ‑ at cost
Less accumulated depreciation and impairment
(b) Office equipment ‑ at cost
Less accumulated depreciation and impairment
(c) Furniture, fixtures and fittings ‑ at cost
Less accumulated depreciation and impairment
(d) Leasehold improvements ‑ at cost
Less accumulated depreciation and impairment
(e) Motor vehicle ‑at cost
Less accumulated depreciation and impairment
(f) Computer software ‑ at cost
Less accumulated depreciation
(g) Test equipment ‑ at cost
Less accumulated depreciation
(h) Satellite ‑ at cost
Less impairment
(i) Capital works in progress
Less impairment
2022
$ ’000
19,003
(8,141)
10,862
5,326
(3,721)
1,605
1,391
(531)
860
2,459
(2,100)
359
678
(394)
284
1,628
(1,364)
264
4,815
(2,440)
2,375
7,000
(7,000)
‑
20,608
‑
20,608
2021
$ ’000
17,373
(8,996)
8,377
4,730
(2,812)
1,918
1,318
(433)
885
2,440
(1,681)
759
610
(284)
326
1,589
(963)
626
2,736
(2,056)
680
7,000
(7,000)
‑
44,297
(1,790)
42,507
Total net book value of property, plant and equipment
37,217
56,078
105
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 16. Property, Plant and Equipment (cont)
Cost
Plant and equipment
Balance at beginning of year
Additions
Transfers
Other movement
Disposals and write offs
Net foreign currency exchange differences
Balance at end of year
Office equipment
Balance at beginning of year
Additions
Transfers
Disposals and write offs
Net foreign currency exchange differences
Balance at end of year
Furniture, fixtures and fittings
Balance at beginning of year
Additions
Disposals and write offs
Net foreign currency exchange differences
Balance at end of year
Leasehold improvements
Balance at beginning of year
Additions
Disposals and write offs
Net foreign currency exchange differences
Balance at end of year
Motor vehicles
Balance at beginning of year
Additions
Net foreign currency exchange differences
Balance at end of year
106
2022
$ ’000
2021
$ ’000
17,373
3,190
1,204
(31)
(3,025)
292
19,003
4,730
971
97
(616)
144
5,326
1,318
79
(26)
20
1,391
2,440
279
(336)
76
2,459
610
47
21
678
14,546
562
2,036
‑
(35)
264
17,373
3,775
866
‑
(14)
103
4,730
1,300
18
‑
‑
1,318
2,261
309
(133)
3
2,440
523
82
5
610
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 16. Property, Plant and Equipment (cont)
Cost (cont)
Computer software
Balance at beginning of the year
Additions
Disposals and write offs
Transfer
Other movements
Net foreign currency exchange differences
Balance at end of year
Test equipment ‑ at cost
Balance at beginning of the year
Additions
Balance at end of year
Satellite
Balance at beginning of year
Balance at end of year
Capital works in progress
Balance at beginning of the year
Additions
Transfer
Other movements
Disposals and write offs
Net foreign currency exchange differences
Balance at end of year
2022
$ ’000
2021
$ ’000
1,589
366
(213)
(4)
(76)
(34)
1,354
253
(135)
‑
114
3
1,628
1,589
2,736
2,079
4,815
7,000
7,000
44,297
14,642
(1,297)
(226)
(37,691)
883
20,608
2,578
158
2,736
7,000
7,000
16,080
30,757
(2,036)
(817)
‑
313
44,297
107
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 16. Property, Plant and Equipment (cont)
Accumulated depreciation/impairment
Plant and equipment
Balance at beginning of year
Depreciation (Continuing Operations)
Disposals and write offs
Other movements
Net foreign currency exchange differences
Balance at end of year
Office equipment
Balance at beginning of year
Depreciation (Continuing and Discontinued Operations)
Disposals and write offs
Other movements
Net foreign currency exchange differences
Balance at end of year
Furniture, fixtures and fittings
Balance at beginning of year
Depreciation (Continuing and Discontinued Operations)
Disposals and write offs
Net foreign currency exchange differences
Balance at end of year
Leasehold improvements
Balance at beginning of year
Depreciation (Continuing and Discontinued Operations)
Disposals and write offs
Net foreign currency exchange differences
Balance at end of year
Motor vehicle
Balance at beginning of year
Depreciation (Continuing Operations)
Disposals and write offs
Net foreign currency exchange differences
Balance at end of year
108
2022
$ ’000
2021
$ ’000
(8,996)
(1,877)
3,025
‑
(293)
(8,141)
(2,812)
(1,008)
164
(31)
(34)
(3,721)
(433)
(117)
25
(6)
(531)
(1,681)
(461)
81
(39)
(7,238)
(1,595)
‑
12
(175)
(8,996)
(1,939)
(823)
4
‑
(54)
(2,812)
(311)
(122)
‑
‑
(433)
(1,322)
(480)
126
(5)
(2,100)
(1,681)
(284)
(96)
‑
(14)
(394)
(172)
(108)
‑
(4)
(284)
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 16. Property, Plant and Equipment (cont)
Accumulated depreciation/impairment (cont)
Computer software
Balance at beginning of the year
Depreciation (Continuing and Discontinued Operations)
Disposals and write offs
Other movements
Net foreign currency exchange differences
Balance at end of year
Test equipment
Balance at beginning of the year
Depreciation (Continuing Operations)
Disposals
Net foreign currency exchange differences
Balance at end of year
Satellite
Balance at beginning of year
Balance at end of year
Capital work in progress
Balance at beginning of the year
Impairment (Discontinued Operations)
Disposals
Balance at end of year
2022
$ ’000
2021
$ ’000
(963)
(540)
110
‑
29
(1,364)
(2,056)
(384)
‑
‑
(550)
(530)
127
(8)
(2)
(963)
(1,760)
(296)
‑
‑
(2,440)
(2,056)
(7,000)
(7,000)
(1,790)
(31,931)
33,721
(7,000)
(7,000)
‑
(1,790)
‑
‑
(1,790)
Aggregate depreciation, impairment and amortisation allocated during the period is recognised as an expense and
disclosed in Notes 2 and 5 to the financial statements.
Impairment of property, plant and equipment
The Consolidated Entity has assessed that capital work in progress with a carrying amount of $31,931,000 (2021:
$1,789,867) is impaired. Refer note 14 for more details on impairment of assets, where this item is included in
Discontinued Operations.
109
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 17. Current Trade and Other Payables
Trade payables
Accruals
Total
2022
$ ’000
25,105
18,074
43,179
2021
$ ’000
18,588
16,783
35,371
The average creditor days on purchases of goods is 60 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.
18. Contract Liabilities
Contract liabilities
2022
$ ’000
22,168
2021
$ ’000
7,666
Contract liability represents amounts received from customers in advance of the satisfaction of relevant performance
obligations under the applicable contracts. The Consolidated Entity expects to deliver the goods and services in question
within the next 12 months, in accordance with the terms of the underlying contracts. The amount of $6,934,000 included
in the contract liabilities at 31 December 2021 has been recognised in revenue in 2022 (2021: $26,506,642).
19. Borrowings
Secured borrowings
RNC Nominees Pty Ltd
Washington H. Soul Pattinson and Company Ltd (“WHSP”)
Total secured borrowings
Unsecured borrowings
Total borrowings, net
Current portion
Non ‑ current portion
Total borrowings, net
Note
(a)
(b)
(c)
(c)
2022
$ ’000
‑
70,834
70,834
1,904
72,738
23,295
49,443
72,738
2021
$ ’000
34,448
‑
34,448
‑
34,448
34,448
‑
34,448
a) Secured borrowings ‑ RNC Nominees Pty Ltd
On 27 August 2021 the Consolidated Entity entered into a $35m working capital facility with RNC Nominees Pty Ltd
(‘RNC facility’). The facility had a 12‑month term and carried interest of 9% per annum. The loan was secured by a general
security deed which ranked pari passu with the Export Finance Australia (EFA) Facility (see note 37c and d). The loan
was repaid in full on 7 September 2022, using proceeds from new secured borrowing facilities from WHSP, with direct
settlement between the two lenders. Details of the new loan are included in note b) below.
110
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes
19. Borrowings (cont)
The RNC facility included a financial covenant that required the Consolidated Entity to have a total cash balance of $55m
from 5 June 2022 (i.e. 90 days prior to the Maturity Date). As the Consolidated Entity’s cash balance was below this level,
the covenant was breached. As the loan was subsequently repaid on 7 September 2022, the covenant breach lapsed.
b) Secured borrowings ‑ WHSP
As at 31st December 2022, the Group had three secured borrowings with WHSP (‘WHSP facilities’):
(i) Working Capital Principal Facility of $20.0m. The agreement was entered into on 7 September 2022 with maturity
date of 6 September 2023. The facility carries interest of 15% per annum and line fees of 4%. This loan is secured
by a general security deed which ranks in priority above both the Term Loan Facility below and the Export Finance
Australia Facility (see note 37c and 37d).
(ii) Additional Working Capital Principal Facility of $15.0m. The agreement was entered on 12 October 2022 with
maturity date of 11 April 2024. The facility carries interest of 15% per annum and line fees of 4%. This loan is
secured by a general security deed which ranks in priority above both the Term Loan Facility and the Export Finance
Australia facility.
(iii) Term Loan Principal Facility of $35.0m. The agreement was entered into on 12 October 2022 with maturity date
of 11 October 2025. The facility carries interest of 22% per annum and line fees of 4% and is secured by a general
security deed which ranks pari passu with the Export Finance Australia facility.
As consideration for the entry into the new Term Loan Facility, the Company issued 7,653,040 new fully paid Ordinary
Shares in the Company to WHSP for no cash consideration (see note 23). This has been treated as a share‑based
payment and included in borrowing costs.
All of the loans above have upfront fees comprising of work fees of 7.5% and establishment fees of 5%. The relevant
amounts were capitalised into the facility limit at the commencement of the facility. Other transaction costs of $1,604,000
were also incurred in obtaining the WHSP Facilities.
The WHSP facilities specify a “Minimum Earn” amount under which, in the event of early repayment, EOS is required
to pay the full interest and line fee that would otherwise be payable to maturity for the term of the facility. The total
repayment including the Minimum Earn is a minimum of $120,000,000 and up to a maximum of $127,000,000.
As at 31st December 2022 the current portion of the WHSP Facility loans outstanding was $21,391,000 (2021 $Nil) and
non ‑current portion was $49,443,000 (2021 $Nil)
The WHSP facilities include the following financial covenants:
(i) The asset coverage ratio is required to be more than 1.6:1 and is required to be tested each month until
31 December 2023 then is required to be tested each quarter.
(ii) The Cash inflows ratio is required to be more than 0.9:1. This ratio is defined as the EOS Group’s actual cash inflows
(over a 3‑month period), relative to the Company’s cash inflow forecast (over that 3‑month period). This ratio is
required to be tested each month until 31 December 2023.
(iii) The Cash outflows ratio is required to be less than 1.1:1. This ratio is defined as the EOS Group’s actual cash
outflows (over a 3‑month period), relative to the Company’s cash outflow forecast (over that 3‑month period).
This ratio is required to be tested each month until 31 December 2023.
(iv) Interest coverage ratio is required to be more than 2:1. This ratio is defined as EOS Group’s net cash flow from
operations (adjusted for interest payments) relative to the interest expense. This covenant applies on and from
31 December 2023 and is required to be tested quarterly.
Other borrowings issued by the Consolidated Entity do not include any covenants.
111
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 19. Borrowings (cont)
c) Total borrowings
The total reported borrowings amount shown above include the total outstanding borrowings owing to lenders, including
capitalised fees and interest, less the unamortised transaction costs of establishing borrowings:
Total borrowings owing to lenders
Unamortised cost of establishing borrowings
Total borrowings, net
The weighted average interest rates paid during the year were as follows:
Weighted average interest rate
2022
$ ’000
85,467
(12,729)
72,738
2022
%
20
2021
$ ’000
35,000
(552)
34,448
2021
%
9
The total principal drawn under these facilities is $70.0m. The arrangements require the Consolidated Entity to repay
up to $127.0m.
20. Lease Liabilities
Analysed as follows:
Current
Non‑current
Total
Maturity analysis
Year 1
Year 2
Year 3
Year 4
Year 5
Onwards
Less: unearned interest
2022
$ ’000
3,939
20,507
24,446
2022
$ ’000
5,480
4,419
4,794
4,151
3,942
6,071
28,857
(4,411)
24,446
2021
$ ’000
5,160
24,864
30,024
2021
$ ’000
6,761
5,441
5,686
5,021
4,747
7,340
34,996
(4,972)
30,024
The Consolidated Entity does not face a significant liquidity risk with regard to its lease liabilities. All lease obligations in Australia
are denominated in Australian dollars and leases in overseas entities are based in the currency of the country concerned.
112
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 21. Provisions
Current
Employee benefits
Decommissioning costs
Warranty (Refer Note 22)
Total
Non‑current
Employee Benefits
Provision for make good
Warranty (Refer Note 22)
Total
Movement on decommissioning costs
Balance at 1 January
Balance as at 31 December
2022
$ ’000
11,089
250
873
12,212
1,517
1,570
6,476
9,563
2022
$ ’000
250
250
2021
$ ’000
12,339
250
1,589
14,178
1,360
1,053
4,836
7,249
2021
$ ’000
250
250
The provision for decommissioning costs relates to an obligation to dismantle and refurbish a telescope at a future date.
Movement in make good of premises ‑ non‑current
Balance as at 1 January
Increase during the period from new lease
Balance as at 31 December
2022
$ ’000
1,053
517
1,570
2021
$ ’000
503
550
1,053
113
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes
22. Warranty Provisions
Movement in warranty provision
Balance as at 1 January
Reductions resulting from expiry
Reduction resulting from change in estimate
Additional provisions recognised
Expenses incurred
Balance as at 31 December
Current (Refer Note 21)
Non‑Current (Refer Note 21)
2022
$ ’000
6,425
(608)
‑
1,709
(177)
7,349
2021
$ ’000
12,260
(353)
(7,107)
1,625
‑
6,425
873
1,589
6,476
4,836
The provision for warranty is determined based on Directors’ best estimate of the expenditure required to settle the
Consolidated Entity’s liability under its warranty undertakings for military products, satellite communication terminals
and telescopes.
The Directors made a critical judgement in relation to the valuation of the provision for warranty costs. The valuation is
determined based on the Directors’ best estimate of the expenditure required to settle the Consolidated Entity’s liability
under its warranty obligations.
During the prior year the Company reviewed the accumulated data regarding warranty claims on relevant sales to date,
in particular from a significant defence contract to a customer in a foreign jurisdiction for which the warranty period
was substantially complete. This review indicated that that lower rates than those previously, particularly for sales of
defence materiel, were justified. Based on this review the Directors accordingly determined that the rates used to estimate
warranty provisions should be adjusted.
Estimates and outcomes that have been applied in the assessing warranty provisions may change in the future and the
Consolidated Entity will recognise any revisions deemed necessary as a result.
114
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes
23. Issued Capital
2022
$ ’000
2021
$ ’000
Balance at the beginning of the financial year ‑ Ordinary Shares
413,728
413,479
Issue of 12,500,000 equity shares at $1.20 per share on 4 July 2022 (Net of
issuance cost of $583,000)
Issue of 168,737 equity shares at $1.20 per share on 27 July 2022 under the
share purchase plan
Issue of 7,653,040 equity shares at $0.5096 per share on 13 Oct 2022 under
financing arrangements for nil consideration
Loan repayments on 83,125 shares issued under the Loan Funded Share Plan at $2.99
Balance at end of the financial year
14,417
203
3,900
‑
432,248
‑
‑
‑
249
413,728
Fully Paid Ordinary Shares
Balance at beginning of financial year
Issue of new shares at $1.20 on 4 July 2022
Issue of new shares at $1.20 under the Share Purchase Plan on 27 July 2022
Issue of new shares at $0.51 on 13 October 2022
Issue of 1,185,000 new shares at $5.27 on 15 March 2021 under the
Loan Funded Share Plan
Issue of 150,000 new shares at $4.06 on 31 May 2021 to a Director under the
Loan Funded Share Plan
2022
Number
2021
Number
150,914,229
149,579,229
12,500,000
168,737
7,653,040
‑
‑
‑
‑
‑
1,185,000
150,000
Balance at end of financial year
171,236,006
150,914,229
Fully paid ordinary shares carry one vote per share and carry the right to dividends. The shares issued under the LFSP
are restricted shares subject to vesting and performance criteria under the Plan detailed in Note 25 to the financial
statements and are treated as in substance options for accounting purposes.
As consideration for the entry into the new term loan facility, the Company agreed to issue 7,653,040 new fully paid
Ordinary Shares in the Company to WHSP for no cash consideration. The fair value of the shares issued is estimated to
be approximately $3.9m, based on EOS volume weighted average price in the five days prior to 13 October 2022.
Shares issued under the LFSP are not included in issued capital as they are treated as in‑substance options for
accounting purposes.
115
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 24. 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 both Company and individual
achievements against both qualitative and quantitative criteria.
On 28 June 2002, shareholders approved the adoption of an Employee Share Option Plan.
Unlisted Options issued under the Employee Share Option Plan:
2022
2021
Weighted
average
exercise price
Weighted
average
exercise price
Balance at beginning of the financial year (i)
Granted during the year (ii)
Exercised during the year (iii)
Lapsed during the year (iv)
Balance at end of the financial year (v)
Number
1,830,000
‑
‑
(1,110,000)
720,000
$
4.73
‑
‑
5.04
4.26
Number
1,075,000
755,000
‑
‑
1,830,000
Exercisable at the end of the year
192,500
2.99
110,000
$
4.60
4.91
‑
‑
4.73
2.99
116
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 24. Directors and Employees Share Option Plan (cont)
(i) Balance at the beginning of the year
Number
Grant date
Expiry date
Exercise Price
2022
220,000
20/06/2018
31/03/2023
220,000
16/11/2020
16/11/2025
635,000
19/05/2020
18/05/2025
475,000
15/03/2021
16/03/2026
280,000
22/07/2021
22/07/2026
1,830,000
2021
220,000
20/06/2018
31/03/2023
635,000
19/05/2020
18/05/2025
220,000
16/11/2020
16/11/2025
1,075,000
(ii) Granted during the year
There were no options granted during the year
$2.99
$5.82
$4.75
$5.27
$4.31
$2.99
$4.75
$5.82
Fair value at
grant date
$61,369
$197,134
$408,305
$744,800
$202,160
$1,613,768
$61,369
$408,305
$197,134
$666,808
2021
Staff options
Staff options
475,000
280,000
755,000
15/03/2021
16/03/2026
22/07/2021
22/07/2026
$5.27
$4.31
$744,800
$202,160
$946,960
(iii) Exercised during the year
There were no options exercised during the year (2021: nil).
(iv) Lapsed during the year (2021: nil)
2022
(200,000)
19/05/2020
18/05/2025
(220,000)
16/11/2020
16/11/2025
(410,000)
15/03/2021
16/03/2026
(280,000)
22/07/2021
22/07/2026
(1,110,000)
$4.75
$5.82
$5.27
$4.31
(128,600)
(197,134)
(642,880)
(202,160)
(1,170,774)
117
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes
24. Directors and Employees Share Option Plan (cont)
(v) Balance at the end of the financial year
2022
Staff options
Staff options
Staff options
2021
Staff options
Staff options
Staff options
Staff options
Staff options
Number
Grant date
Expiry date
Exercise Price
220,000
435,000
20/06/2018
31/03/2023
19/05/2020
18/05/2025
65,000
15/03/2021
16/03/2026
720,000
220,000
220,000
635,000
475,000
280,000
1,830,000
20/06/2018
31/03/2023
16/11/2020
16/11/2025
19/05/2020
18/05/2025
15/03/2021
16/03/2026
22/07/2021
22/07/2026
$2.99
$4.75
$5.27
$2.99
$5.82
$4.75
$5.27
$4.31
Fair value at
grant date
$61,369
$408,305
$744,800
$1,214,474
$61,369
$197,134
$408,305
$744,800
$202,160
$1,613,768
These staff options have similar vesting and forfeiture conditions as those issued under the LFSP summarised in Note
25. 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 inputs used in the model for these option grants are summarised in the table below:
Issue date
20/06/2018
19/05/2020
16/11/2020
15/03/2021
22/07/2021
Number of staff options
220,000
635,000
220,000
475,000
280,000
Dividend yield
‑
‑
‑
‑
‑
Expected volatility (linearly
interpolated)
Risk free interest rate
30.00%
2.32%
40.00%
0.40%
40.00%
0.31%
45.00%
0.71%
45.00%
0.58%
Expected life of options
1,745 days *
1,789 days
1,825 days
1,827 days
1,826 days
Grant date share price
Exercise price
Fair value of options on
grant date:
Tranche A (50% of
options issued)
Tranche B (50% of
options issued)
$2.91
$2.99
$4.98
$4.75
$6.07
$5.82
$5.37
$5.27
$4.16
$4.31
$0.2885
$0.557
$0.773
$1.370
$0.494
$0.2694
$0.729
$1.019
$1.766
$0.950
*These options commenced 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.
Staff options carry no rights to dividends and no voting rights.
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 25 to the financial statements.
118
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 25. Loan Funded Share Plan
This note sets out the details on the Loan Funded Share Plan (LFSP). During 2022 no new loan funded shares were granted.
The Board has established an employee incentive scheme known as the Electro Optic Systems Holdings Limited LFSP,
pursuant to which fully paid restricted ordinary shares in the Company (“Shares) are acquired by participants (“Participants”)
of the Consolidated Entity 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 (five 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 Shares are subject to both ‘Vesting Conditions’ and ‘Forfeiture Conditions’:
z The vesting conditions are split into two different tranches which are outlined in the tables below. Participants are
required to satisfy the Vesting Conditions in order for their Shares to vest.
z While Participants hold their Shares, they will be subject to Forfeiture Conditions and Participants 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 the Consolidated Entity in certain circumstances.
Once the Vesting Conditions have been satisfied, removed or lifted, the Shares vest and Participants 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) participants 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 Conditions have been met);
(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; and
(c) further vesting conditions may apply to individualised arrangements.
If the 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).
All the ordinary restricted fully paid shares issued have been 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.
119
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 25. Loan Funded Share Plan (cont)
The following tables summarise the loan funded shares issued to date:
2018 Loan funded shares:
Issue date
20 June 2018
(Shareholders approved the participation of directors in the LFSP at the Annual General
Meeting (AGM) held on 24 April 2018)
Shares issued
5,180,000
(4,000,000 shares issued to Directors and KMP)
Fair value at issue date
$1,444,963
Dividend yield
‑
Expected volatility
(linearly interpolated)
Risk free interest rate
30.00%
2.32%
Expected life of options
1,745 days
Issue price
Grant date share price
$2.99
$2.91
Vesting conditions:
Tranche A: (applies to 50% of the total number of shares to be issued above)
Measures and hurdles:
1. EBIT of $5m for the 12 months ending 31 December 2018 (met); and
2.
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) (met)
Vested Shares can be sold after:
30‑Jun‑20: (25% of Vested Shares)
30‑Sep‑20: (50% of Vested Shares)
31‑Dec‑20: (75% of Vested Shares)
31‑Mar‑21: (100% of Vested Shares)
Other conditions and status:
i. Defence Systems profit exceeds A$8m for 2018 and A$20m for 2019 (met);
ii. Space Systems loss does not exceed A$3m for 2018 and A$2m for 2019 (met);
iii. Defence Systems production exceeds 275 units for 2018 and 350 units for 2019.
The production target for 2019 was originally 400 units, however, was varied by the
Board to 350 units in accordance with its discretion and has been met.
120
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 25. Loan Funded Share Plan (cont)
2018 Loan funded shares (continued):
Vesting conditions:
Tranche B: (applies to 50% of the total number of shares to be issued above)
Measures and hurdles
1. EBIT of $15m for the 12 months ending 31 December 2019; and
2. 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) *.
Vested Shares can be sold after:
30‑Jun‑22: (25% of Vested Shares)
30‑Sep‑22: (50% of Vested Shares)
31‑Dec‑22: (75% of Vested Shares)
31‑Mar‑23: (100% of Vested Shares)
Other conditions and status:
i. The original condition was that Defence Systems profit exceeds A$20m for 2020,
however this was removed by the Board in accordance with its discretion due to
COVID‑19;
ii. Space Systems profit exceeds $1.0m for 2020 (met)and $3.0m for 2021 (not met **);
iii. Defence Systems production exceeds 272 units for 2020. The production target
for 2020 was originally 480 units, however, was varied by the Board to 272 units in
accordance with its discretion due to COVID‑19 and has been met.
* The EBIT hurdle for the 12 months ended 31 December 2019 and the share price hurdle of $7.50 by 31 December 2021 were both met.
** As the profit target for 2021 was not met, 117,500 shares issued to employees in Space Systems lapsed on 31 December 2021.
121
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 25. Loan Funded Share Plan (cont)
2020 Loan funded shares:
Issue date
Shares issued
Fair value at issue date
Dividend yield
Expected volatility
(linearly interpolated)
Risk free interest rate
19 May 2020
29 May 2020
10 August 2020
14 October 2020
2,270,000*
$1,459,611
‑
40.00%
0.31%
2,500,000**
$2,463,750
‑
40.00%
0.34%
860,000***
$651,880
150,000
$125,925
40.00%
0.34%
40.00%
0.23%
Expected life of options
1,789 days
1,752 days
1,679 days
1,643 days
Issue price
Grant date share price
$4.75
$4.98
$4.92
$5.68
$5.62
$5.68
$5.47
$6.01
Vesting conditions:
Tranche A: (applies to 50% of the total number of shares to be issued above)
Measures and hurdles:
A share Price Hurdle of $9.50 by 31 December 2021 (this hurdle must be reached
on at least 30 trading days, not necessarily consecutive, by 31 December 2021****).
Vesting period:
The period of 2 calendar years ending 31 December 2021
Vested Shares can be sold after:
30‑Jun‑22: (25% of Vested Shares)
30‑Sep‑22:(50% of Vested Shares)
31‑Dec‑22: (75% of Vested Shares)
31‑Mar‑23: (100% of Vested Shares)
Other conditions and status:
i. Six staff members within EM Solutions must achieve an EBIT for EM Solutions of
$3m for the year ended 31 December 2020 (met);
ii.
Eight senior executives including four KMP’s originally had EBIT target for the
Consolidated Entity of $27m for the year ended 31 December 2020, however this
was removed by the Board as a result of COVID‑19;
iii. One executive in the former Communications Systems sector has specific project
milestones in relation to his project*; and
iv. Participants in the various sectors have to meet the additional hurdles established
by the Directors in relation to each sector. (all conditions met)
*Conditions were not met therefore options lapsed
122
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 25. Loan Funded Share Plan (cont)
2020 Loan funded shares (continued)
Vesting conditions:
Tranche B: (applies to 50% of the total number of shares to be issued above)
Measures and hurdles:
A Share Price Hurdle of $11.50 by 31 December 2022 (this hurdle must be reached on
at least 30 trading days, not necessarily consecutive, by 31 December 2022 *****).
Vesting period:
The period of four calendar years ending 31 December 2023
Vested Shares can be sold after:
30‑Jun‑24: (25% of Vested Shares)
30‑Sep‑24:(50% of Vested Shares)
31‑Dec‑24: (75% of Vested Shares)
31‑Mar‑25: (100% of Vested Shares)
Other conditions and status:
i.
ii.
Six staff members within EM Solutions must achieve an EBIT for EM Solutions Pty
Ltd of $3m for the year ended 31 December 2020 (met);
Eight senior executives including four KMP’s have an EBIT target for the
Consolidated Entity of $36m for the year ended 31 December 2021 (not met ******);
iii. One executive in the former Communications Systems sector has specific project
milestones in relation to his project (not met); and
iv. Participants in the various sectors have to meet the additional hurdles established
by the Directors in relation to each sector.
*580,000 shares issued to KMP.
**All shares issued to Directors following approval at the AGM held on 29 May 2020.
***830,000 shares issued to KMP.
**** This price hurdle date of 31 December 2021 was extended by three years by the Directors on 16 November 2021 for Executives and
staff. As the price hurdle was not met, 1,250,000 shares issued to Directors lapsed on 31 December 2021.
***** This price hurdle date of 31 December 2022 was extended by three years by the Directors on 16 November 2021 for Executives and
staff. As the price hurdle was not met, 1,250,000 shares issued to Directors lapsed on 31 December 2022.
******As the EBIT target for the Consolidated Entity was not met for 2021, 432,500 shares issued to executives lapsed on 31 December 2021.
123
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 25. Loan Funded Share Plan (cont)
2021 Loan funded shares:
Issue date
Shares issued
Fair value at issue date
Dividend yield
Expected volatility (linearly interpolated)
Risk free interest rate
Expected life of options
Issue price
Grant date share price
15 March 2021
31 May 2021
1,185,000*
$2,602,880
150,000**
$114,750
‑
45%
0.71%
‑
45%
0.71%
1,827 days
1,491 days
$5.27
$5.37
$4.06
$4.10
Vesting conditions:
Tranche A: (applies to 50% of the total number of shares to be issued above)
Measures and hurdles:
A share Price Hurdle of $9.50 by 30 June 2023 (this hurdle must be reached on at
least 30 trading days, not necessarily consecutive, by 30 June 2023***).
Vesting period:
The period ending 30 June 2023
Vested Shares can be sold after:
30‑Jun‑23: (25% of Vested Shares)
30‑Sep‑23: (50% of Vested Shares)
31‑Dec‑23: (75% of Vested Shares)
31‑Mar‑24: (100% of Vested Shares)
Other conditions and status:
i. Space Systems sector is EBIT positive in 2022*****
ii.
Defence Systems sector is EBIT positive in 2022*****
iii. Participants in the various sectors have to meet the additional hurdles established
by the Directors in relation to each sector.
124
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 25. Loan Funded Share Plan (cont)
Vesting conditions:
Tranche B: (applies to 50% of the total number of shares to be issued above)
Measures and hurdles:
A Share Price Hurdle of $11.50 by 30 June 2025 (this hurdle must be reached on at
least 30 trading days, not necessarily consecutive, by 30 June 2025****).
Vesting period:
The period ending 30 June 2025
Vested Shares can be sold after:
30‑Jun‑25: (25% of Vested Shares)
30‑Sep‑25:(50% of Vested Shares)
31‑Dec‑25: (75% of Vested Shares)
31‑Mar‑26: (100% of Vested Shares)
Other conditions and status:
i. Space Systems sector is EBIT positive in 2024
ii. Defence Systems sector is EBIT positive in 2024
iii. Participants have to meet the additional hurdles established by the Directors in
relation to each sector.
*345,000 shares issued to KMP.
** All shares issued to a director following approval at the AGM held on 28 May 2021.
*** This price hurdle date of 30 June 2023 was extended by three years by the Directors on 16 November 2021 for executives and staff.
**** This price hurdle date of 30 June 2025 was extended by three years by the Directors on 16 November 2021 for executives and staff.
***** Both Defence and Space Systems had negative EBIT in 2022 therefore this condition was not met resulting in 385,000 shares lapsing.
125
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 25. Loan Funded Share Plan (cont)
Other Features of the LFSP Structure
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.
There may be circumstances where LFSP participants cease working for the Consolidated Entity prior to the vesting of
their LFSP shares and where participants cease working for the entity after the vesting of their LFSP shares but prior
to there being a right of sale of some or all of those vested shares. In either instance, on cessation of employment, the
Board has discretion to determine whether the Participant is a Bad Leaver, a Good Leaver or a Leaver and the following
provisions apply:
Bad Leaver. All Unvested Loan Funded Shares held by the Participant will be forfeited and any Vested Loan Funded
Shares will be disposed of or Bought‑back, in each case in accordance with the buy‑back rules of the Scheme, if either:
z they remain subject to any Conditions or disposal restrictions;
z they remain held in trust (for any reason); or
z the Loan applicable to those Shares has not been repaid in full.
Good Leaver. Subject to the Board’s discretion to determine otherwise (including the discretion to permit some or all
Unvested Loan Funded Shares to vest based on its assessment of the circumstances in which the Participant has
ceased employment), Unvested Loan Funded Shares will vest pro rata to the proportion of the Vesting Period that
has elapsed as at the date on which employment ceases and having regard to the extent to which any Performance
Conditions have been achieved (as determined by the Board). The balance of Loan Funded Shares that do not vest
will be disposed of or Bought‑back, in each case in accordance with the buy‑back rules of the Scheme.
Leaver. Unvested Loan Funded Shares will normally be disposed of or Bought‑back, in each case in accordance
with the buy‑back rules of the scheme, subject to the Board’s discretion to permit some or all of those Unvested
Loan Funded Shares to vest based on its assessment of the circumstances in which the Participant has
ceased employment.
A Good Leaver or Leaver may retain Vested Loan Funded Shares and may deal with any Vested Loan Funded Shares
subject to repaying the outstanding Loan balance by the earlier of its expiry date or the date which is three months from
the cessation date or twelve months in the case of a Participant who ceases employment due to death.
126
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 26. Reserves
Foreign currency translation
Employee equity‑settled benefits reserve
Foreign currency translation
Balance at beginning of financial year
Reclassification of FCTR Loss on disposal of foreign operations
Translation of foreign operations
Balance at end of financial year
2022
$ ’000
277
12,268
12,545
(1,823)
4,175
(2,075)
277
2021
$ ’000
(1,823)
13,390
11,567
(3,167)
‑
1,344
(1,823)
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 (reversal)/expense
Balance at end of financial year
2022
$ ’000
13,390
(1,122)
12,268
2021
$ ’000
11,580
1,810
13,390
The employee equity‑settled benefits reserve arises on the grant of share options to directors and executives under
the Employee Share Option Plan and LFSP. Further information about share‑based payments to employees is made in
Note 25 to the financial statements. Items included in employee equity‑settled benefits reserve will not be reclassified
subsequently to profit or loss.
A number of vesting conditions were not met in 2022 resulting in a reduction in the life to date expense and therefore a
credit to profit and loss in 2022.
27. Accumulated Losses
Employee equity‑settled benefits
Balance at beginning of financial year
Net (Loss) attributable to members of the parent entity
Balance at end of financial year
2022
$ ’000
(93,959)
(114,540)
(208,499)
2021
$ ’000
(80,953)
(13,006)
(93,959)
127
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 28. 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 three 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
2022
$ ’000
21,681
(b) Reconciliation of (loss) before income tax to net cash flows from operating activities.
Profit/(Loss) before income tax from Continuing Operations
Profit/(Loss) before income tax from Discontinued Operations
Profit/(Loss) before income tax
Reconciling items which include operating activities from both
Continuing and Discontinued operations:
Cash paid on bargain purchase included in investing activities
Accrued interest, finance costs and other financing expenses
Amortisation of intangibles
Equity settled share‑based payments
Depreciation of property, plant and equipment
Impairment of assets
Depreciation of right of use assets
Loss on sale of property, plant and equipment
Tax paid
Foreign exchange movements
(Increase)/decrease in assets
Receivables and contract assets
Inventories
Other assets and prepayments
Increase/(decrease) in liabilities
Provisions
Trade and other payables
Deferred income
Net cash inflows / (outflows) from operating activities
128
2022
$ ’000
(62,885)
(61,954)
(124,839)
421
6,414
1,997
(1,122)
4,483
54,496
5,576
11
(1,014)
2,379
(20,584)
(262)
205
348
5,417
14,502
(51,572)
2021
$ ’000
59,261
2021
$ ’000
15,974
(20,586)
(4,612)
‑
‑
2,824
1,810
3,954
1,790
4,985
9
(2,627)
(1,544)
23,942
(7,271)
(6,047)
(3,661)
5,510
(18,841)
221
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 29. Related Party Disclosures
(a) Equity interests in related parties
Details of the percentage of Ordinary Shares held in subsidiaries are disclosed in Note 31.
(b) Key management personnel compensation
The aggregate compensation of the key management personnel of the Consolidated Entity is set out below:
Short term benefits
Post‑employment benefits
Share based payments
Termination benefits
Long term benefits
Total
2022
$ ’000
3,363
243
(26)
194
101
3,875
2021
$ ’000
3,456
278
999
‑
304
5,037
(c) Transactions with other related parties
Other related parties include associates, joint venture partners, and subsidiaries.
The Consolidated Entity did not enter into any transactions with other related parties outside of the ordinary course
of business.
(d) Other transactions with key management personnel or director related entities
In December 2022, an invoice amount of $14,575 from Latour Pty Ltd, a company associated with Mr Garry Hounsell,
in respect of directors’ fees and superannuation for Garry Hounsell, was accrued and subsequently paid in January 2023.
During the year, the Company paid $70,000 (2021: $70,000) 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 $70,000) (2021: $17,500) to Technology Innovation Partners Pty Ltd, a company
associated with Ms Kate Lundy in respect of directors’ fees and superannuation for Kate Lundy.
During the year, no amounts were paid to 4F Investments Pty Limited (2021: $105,000), a company associated with
Mr Fred Bart in respect of directors’ fees and superannuation for Fred Bart, a former Director.
During the year, no amounts were paid to Dennis Corporate Services Pty Limited (2021: $29,166), a company associated
with Mr Ian Dennis in respect of directors’ fees and superannuation for Ian Dennis, a former Director.
During the year, no amounts were paid to Dennis Corporate Services Pty Limited (2021: $90,000), a company associated
with Mr Ian Dennis in respect of consulting fees for company secretarial and accounting services.
(e) Parent entity
The parent entity in the Group is Electro Optic Systems Holdings Limited.
129
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 30. Acquisition of Subsidiary
On 8 September 2021, Electro Optic Systems Pty Ltd, a wholly‑owned subsidiary of EOS entered into an asset
purchase agreement (APA) with Callaghan Innovation (Vendor) for the purchase of certain assets from KiwiStar Optics
(KiwiStar, together the KiwiStar Assets) (the Transaction).
Upon satisfaction of various substantive conditions within the APA, EOS and the Vendor entered into letters of variation
which varied the terms of the APA on 3 November 2021 and 7 April 2022 (together, the “Variation Agreement”). Also on
7 April 2022, EOS and the Vendor entered into a separate agreement relating to the settlement of certain claims in
connection with the Variation Agreement (the “Settlement Agreement”). On signing of the Variation Agreement and
Settlement Agreement on 7 April 2022, title to the KiwiStar Assets transferred from the Vendor to EOS.
The KiwiStar Assets include a mix of specialised scientific plant and machinery used to produce precision optics for
astronomy purposes.
The operations of KiwiStar include strategic and operational processes for the production of precision optics for
astronomy purposes, commercial outputs, and includes five key employees which were required to accept employment
with EOS as a condition of the transaction. On completion of the acquisition, the balance of KiwiStar employees were
also offered employment with EOS as per Clause 15 of the APA and accepted. These employees continue to manage the
aforementioned strategic and operational processes.
Given the above, the transaction meets the criteria to be defined as a business as required by AASB 3 Business
Combinations and has been treated as a business combination. The acquisition date has been determined as
7 April 2022.
The accounting for the Transaction has been provisionally determined as at 31 December 2022 using initial
measurements which are subject to change during the measurement period. The measurement period shall not exceed
one year from the date of acquisition and will end as soon as the deferred tax implications of the Transaction have been
determined. Based on this, the provisional fair value of net assets acquired, and liabilities assumed are as follows:
Acquisition details:
Property plant and equipment
Employee related liabilities
Total net assets acquired
Satisfied by:
Cash deposit paid in 2021
Cash paid in 2022
Cash paid for salary costs in 2022 which are treated as in‑substance consideration
Prepaid rent reducing consideration paid
Total consideration
Provisional bargain purchase
2022
$ ’000
1,338
(150)
1,188
48
184
237
(151)
318
870
130
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 30. Acquisition of Subsidiary (cont)
A provisional bargain purchase gain of $870,000 has been recognised in the Consolidated Entity’s consolidated Statement
of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2022 as the provisional value of the
net assets of the acquired business is greater than the consideration paid. The bargain purchase gain arose as the seller
was motivated to sell the assets to a known third party and the gain is included in Other Revenue under Note 2.
Acquisition related expenses of $14,000 have been expensed to profit and loss.
On acquisition date EOS Pty Ltd transferred the KiwiStar Assets to its wholly‑owned New Zealand subsidiary, EOS Optical
Technologies Limited (EOSOTL).
EOSOTL contributed $152,000 Revenue and a loss of $1,055,000 to the Consolidated Entity’s loss before tax for the period
between 7 April 2022 (date of acquisition) and the reporting date.
31. Controlled Entities
Name of Entity
Parent Entity
Country of
Incorporation
December
2022
%
December
2021
%
Electro Optic Systems Holdings Limited (i), (ii)
Australia
Controlled Entities
Electro Optic Systems Pty Limited (ii), (iii)
EOS Defence Systems Pty Limited (ii), (iii)
FCS Technology Holdings Pty Limited (ii)
EOS Space Systems Pty Limited (ii)
EOS UAE Holdings Pty Limited (ii)
EOS Communications Systems Pty Ltd (ii)
EM Solutions Pty Ltd (ii), (iii)
EOS Loan Plan Pty Ltd (iv)
Australian Missile Alliance Pty Ltd (v)
EOS Optical Technologies Ltd (vi)
EOS Space Spectrum LLC
SpaceLink Corporation (vii)
EOS USA, Inc. (Inc in Nevada)
EOS Technologies, Inc. (Inc in Arizona)
EOS Defense Systems, Inc (Inc in Arizona)
EOS Defense Systems USA Inc (Inc in Alabama) (viii)
EOS Advanced Technologies LLC (ix)
EOS Optronics GmbH
EOS Defense Systems Pte Limited
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
USA
USA
USA
USA
USA
USA
UAE
Germany
Singapore
100
100
100
100
100
100
100
‑
100
100
‑
‑
100
100
100
100
49
100
100
100
100
100
100
100
100
100
‑
100
100
100
100
100
100
100
100
49
100
100
131
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 31. Controlled Entities (cont)
(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 6 April 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. On 28 November 2019, the parent entity Electro Optic Systems Holdings Limited entered into a Deed
of Assumption which joined EM Solutions Pty Limited as part of the Deed of Cross Guarantee from the effective
date of acquisition which was 11 October 2019.
(iv) EOS Loan Plan Pty Ltd is the trustee of the LFSP. EOS Loan Plan Pty Ltd was incorporated on 5 December 2019.
Electro Optic Systems Holdings Limited has the ability to direct the relevant activities of the entity.
(v) On 2 June 2021, Australian Missile Alliance Pty Ltd was incorporated in Australia with the Consolidated Entity
owning 100% of the issued share capital.
(vi) On 25 November 2021, EOS Optical Technologies Ltd was incorporated in New Zealand with the Consolidated
Entity owning 100% of the issued share capital.
(vii) On 15 November 2022, EOS assigned its US subsidiary SpaceLink Corporation (SpaceLink) to an Assignee under
an Assignment for the Benefit of Creditors (ABC) process in the United States. Under this process, the Assignee
became responsible for the disposal of SpaceLink assets, the distribution of proceeds to the creditors, as well as
the management of all of the winding up activities of the company. The Consolidated Entity therefore effectively
lost control over SpaceLink as a result of this Assignment and there was an effective disposal.
(viii) Refer to note 1y.e on judgments made in relation to the consolidation of EOS Defense Systems USA Inc.
(ix) Whilst the Consolidated Entity 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 Consolidated Entity. EOS Defense Systems Pte Limited is audited
by Assurance Affiliates, Chartered Accountants in Singapore and EOS Advanced Technologies LLC is audited by
M A International Consulting LLC in UAE and are the only entities with a separately appointed statutory auditor.
132
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes
31. Controlled Entities (cont)
(a) 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 and other income
Foreign exchange gains
Changes in inventories of work in progress and finished goods
Raw materials and consumables used
Employee benefits expense
Administration expenses
Amortisation of intangibles
Interest expense on lease liabilities
Interest on borrowings
Other finance costs
Depreciation of property, plant and equipment
Depreciation of right of use assets
Impairment of assets
Loss on disposal of subsidiary
Loss on sale of fixed assets
Occupancy costs
Other expenses
(Loss)/profit before income tax
Income tax benefit/(expense)
(Loss)/profit for the year
2022
$ ’000
130,504
7,383
(3,738)
(81,836)
(40,647)
(22,696)
(1,597)
(1,170)
(5,905)
(7,030)
(2,591)
(3,256)
(7,315)
(84,730)
(11)
(1,421)
(2,297)
(128,353)
9,405
(118,948)
2021
$ ’000
206,175
9,908
4,569
(114,359)
(41,029)
(16,216)
(1,597)
(1,006)
(975)
(4,452)
(2,287)
(3,035)
‑
‑
(9)
(1,195)
(1,831)
32,661
(9,231)
23,430
133
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 31. Controlled Entities (cont)
(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 statement of financial position of the entities which are parties to the Deed of Cross Guarantee:
Current assets
Cash and cash equivalents
Trade and other receivables
Current tax asset
Contract assets
Inventories
Other
Total current assets
Non‑current assets
Contract asset
Loans to subsidiaries
Deferred tax assets
Security deposit
Loan to associate
Right of use asset
Goodwill
Intangible assets
Property, plant and equipment
Total non‑current assets
Total assets
Current liabilities
Trade and other payables
Secured borrowings
Unsecured borrowings
Lease liabilities
Contract liabilities
Provisions
Total current liabilities
Non‑current liabilities
Secured borrowings
Lease liabilities
Provisions
Total non‑current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
134
2022
$ ’000
18,221
6,182
12,245
127,823
69,180
15,121
248,772
36,520
41,734
3,326
35,444
‑
15,900
12,373
12,446
30,959
188,702
437,474
38,862
21,391
1,904
2,894
19,765
10,162
94,978
49,443
19,331
9,082
77,856
172,834
2021
$ ’000
48,814
21,300
196
106,539
69,080
17,125
263,054
21,245
83,724
4,506
22,558
2,513
20,490
14,878
14,043
27,203
211,160
474,214
26,584
34,448
‑
2,582
6,777
11,734
82,125
‑
6,829
19,070
25,899
108,024
264,640
366,190
432,247
12,269
(179,876)
264,640
413,728
13,390
(60,928)
366,190
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 31. Controlled Entities (cont)
(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 accumulated losses of the entities which are party to the Deed of Cross Guarantee are:
Balance at the start of the year
Net (loss)/profit for the year
Balance at end of the year
32. Joint Operations
2022
$ ’000
(60,928)
(118,948)
(179,876)
2021
$ ’000
(84,358)
23,430
(60,928)
The Consolidated Entity is party to a joint operation. The Consolidated Entity has a share in the operation based on capital
contributions that entitles it to a proportionate share of revenue earned from the operation. The operation is not yet active.
135
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 33. Financial Risk Management Objectives and Policies
The Consolidated Entity’s principal financial instruments comprise receivables, payables, contract assets, borrowings,
finance leases, cash and short‑term deposits. These instruments expose the Consolidated Entity to a variety of risks that
it must manage including, market risk (such as currency risk, fair value interest rate risk and price risk), credit risk, liquidity
risk and cash flow interest rate risk.
The Consolidated Entity 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. The amounts disclosed in this note exclude contract asset balances as these are not
financial assets.
Risk exposures and responses
(a) Interest rate risk
The Consolidated Entity’s exposure to market interest rates relates primarily to the Consolidated Entity’s cash holdings.
At balance date the Consolidated Entity had the following mix of financial assets exposed to interest rate risk that are not
designated in cash flow hedges:
Financial assets
Cash and cash equivalents
Security deposits
Total
2022
$ ’000
21,681
35,588
57,269
2021
$ ’000
59,261
28,141
87,402
At balance date the Consolidated Entity had financial liabilities with a fixed rate of interest. These liabilities therefore do
not introduce an exposure to movement in interest rates.
Financial liabilities
Borrowings
Total
2022
$ ’000
72,738
72,738
2021
$ ’000
34,448
34,448
The Consolidated Entity 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 2022, 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)
‑0.1% (10 basis points)
Post Tax (Loss)
Higher/(Lower)
Equity
Higher/(Lower)
2022
$ ’000
391
(39)
2021
$ ’000
568
(57)
2022
$ ’000
391
(39)
2021
$ ’000
568
(57)
The movements in profits are due to lower interest rates on cash balances.
136
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 33. Financial Risk Management Objectives and Policies (cont)
(b) Foreign currency risk
The Consolidated Entity’s financial results can be significantly affected by movements in the US$/A$ exchange rates.
There are also exposures to Singapore dollars, Emirati Dirham, Euro and the New Zealand dollars from operations in that
country. Exchange rates are managed within approved policy parameters using natural hedges and no derivatives are used.
The Consolidated Entity 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 Consolidated Entity is to convert surplus foreign currencies to Australian dollars. The Consolidated
Entity also holds cash deposits in US dollars to secure US dollar bank guarantees and performance bonds to
overseas customers.
At 31 December 2022, the Consolidated Entity had the following exposure to US$ foreign currency:
Financial assets
Cash and cash equivalents
Security deposits
Trade and other receivables
Total
Financial liabilities
Lease liabilities
Trade and other payables
Total
Net exposure
2022
$ ’000
2021
$ ’000
11,056
34,136
3,048
48,240
1,006
29,137
30,143
41,183
26,925
4,557
72,665
7,104
20,756
27,860
18,097
44,805
All US$ denominated financial instruments were translated to A$ at 31 December 2022 at the exchange rate of 0.6775
(2021: 0.7261).
At 31 December 2022 and 2021, 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)
2022
$ ’000
(10,787)
6,245
2021
$ ’000
(10,901)
6,311
2022
$ ’000
(10,787)
6,245
2021
$ ’000
(10,901)
6,311
137
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 33. Financial Risk Management Objectives and Policies (cont)
At 31 December 2022, the Consolidated Entity had the following exposure to Singapore $ foreign currency:
Financial assets
Cash and cash equivalents
Trade and other receivables
Total
Financial liabilities
Trade and other payables
Lease liabilities
Total
Net exposure
2022
$ ’000
1,612
1,044
2,656
432
1,042
1,474
2021
$ ’000
1,025
1,470
2,495
321
1,081
1,402
1,182
1,093
All Singapore $ denominated financial instruments were translated to A$ at 31 December 2022 at the exchange rate of
0.9102 (2021: 1.0207).
At 31 December 2022 and 2021, 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/SING +10%
AUD/SING ‑5%
Post Tax Profit
Higher/(Lower)
Equity
Higher/(Lower)
2022
$ ’000
(75)
44
2021
$ ’000
94
(23)
2022
$ ’000
(75)
44
2021
$ ’000
94
(23)
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 Directors do not consider that the net exposure to foreign currency transactions is
material after considering the effect of natural hedges.
(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
Consolidated Entity. The Consolidated Entity has adopted a policy of only dealing with creditworthy counterparties.
The credit risk on liquid funds is limited because the counterparties are banks with high credit‑ratings from international
credit agencies.
138
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 33. Financial Risk Management Objectives and Policies (cont)
(d) Liquidity risk management
The Consolidated Entity or Group’s approach to managing liquidity risk 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, which has built an appropriate
risk management framework for the management of the Consolidated Entity’s short, medium and long term funding
and liquidity requirements. The Consolidated Entity manages liquidity by seeking to maintain adequate cash reserves,
continuously monitoring forecast and actual cash flows and managing the maturity profiles of financial assets.
Liquidity and interest tables
The following tables detail the Consolidated Entity’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 Consolidated Entity can be required to pay. The table includes both interest and principal cash flows.
Weighted
average
effective
interest rate
%
20%
‑
9%
‑
Less than
1 month
$ ’000
1‑3 months
3 months to
1 year
$ ’000
$ ’000
1‑5 years
$ ’000
28,846
72,576
8,121
11,028
24,030
34,448
8,450
10,139
16,782
‑
‑
Consolidated
2022
Borrowings
Trade payables
and accruals
2021
Borrowings
Trade payables
and accruals
The following tables detail the Consolidated Entity’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/Consolidated Entity anticipates that the cash flow
will occur in a different period.
139
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 33. Financial Risk Management Objectives and Policies (cont)
Weighted
average
effective
interest rate
%
‑
‑
0.04%
‑
‑
0.04%
Less than
1 month
$ ’000
1‑3 months
3 months to
1 year
$ ’000
$ ’000
1‑5 years
$ ’000
15,369
4,711
6,312
26,392
43,476
16,867
15,785
76,128
‑
1,385
‑
1,385
‑
5,459
‑
5,459
‑
277
‑
277
‑
65
‑
65
‑
‑
‑
37,957
‑
‑
‑
22,093
Consolidated
2022
Non‑interest bearing
Cash and cash equivalent
Receivables
Fixed interest rate
instruments
Total
2021
Non‑interest bearing
Cash and cash equivalent
Receivables
Fixed interest rate
instruments
Total
(e) Price risk
The Consolidated Entity’s exposure to commodity price risk is minimal. The Consolidated Entity does not make
investments in equity securities.
(f) Categories of financial assets and liabilities
Financial assets
Amortised cost
Cash and cash equivalents
Trade and other receivables
Security deposits
Loan to associate
Total at amortised cost
Current
Non‑current
140
2022
$ ’000
2021
$ ’000
21,681
7,419
35,588
‑
59,261
23,533
28,141
2,513
64,688
113,448
29,100
35,588
82,794
30,654
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 33. Financial Risk Management Objectives and Policies (cont)
Financial liabilities
Interest bearing loans and borrowings
Borrowings
Lease liabilities
Total interest‑bearing loans and borrowings
Current
Non‑current
Debt instruments at amortised cost
Trade and other payables
Total debt instruments at amortised cost
Current
Non‑current
(g) Commodity price risk
2022
$ ’000
2021
$ ’000
72,738
24,446
97,184
27,234
69,950
65,347
65,347
65,347
‑
34,448
30,024
64,472
39,608
24,864
43,037
43,037
43,037
‑
The Consolidated Entity’s exposure to commodity price risk is minimal. The Consolidated Entity does not make
investments in equity securities.
34. Details of Associates
On 13 July 2022 Electro Optic Systems Pty Ltd and AEI Air (Holdings) (AEI) Limited entered into a settlement deed and
release agreement wherein it was agreed that AEI would compensate EOS an amount of $3,181,000 (£1,642,000) for:
z the principal amount of the convertible notes of $2,905,000 (£1,500,000) referred to in note 36(i),
z interest of $261,000 (£135,000), and
z payment for ammunition used by AEI to date of $15,000 (£7,000).
This effectively cancelled both the Unsecured Convertible Note Deed and the Put and Call Option Deed thereby
terminating the relationship between the Consolidated Entity and AEI.
AEI therefore ceased being an associate of the Consolidated Entity on this date.
Between 29 July and 2 August 2022 EOS received an amount of $2,843,000 (£1,615,000) representing the full settlement
amount above of $2,891,000 (£1,642,000) less withholding tax of $47,000 (£27,000) (20% of the interest amount).
$2,576,000 was allocated to the loan to AEI whilst the rest ($267,000) was allocated to the 2% interest in AEI, interest,
and ammunition.
141
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 35. Segment Information ‑ Continuing Operations
AASB 8 requires operating segments to be identified on the basis of internal reports about components of the
Consolidated Entity that are regularly reviewed by the chief operating decision maker in order to allocate resources to the
segment and to assess performance.
Change in segments
EOS changed the structure of its internal organisation and reporting lines in a manner that caused the composition of
its reportable segments to change. EOS identifies its operating segments based on internal reports reviewed and used
by EOS’ chief operating decision maker (the Chief Executive Officer) to determine business performance and resource
allocation. Operating segments are aggregated after considering the nature of the products and services, nature of
production processes, type of customer and distribution methods. As a result, the former Communications Systems and
Space Systems segments were merged to form an enlarged Space Systems segment under unified management.
As a result, the Consolidated Entity’s reportable segments are now Defence Systems and Space Systems.
Defence Systems
Defence Systems 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.
Space Systems
Space Systems has a range of ground products available to support the Australian and international space markets.
They include:
z significant investments into passive optical and laser sensing equipment at both its Mt Stromlo and Learmonth sites;
z manufacturing and supply of various telescopes and dome enclosures for customers around the world. Space
Systems astrometric products provide reliable and high‑quality optical systems under demanding environmental
conditions; and
z specialisation in innovative optical, microwave and on‑the‑move radio and satellite products that help to deliver high
speed, resilient and assured telecommunications anywhere in the world. Developments in EOS laser technology has
opened aligned markets in space optical communications and various high power laser applications.
Geographic activity
The Consolidated Entity continues to operate in Australia, USA, Singapore, UAE, New Zealand and Germany in the
development, manufacture and sale of telescopes and dome enclosures, laser satellite tracking systems, the manufacture of
electro‑optic fire control systems and the design and manufacturing of microwave satellite dishes and receivers.
142
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 35. Segment Information ‑ Continuing Operations (cont)
Segment revenues ‑ continuing operations
Space
Defence
Total of all segments
Segment results ‑ continuing operations
Space
Defence
Total of all segments
Unallocated holding company costs
(Loss) before income tax expense
Income tax benefit/ (expense)
(Loss) for the year
2022
$ ’000
31,961
105,951
137,912
2022
$ ’000
(7,039)
(40,399)
(47,438)
(15,447)
(62,885)
9,278
(53,607)
2021
$ ’000
27,815
184,516
212,331
2021
$ ’000
(4,488)
24,738
20,250
(4,276)
15,974
(9,231)
6,743
Prior year comparatives have been restated to reflect the change in reportable segments.
The revenue reported above represents revenue from external customers. The Consolidated Entity had two customers
that each provided in excess of 10% of Consolidated Revenue. The customers are within both Defence and Space
segments. One customer represented Revenue of $78,286,000 and the other represented $19,980,000 during the year.
Segment profit represents the profit earned by each segment without the allocation of central administration costs and
directors’ salaries, investment revenue and finance costs and income tax benefit. This is the measure reported to the chief
operating decision maker for the purposes of resource allocation and assessment of segment performance.
The SpaceLink business has been discontinued during the year and is presented under Discontinued Operations (Refer note 5).
The following is an analysis of the Group’s assets and liabilities by reportable operating segment:
Segment assets and liabilities ‑ continuing operations
Space
Defence
Total all segments
Unallocated cash and security deposit
Consolidated
Assets
Liabilities
31 December
2022
31 December
2021
31 December
2022
31 December
2021
$ ’000
39,858
320,271
360,129
57,269
417,398
$ ’000
66,234
304,455
370,689
87,402
458,091
$ ’000
12,664
171,642
184,306
$ ’000
33,852
95,084
128,936
‑
‑
184,306
128,936
Assets used jointly by reportable segments are allocated on the basis of the revenue earned by the individual
reportable segments.
143
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 35. Segment Information ‑ Continuing Operations (cont)
Other segment information ‑ continuing operations
Depreciation, impairment and
amortisation of segment assets
Acquisition of segment assets
31 December
2022
31 December
2021
31 December
2022
31 December
2021
$ ’000
51,895
8,998
60,893
5,659
66,552
$ ’000
6,704
3,830
10,534
3,018
13,552
$ ’000
5,896
3,858
9,754
1,043
10,797
$ ’000
21,900
11,104
33,004
‑
33,004
Revenue
from external
customers
$ ’000
39,027
84,767
‑
4,342
9,776
Segment
assets*
$ ’000
406,066
1,809
‑
9,520
4
Acquisition
of segment
assets
$ ’000
10,725
24
‑
48
‑
137,912
417,399
10,797
Revenue
from external
customers
$ ’000
127,885
71,761
33
7,531
5,121
Segment
assets*
$ ’000
82,940
1,765
‑
Acquisition
of segment
assets
$ ’000
11,481
131
‑
31,962
21,392
‑
‑
212,331
116,667
33,004
Space
Defence
Total all segments
Unallocated management
Consolidated
Information on geographical segments
31 December 2022
Geographical segments
Australia/Asia
Middle East ‑ United Arab Emirates
Middle East ‑ other
North America
Europe
Total
31 December 2021
Geographical segments
Australia/Asia
Middle East ‑ United Arab Emirates
Middle East ‑ other
North America
Europe
Total
*Segment Assets reflects the requirements of AASB 8.33 (b) and reflect only non‑current assets other than financial instruments and
deferred tax assets.
144
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 36. 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
2022
$ ’000
2021
$ ’000
13,531
204,757
218,288
30,068
49,443
79,511
7,951
264,976
272,927
35,977
‑
35,977
138,777
236,950
432,248
12,268
(305,739)
138,777
413,728
13,390
(190,168)
236,950
(115,570)
(13,507)
(115,570)
(13,507)
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
Guarantee provided under the Deed of Cross Guarantee
172,834
108,024
Electro Optic Systems Holdings Limited entered into a deed of cross guarantee on 6 April 2018 with two of its wholly‑owned
subsidiaries. Electro Optic Systems Pty Limited and EOS Defence Systems Pty Limited. On 28 November 2019, EM Solutions
Pty Limited entered into an Assumption Deed and became a party to the Deed of Cross Guarantee.
145
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 37. Contingent Liabilities and Commitments
(a) The Consolidated Entity maintains cash deposits with banks and financial institutions as security for various
performance and rental bonds. The detail of such cash deposits is as per below:
Offset bond for a defence contract
Performance bond for a defence contract
Rental bonds
Performance bond for SpaceLink’s satellite launch
Deposit for credit card guarantee
Total
Note
(c)
(d)
2022
$ ’000
10,741
23,395
1,331
‑
121
35,588
2021
$ ’000
4,444
17,427
1,215
5,055
‑
28,141
(b) 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 consolidate entity.
(c) The Consolidated Entity executed an offset agreement in relation to an overseas defence contract for an amount
of US$16,957,000 (US$25,029,000) secured by an offset bond for the full amount. The offset bond is guaranteed
by Export Finance Australia under a Bond Facility Agreement and is secured by a cash security deposit of
US$7,277,000 (A$10,741,000) and a fixed and floating charge over the assets of the Consolidated Entity.
(d) The Consolidated Entity maintains a performance bond for US$33,249,000 (A$49,076,000) in relation to an
overseas defence sector contract. The performance bond is guaranteed by Export Finance Australia under a Bond
Facility Agreement and is secured by a cash security deposit of US$15,850,000 (A$23,395,000) and a fixed and
floating charge over the assets of the Consolidated Entity.
(e) At 30 June 2022, the Consolidated Entity breached certain covenants associated with its EFA Facility Agreement.
As a result, during the year EFA had the right to call the guarantees as detailed in c) and d) above. EFA did not
exercise its right to call these guarantees and did not formally waive its right. In October 2022 these covenants
were replaced with new covenants, identical to those specified under the WHSP loan facilities disclosed in Note 19.
At 31 December 2022, the Consolidated Entity was not in breach of the new covenants applying at that date.
(f) Electro Optic Systems Holdings Limited entered into a deed of cross guarantee on 6 April 2018 with two of its
wholly‑owned subsidiaries, Electro Optic Systems Pty Limited and EOS Defence Systems Pty Limited, pursuant
to ASIC Corporations (Wholly‑owned Companies) Instrument 2016/785 and was relieved from the requirement
to prepare and lodge an audited financial report. On 28 November 2019, EM Solutions Pty Ltd entered into an
Assumption Deed and became a party to the Deed of Cross Guarantee.
(g) During the year ended 31 December 2022 Electric Optic Systems Pty Ltd and AEI Air (Holdings) Limited entered into
a settlement deed in relation to a prior arrangement. As a result of that settlement deed, these arrangements have
ended. Refer note 34 for details.
146
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 37. Contingent Liabilities and Commitments (cont)
The prior arrangement was that during the prior years, Electro Optic Systems Pty Limited, a wholly‑owned subsidiary of
Electro Optic Systems Holdings Limited, had entered into an Unsecured Convertible Note Deed with the vendors of AEI Air
(Holdings) Limited and others to advance funds up to $3,707,020 (GBP2,000,000) as a series of convertible notes.
These arrangements were previously to entitle Electro Optic Systems Pty Limited to convert these convertible notes,
when advanced in full, to acquire 49% of the equity in AEI Air (Holdings) Limited. Electro Optic Systems Pty Limited had
also entered into a Put and Call Option Deed with the vendors of AEI Air (Holdings) Limited to acquire a further 49% from
the vendors of AEI Air (Holdings) Limited based on a profitability formula over the four‑year period from 1 January 2019 to
31 December 2022 and meeting various milestones.
The Put and Call Option Deed also included provisions for Electro Optic Systems Pty Limited to make vendor loans of up
to $3,176,916 (GBP1,714,000) to the vendors of AEI Air (Holdings) Limited which were fully repayable should the Put and
Call Option not be exercised. Where the Put and Call Option was exercised the loans were able to offset the exercise price
on settlement.
As at the prior year, $2,780,265 (GBP1,500,000) had been advanced under the Unsecured Convertible Note Deed and no
amounts have been advanced to the vendors under the Put and Call Option Deed at their request. Electro Optic Systems
Pty Limited held no direct equity in AEI Air (Holdings) Limited.
38. 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.
147
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes 39. 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, New Zealand and Germany.
Principal Place of Business
18 Wormald Street
Symonston
ACT 2609
Australia
Tel: 02 6222 7900
Fax: 02 6299 7687
German Operations
Ulrichsberger Str. 17
D‑94469 Deggendorf
Germany
Tel: +49 991 2892 1964
Fax: +49 991 3719 1884
United Arab Emirates Operations
Tawazun Industrial Park (TIP)
Zone 2, Facility 15,
Al Ajban Area,
Abu Dhabi, UAE
Tel: +971 2 492 7112
Fax: +971 2 492 7110
Registered Office
18 Wormald Street
Symonston
ACT 2609
Australia
Tel: 02 6222 7900
Fax: 02 6299 7687
USA Operations
2865 Wall Triana Hwy SW
Huntsville
AL 35824 USA
Singapore Operations
456 Alexandra Road
Fragrance Empire Building
#21002 Singapore
Tel: +65 6304 3130
New Zealand Operations
69 Gracefield Road,
Gracefield
Lower Hutt, 5010
New Zealand
148
Electro Optic Systems Holdings Limited Annual Report 2022EOS Annual Report 2022 | Financial Statements and Notes EOS Annual Report 2022 | ASX Additional Information
ASX ADDITIONAL
INFORMATION
Additional information required under ASX Listing Rule 4.10 and not shown elsewhere in this Annual Report is as follows.
This information is current as at 13 March 2023.
Distribution of Shareholders
Size of holding
100,001 and over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Distribution of Option Holders
The distribution of unquoted Options on issue are:
Size of Holding
100,001 and over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Number of
shareholders
Ordinary
shares
% of issued
capital
163
100,837,528
1,517
1,449
5,300
8,958
42,286,619
11,057,800
13,258,043
3,796,016
58.89
24.69
6.46
7.74
2.22
17,387
171,236,006
100.00
Number of
Option holders
3
10
‑
‑
‑
Unlisted
Options
400,000
320,000
‑
‑
‑
13
720,000
% of Total
Options
56
44
‑
‑
‑
100
The options on issue are unquoted and have been issued under an employee incentive scheme.
Less than Marketable Parcels of Ordinary Shares
There are 8,051 shareholders with unmarketable parcels, holding 2,889,821 shares.
149
Electro Optic Systems Holdings Limited Annual Report 2022
EOS Annual Report 2022 | ASX Additional Information
Twenty Largest Shareholders
At 13 March 2023 the 20 largest ordinary shareholders held 39.82% of the total issued fully paid quoted Ordinary Shares
of 171,236,006
1
2
3
4
5
6
7
8
9
WASHINGTON H SOUL PATTINSON & COMPANY
EOS LOAN PLAN PTY LTD
CITICORP NOMINEES PTY LIMITED
CAPITAL PROPERTY CORPORATION PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED ‑ A/C 2
N & J PROPERTIES PTY LTD
TECHNOLOGY TRANSFORMATIONS PTY LIMITED
BNP PARIBAS NOMINEES PTY LTD
ACE PROPERTY HOLDINGS PTY LTD
10
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
11 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
12
13
14
15
16
17
18
BRAZIL FARMING PTY LTD
CAPITOL ENTERPRISES LIMITED
A AND D WIRE LIMITED
TECHNOLOGY INVESTMENTS PTY LTD
LUCKY DRAGON PROPERTY PTY LTD
BUNDARRA TRADING COMPANY PTY LTD
BOND STREET CUSTODIANS LIMITED
19 MR TREVOR WRIGHT + MRS OLIVE WRIGHT
20
BNP PARIBAS NOMS PTY LTD
Number held
14,537,983
12,009,375
8,022,895
4,899,738
3,388,230
3,194,816
2,758,662
2,692,791
2,558,200
2,277,676
2,113,103
1,832,129
1,550,000
1,457,276
1,216,477
1,082,161
1,005,173
881,666
700,000
696,669
% of issued
capital
8.49
7.01
4.69
2.85
1.98
1.87
1.61
1.57
1.49
1.33
1.23
1.07
0.91
0.85
0.71
0.63
0.59
0.51
0.41
0.41
Remaining quoted equity securities
Total number of Ordinary Shares on issue
68,875,020
102,360,986
40.22
59.78
171,236,006
100.00
Unquoted Equity Securities
The Company had the following unquoted securities on issue as at 13 March 2023:
Options over Ordinary Shares
Number on
issue
720,000
Number of
holders
13
150
Electro Optic Systems Holdings Limited Annual Report 2022
EOS Annual Report 2022 | ASX Additional Information
Substantial Shareholders
The names of the Substantial Shareholders as disclosed in notices submitted to the ASX as at 13 March 2023 are:
Ordinary Shares
17,037,983
12,009,375
8,690,548
Percentage
of total
Ordinary shares
9.95%
7.01%
5.08%
Shareholder
Washington H. Soul Pattinson and Company Limited
EOS Loan Plan Pty Ltd
Citicorp Nominees Pty Limited
Restricted Securities
The Company had no restricted securities on issue as at 13 March 2023.
Voting Rights
In accordance with the Constitution each member present at a meeting whether in person, or by proxy, or by power of
attorney, or a duly authorised representative in the case of a corporate member, shall have one vote on a show of hands,
and one vote for each fully paid ordinary share, on a poll. Holders of performance rights have no voting rights.
On‑Market Buy‑Backs
There is no current on‑market buy‑back in relation to the Company’s securities.
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.
151
Electro Optic Systems Holdings Limited Annual Report 2022 EOS Annual Report 2022 | Corporate Directory
CORPORATE DIRECTORY
Share Registry
Computershare Investor Services Pty Limited
Level 3
60 Carrington Street
Sydney NSW 2000
Australia
GPO Box 7045
Sydney NSW 1115
Telephone 1300 855 080 or
613 9611 5711 outside Australia
Facsimile 1300 137 341
Auditors
Deloitte Touche Tohmatsu
8 Brindabella Circuit
Brindabella Business Park, ACT, 2609
GPO Box 823
Canberra, ACT, 2601
Australia
Directors
Mr Garry Hounsell (Chairman)
Air Marshal Geoffrey Brown AO
The Hon Kate Lundy
Mr David Black
Chief Executive Officer
Dr Andreas Schwer
Company Secretary
Ms Leanne Ralph
Registered Office
18 Wormald Street
Symonston ACT 2609
Australia
Telephone +61 2 6222 7900
Email
Website
enquiry@eos‑aus.com
www.eos‑aus.com
ACN Number
092 708 364
152
Electro Optic Systems Holdings Limited Annual Report 2022
CONTACT US
18 Wormald Street, Symonston
Canberra ACT 2609
T: +61 2 6222 7900
E: enquiry@eos-aus.com
www.eos-aus.com