Announcement PDF 1H 2023 UNAUDITED RESULTS 28 August 2023 IMPORTANT NOTICE AND DISCLAIMER Unaudited & Unreviewed CONTENT OF PRESENTATION FOR INFORMATION PURPOSES ONLY This presentation has been prepared as at 28 August 2023 Forward-looking Statements This presentation may contain statements that are, or may be deemed to be, forward-looking statements. Such statements can generally be identified by the use of words such as ‘may’, ‘will’, ‘expect’, ‘intend’, ‘plan’, ‘estimate’, ‘anticipate’, ‘believe’, ‘continue’, ‘objectives’, ‘outlook’, ‘guidance’, ‘forecast’ and similar expressions. Indications of plans, strategies, management objectives, sales and financial performance are also forward-looking statements. Such statements are not guarantees of future performance, and involve known and unknown risks, uncertainties, assumptions, contingencies and other factors, many of which are outside the control of Electro Optic Systems Holdings Limited (ABN 95 092 708 364) (EOS). No representation is made or will be made that any forward-looking statements will be achieved or will prove to be correct. Typically, EOS and its subsidiaries (together, the Group) operate 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. Readers are cautioned not to place undue reliance on forward-looking statements in this presentation and EOS assumes no obligation to update such statements. No representation or warranty, expressed or implied, is made as to the accuracy, reliability, adequacy or completeness of the information contained in this presentation. Past Performance Past performance information in this presentation is given for illustrative purposes only and should not be relied upon as (and is not) an indication of future performance. Information is Not Advice This presentation is not, and is not intended to constitute, financial advice, or an offer or an invitation, solicitation or recommendation to acquire or sell EOS shares or any other financial products in any jurisdiction and is not a prospectus, product disclosure statement, disclosure document or other offering document under Australian law or registration statement under the United States Securities Act of 1933 as amended (Securities Act) or any other law. This presentation also does not form the basis of any contract or commitment to sell or apply for securities in EOS or any of its subsidiaries. It is for information purposes only. EOS does not warrant or represent that the information in this presentation is free from errors, omissions or misrepresentations or is suitable for your intended use. This presentation does not constitute an offer to sell, or a solicitation of an offer to buy, any securities in the United States or to any 'U.S. persons' (as defined in Regulation S under the Securities Act of 1933). No securities have been, nor will be, registered under the Securities Act or any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, or otherwise transferred except in a transaction exempt from, or not subject to, the registration requirements of the Securities Act and any other applicable securities laws. The information contained in this presentation has been prepared without taking account of any person’s investment objectives, financial situation or particular needs and nothing contained in this presentation constitutes investment, legal, tax or other advice. The information provided in this presentation may not be suitable for your specific needs and should not be relied upon by you in substitution of you obtaining independent advice. Subject to any terms implied by law and which cannot be excluded, EOS accepts no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a result of any error in, omission from or misrepresentation in this presentation. 2 IMPORTANT NOTICE AND DISCLAIMER Unaudited & Unreviewed Preparation of Financial Information All financial information has been prepared in accordance with Australian Accounting Standards. Certain financial data included in this presentation is ‘non IFRS financial information’. The Company believes that this non IFRS financial information provides useful insight in measuring the financial performance and condition of EOS. Readers are cautioned not to place undue reliance on any non IFRS financial information including ratios included in this presentation. These measures have not been subject to audit or review. Presentation of Information The financial data in this presentation is provided on a statutory basis but in a non-statutory presentation format (unless otherwise stated). • Currency: all amounts in this presentation are in Australian dollars unless otherwise stated. • Financial years: FY refers to the full year to 31 December, 1H refers to the six months to 30 June, and 2H refers to the six months to 31 December. • Rounding: amounts in this presentation have been rounded to the nearest $0.1m. Any differences between the amounts in this presentation and the accompanying financial statements are due to rounding. Totals may not add due to rounding. Product Development This presentation includes information about potential future product developments. Users are cautioned that new product development work can take up to five years & more for new products to be developed and launched. Following the initial commercial launch, it can take a further two to three years and more for newly launched products to reach commercial maturity and achieve meaningful sales revenue. There is no guarantee that it will be possible to achieve product development launch dates or meaningful commercial sales from new products. Third Party Information and Market Data The views expressed in this presentation contain information that has been derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, reliability, adequacy or completeness of the information. This presentation should not be relied upon as a recommendation or forecast by EOS. Market share information is based on management estimates except where explicitly stated otherwise. No Liability or Responsibility The information in this presentation is provided in summary form and is therefore not necessarily complete. To the maximum extent permitted by law, EOS and each of its subsidiaries, affiliates, directors, employees, officers, partners, agents and advisers, and any other person involved in the preparation of this presentation disclaim all liability and responsibility (including without limitation, any liability arising from fault or negligence) for any direct or indirect loss or damage which may arise or be suffered through use or reliance on anything contained in, or omitted from, this presentation. EOS accepts no responsibility or obligation to inform you of any matter arising or coming to its notice, after the date of this presentation, which may affect any matter referred to in this presentation. This presentation should be read in conjunction with EOS’ other periodic and continuous disclosure announcements lodged with the ASX. General Information Statements made in this presentation are made only as at the date of this presentation. The information in this presentation should be read in conjunction with EOS’s other periodic and continuous disclosure announcements lodged with ASX. The information in this presentation remains subject to change without notice. Circumstances may change and the contents of this presentation may become outdated as a result. EOS may in its absolute discretion, but without being under any obligation to do so, update or supplement this presentation. 3 SPEAKERS Andreas Schwer, CEO • • • • Over 30 years in global Defence, Manufacturing and Space industries Aeronautical engineer, PhD German citizen Airbus 14 years, Rheinmetall International 5 years Clive Cuthell, CFO • • • • Over 15 years as CFO in global industrial businesses Chartered Accountant 25 years British / Australian citizen Rinker Group / Holcim 9 years, Nuplex 3 years Unaudited & Unreviewed Commenced August 2022 Commenced September 2022 4 CONTENTS Unaudited & Unreviewed 1. Introduction • Status of Half Year Report • Global Market Update • Business Overview • 1H 2023 Performance Overview 2. Financial Results 3. Growth & Outlook Appendices 5 STATUS OF HALF YEAR REPORT Unaudited & Unreviewed Status of Half Year Report • EOS has not yet finalised its Appendix 4D and Financial Statements for the Half Year ended 30 June 2023. • This is as a result of a matter that has recently been raised by a Middle East customer concerning EOS’s compliance with offset credit obligations on a timely basis. The company and the customer are working in good faith to resolve the matter. • As part of the offset credit obligations, EOS has previously disclosed that it has issued an offset bond, guaranteed by Export Finance Australia under a bond facility agreement. The offset bond has been issued for an amount of US$16,957,000 (A$25,576,000). The offset bond is secured by a cash security deposit of US$10,504,000 (A$15,842,000) and a fixed and floating charge over the assets of the Group. This presentation contains Unaudited and Unreviewed Information • EOS is completing the Appendix 4D and Financial Statements, including finalising a Review by EOS auditors. The information in this presentation has not been audited or reviewed by the company’s auditors. • EOS confirms it plans to report its results for the Half Year ended 30 June 2023 on or before the due date of 31 August 2023. This is expected to include the completion of a review by the company’ auditors. 6 Unaudited & Unreviewed MARKET UPDATE Ukraine conflict and increased geo-political Market Situation The Ukraine war and geopolitical tensions Significant increases in global Defence activity and planned spending Technology is key differentiator tensions are resulting in higher Defence spending EOS Strengths ✓ Leading edge technology ✓ Focused product development and commercialisation ✓ Targeted business development ✓ EOS strategic discipline and capital allocation 7 BUSINESS OVERVIEW Strategic Positioning Our Strengths >75% export Accuracy and revenue tracking Unaudited & Unreviewed Key Product Areas RWS and Turrets Global Non-ITAR market (non-US) High Energy Laser Weapons Technology and Innovation Growing Established market size >2,500 RWS in service Space EM Solutions 8 Unaudited & Unreviewed 1H 2023 PERFORMANCE OVERVIEW New products launched: Slinger Counter-Drone R150 lightweight formal launch New Products Signed new contracts >$400m incl. conditional Ukraine $181m Improved cash flow, New Orders Focus on contract management Net realisation A$50m contract asset signed new contracts, and launched new Working Capital $123m cash receipts in 1H 2023 Up 65% from $74m in 1H 2022 Cash balance 28 Aug - $83m products Cash Receipts Debt Repayment EOS intends to repay $26.9m of debt, on or before 6 Sep 2023, in accordance with debt agreements 9 CONTENTS Unaudited & Unreviewed 1. Introduction 2. Financial Results • 1H 2023 Financial Results Overview • 1H 2023 Cash Flow • Segment Update – Defence & Space 3. Growth & Outlook Appendices 10 Unaudited & Unreviewed 1H 2023 FINANCIAL RESULTS 1H 2023 1H 2022 $m $m $m 74.3 53.8 20.5 Underlying EBITDA (14.8) (24.2) 9.4 Finance cost (16.0) (6.1) (9.9) Net loss before tax (35.4) (33.0) (2.4) Net cash flow from operations 30.7 (17.1) 47.8 Secured 464 323 141 Conditional 181 - 181 Total 645 323 322 Unaudited & Unreviewed Key Results Revenue Significant improvement in Revenue, Cashflow and Order Backlog Order backlog 30 June 11 Unaudited & Unreviewed EOS delivered cash flow improvement 1H 2023 1H 2022 $m $m Customer receipts 123.3 74.5 48.8 Net operating CF 30.7 (17.1) 47.8 Net investing CF (6.1) (23.6) 17.5 Cash balance 30 Jun 42.0 13.8 28.2 Cash balance 28 Aug 83.1 Unaudited & Unreviewed Key Cash Flows $m Net Contract Assets and Inventory Millions CASH FLOW IMPROVEMENTS 250 ~$50m reduction 200 150 100 50 DEC20 JUN21 DEC21 JUN22 DEC22 JUN23 Net Contract Assets Inventories 12 Unaudited & Unreviewed DEFENCE Unaudited & Unreviewed Divisional Results Revenue 1H 2023 1H 2022 $m $m % 50.7 38.2 33% Solid revenue growth Loss before tax (17.5) (25.7) 32% with positive market Customer receipts 109.3 52.7 107% outlook Millions Customer receipts 68% 200 150 100 50 - % of Total EOS Revenue 2020 2021 1H 2022 2H 2023 13 Unaudited & Unreviewed SPACE 1H 2023 1H 2022 $m $m % Revenue 23.6 15.6 51% High growth EM Solutions Loss before tax (0.4) (3.4) 88% naval satcom activity, and Customer receipts 13.9 21.8 -36% Unaudited & Unreviewed Divisional Results Space data services Millions Revenue 32% 45 40 35 30 25 20 15 10 % of Total EOS Revenue 5 2020 2021 1H 2022 2H 2023 14 CONTENTS Unaudited & Unreviewed 1. Introduction 2. Financial Results 3. Growth & Outlook • New Order Intake & Backlog • New Product Growth Opportunities • Our promises • Our approach Appendices 15 Unaudited & Unreviewed Unaudited & Unreviewed Order Backlog Millions NEW ORDER INTAKE & BACKLOG 645 700 600 181 500 400 300 Record order backlog provides a strong base for future growth 464 200 100 Jun21 Dec21 Secured Jun22 Dec22 Jun23 Conditional Significant New Orders Secured • A$51m Western European Government sales, delivered July 2023 • Up to A$202m EM Solutions for Australian Navy (20232030) • A$181m Ukraine contracts, conditional on testing, approval and customary wartime (cancellable) terms: • First demonstration completed successfully • Test report documentation underway • Next step: Ukraine MOD approvals, which may result in confirmed orders 16 Unaudited & Unreviewed NEW PRODUCT GROWTH OPPORTUNITIES EOS has unique advantages in point & track technology Revenue timing * R150 Lightweight System Formal launch in 2023 Suitable for light vehicles Future UGV opportunity 2023-25 Counter Drone Kinetic System Launched “Slinger” in 1H 2023 Proven, world-leading accuracy Initial evaluation order received 2024-25 Large R800 Remote Weapon System Continued to develop and test Low cost and heavy firepower Planned market intro 2023-24 2024-26 Unmanned Ground Vehicle Weapon Systems Growing demand Lightweight & resilient High accuracy 2025-27 * The global defence industry supports innovation – product development can take five years and more, with commercial launches taking two-three years or more to reach maturity. 17 Unaudited & Unreviewed NEW PRODUCT GROWTH OPPORTUNITIES Aim * High Energy Laser Weapon 36kW prototype laser weapon Counter-Drone app’n (Class 1/2) Scalable to 54kW & 100kW Marketing and demo in 2023 Low power opportunities Product Develop’t Funding* 2023-25 (More details in appendix) We focus on security threats that are growing Space Warfare Growing market demand EOS unique capabilities: ▪ Tracking - Space Domain Awareness ▪ Telescope design and construction ▪ Adaptive Optics ▪ High Energy Laser Product Develop’t Funding* 2023-25 (More details in appendix) * The global defence industry supports innovation – product development can take five years & more, with commercial launches taking two-three years or more to reach maturity. 18 Unaudited & Unreviewed OUR PROMISES We have delivered on our promises We said… We delivered… Formulated new strategy Focus on core businesses & strengths of point & track Exit SpaceLink in 2022 Exit Australian Satellite Manufacturing proposal (2023) 2023 Capex focused on core business Seeking third party product development funding Increase efficiency Company wide restructuring program Reduced headcount by >100 FTE in 2022 Innovate & launch core products Slinger Counter Drone launched R150 lightweight RWS formal launch VAMPIRE AS65 R150 gimbal in market (with L3Harris) Grow & diversify sales New contracts secured – Ukraine / Western Europe Grew EM Solutions with contract for up to A$202m 30 June 23 Backlog $645m (incl. conditional contracts) Realise working capital Amended customer contract in February 2023 1H 2023 reduced contract asset by $50m Secured >$44m proceeds from new sales in July 2023 Focus on cash Increased cash balances From $22m at Dec 2022 To $42m at June 2023 To $83m at 28 August 2023 19 Unaudited & Unreviewed OUR APPROACH We will maintain focus 1. Manage Cash Flow • Realise working capital • Repay debt on schedule in 2023, 2024 and 2025 2. Diversify Product Base • Maintain leadership in accurate pointing • Commercialise technology 3. Diversify Customer Base • Go to market in Europe & North America • Continue to grow sales orders 4. Maintain Strategic Discipline • Focus on the core – accurate pointing • Secure product development funding 20 CONCLUSION 1. QUESTIONS 2. THANK YOU Unaudited & Unreviewed 21 APPENDICES Unaudited & Unreviewed • Glossary • Net loss to EBITDA reconciliation • Segment results detail • Historical revenue and cash receipts • Order intake summary • Debt summary • EOS Segments 22 GLOSSARY Unaudited & Unreviewed Term Description Term Description 1H First Half of the financial year ITAR International Traffic in Arms Regulation (a USA regulatory regime) 2H Second Half of the financial year MOD Ministry of Defence ADF Australian Defence Force Q4 4th quarter of the financial year ASMH Australian Satellite Manufacturing Hub RWS Remote Weapon System CF Cash Flow SatCom Satellite Communications CUAS Counter Unmanned Aerial System UGV Unmanned Ground Vehicle DE Directed Energy Underlying EBITDA EBITDA before impairment and foreign exchange gain/(loss) EBIT Earnings Before Interest and Tax EBITDA Earnings Before Interest, Tax Depreciation and Amortisation FTE Full Time Equivalent IP Intellectual Property 23 Unaudited & Unreviewed NET LOSS TO EBITDA RECONCIL’N Period ended 30 June 2023 $m Period ended 30 June 2022 $m (Loss) for the period (32.4) (26.4) Income tax (benefit) (3.0) (6.6) (Loss) before tax – see next page (35.4) (33.0) - 3.8 Finance costs 16.0 6.1 Foreign exchange (gains) (2.4) (6.4) Underlying EBIT (loss) (before impairment and foreign exchange gains) (21.8) (29.5) 7.0 5.3 (14.8) (24.2) Unaudited & Unreviewed Continuing operations Impairment of assets Depreciation and amortisation Underlying EBITDA (loss) (before impairment and foreign exchange gains) 24 Unaudited & Unreviewed SEGMENT RESULTS DETAIL Unaudited & Unreviewed June 2023 Revenue Loss before tax Defence Space $m $m 50.7 23.6 (17.5) (0.4) 38.2 15.6 (25.7) (3.4) Un-allocated (incl. finance costs) Total $m 74.3 (17.6) (35.4) June 2022 Revenue Loss before tax Amounts may not add due to rounding. 53.8 (3.9) (33.0) 25 Unaudited & Unreviewed Unaudited & Unreviewed ORDERS INTAKE SUMMARY Segment Defence From Sep 22 to date Space Amount $m Customer location Product/Services Delivery period 120 Ukraine RWS 2023-2024 61 Ukraine RWS 2023-2024 51 Western Europe RWS 2023-2024 15 Southeast Asia RWS R600 2023 <10 USA RWS R150 2023 202 Australia SEA-1442-5 award 2023-2030 26 Australia Sustainment of existing fleet of Cobra Maritime SATCOM Terminals 2022-2026 38 Various Cobra satellites and RF components 2023-2024 1m Asia and Europe Laser and telescope equipment 2022-2023 <1m USA Satellite laser ranging data 2023 26 Unaudited & Unreviewed Unaudited & Unreviewed DEBT SUMMARY Key steps have been taken to improve cash flow, and more are underway A$m Principal Term Maturity Total Rate Repayment Working Capital Facility 20.0 12m 6 Sep 23 19% 26.9 Working Capital Facility 15.0 18m 11 Apr 24 19% 20.5 Term Loan Facility 35.0 36m 11 Oct 25 26% 52.1 Total 70.0 99.5 New Borrowing Facilities • Set up in Sep/Oct 2022 with longstanding equity investor Washington H. Soul Pattinson (“WHSP”) • Interest can be capitalised up to 12 months – total Group 1H finance costs were A$16.0m (A$6.1m in 1H 2022) • Repayment of A$99.5m includes capitalised interest, excludes interest paid prior to maturity. Total repayable is up to A$127m • Borrowing facilities include substantial covenants and restrictions and a 100% make whole clause Recent Actions and Cash Flow • Cost reduction program executed in Q4 2022 (A$25m); SpaceLink venture terminated ceasing further investment (A$26m in 2022) • Middle East contract amended in February 2023 • 1H 2023 reduction in contract asset working capital asset of A$50m • 2023 1H Cash Receipts from customers of A$123m (increase from $75m in 2022 1H) • Cash balance at 28 August of $83m 27 Unaudited & Unreviewed HIGH ENERGY LASER WEAPON EOS Prototype • Currently available 36-54kW class (36kW in trial operation) • Two test ranges – indoor and outdoor • Class 1 and 2 drone capability and demonstration • Fully owned IP EOS has developed a 3654kW laser weapon and is demonstrating it during August 2023 Fixed/Portable Product Development • Investment required to fully develop 54kW product, ~US$15m • Investment required to increase to 100-150kW, ~US$50-70m Mobile Armoured Vehicle • Seeking partner funding – based on Aug 23 demonstrations • Lower power weapons 0 – 20kW • Development in progress • Evolving application 28 Unaudited & Unreviewed SPACE & SPACE WARFARE Space Warfare is a rapidly evolving military Market Evolution • Space Warfare is a significant growth market – growing need for capability to disrupt enemy space operations • National governments are seeking help to develop this capability - recent government tender for US$80m development project EOS Capability – EOS has significant private IP • Space Domain Awareness – market leading identification and tracking capability • Telescope construction for over 20 years need - EOS has key • High energy laser – EOS experienced in space operation capabilities in house • Opportunity for fixed and mobile ground station development Mobile Armoured Vehicle EOS Next Steps • Seeking product development funding partners • EOS contributes IP and technology • Commercialise expertise in growing market 29 Unaudited & Unreviewed EOS SEGMENTS Defence Defence Systems specialises in technology for weapon systems optimisation and integration, as well as ISR (Intelligence, Surveillance and Reconnaissance) and C4 systems for land warfare. Its key products are next-generation remote weapon systems, vehicle turrets, high-energy laser weapons (directed energy), as well as fully integrated and modular Counter-UAS and C4 systems. Space Space Systems includes all EOS space and communications businesses and operates as two entities – Space Technologies and EM Solutions. Space Technologies specialises in applying EOS-developed optical sensors and effectors to detect, track and characterise objects in space. It includes capabilities in the domain of space control and space warfare. EM Solutions delivers world-leading RF and optical space communications technology. Its core product range centres around the development and production of high-end, broadband radio transceivers for satellite communications as well as satellite communications on-the-move terminals for defence and government customers 30