Electro Optic Systems Holdings Limited

Thank you for standing by and welcome to the electro optic systems 2025 full year results. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question via the phones, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please enter it into the ask a question box and click submit. I would now like to hand the conference over to Dr. Andreas Schwer, Group CEO. Please go ahead.

Good morning, ladies and gentlemen. Welcome to our annual results presentation. I will go through the slide deck which has been published on ASX this morning, starting with page number four with the agenda. So we will go through the 2025 summary by highlighting the most important aspects of last year. I will give you some aspects in terms of market conditions. I will further explain our growth and expansion strategy. We will focus on the order book and the forthcoming sales pipeline. Before I will hand over to our CFO, Clive Cuttle, who will give you a detailed overview about our financial performance and the cash flow situation. At the end, I will take over again to lead you through our strategy and to highlight some further growth and strategic market opportunities. Let's switch to page number five, please. The U.S. leadership team is stable the same as last year with one exception. We have added Lee Cormany. Lee is heading our defense systems Australia team. The other people you probably know from last year's presentation. So 2025 summary, page number seven. The markets are not only remaining strong, they're getting stronger and stronger month by month. Thanks to global tensions and some advancements on the technological side, we expect to benefit largely from those kinds of market conditions. Our strategic focus is absolutely on two domains. One is the counter-drone business. We are aiming to become one of the global leading anti-drone companies, and also we want to become one of the world leading space control or space warfare companies. The U.S. has enhanced its sales capability. We've added a significant number of people, in particular in Europe, in order to increase our sales capability, and the order book 2025 is a good testimony of that. We have also expanded in terms of geography. We have added new offices and operations in Europe, in France, in U.K., in the Netherlands, and Germany to be followed soon. In terms of commercialization, we have succeeded in the high-energy laser weapon domain by EOS, becoming the first company worldwide to sign a 100-kilowatt high-energy laser weapon export contract. That is a breakthrough for EOS, and it's a breakthrough in the laser weapon world. And we are very optimistic to sign further contracts over the next years to come. We also have Executed in a very disciplined way, our M&A strategy, we have divested what is non-core of our business. So you might remember it was PhaseLink in 2022 and 2023, and now we have divested also EM Solutions because it didn't fit or it doesn't fit our long-term strategy. Instead, we have reinvested into something which is absolutely core of our business, into a C2 command and control company, Mars, which also brings with it AI technology, AI algorithms, which you can easily put into our remote weapon systems and the laser weapons to further increase and improve the performance in terms of drone detection and classification. So all those things, we can tick the box, which makes us very optimistic in terms of future outlook. Move to page number eight. Let's have a look to the highlights of 2025. So the revenue was 128.5 million. is down compared to 24 because of two aspects. Obviously, because of that investment of EM solutions, and second, some of the major order intakes happened later than we wish to be in 2025, and that had obviously also an impact on the revenue 2025. We expect in return all that to happen in 2026. The cost margin went up to 63%, which is very positive and very pleasing. The underlying EBITDA with minus 24 million is the result of a revenue which went down. And you might remember our CFO saying that our break even is around 200 million Australian dollars. So obviously we expect this year to see a change there. If you look to the order book, I think that is the most important aspect here. We have signed last year 18 contracts totaling up to 420 million Australian dollars. or intake, which is a significant high number compared to the year before, where we only had 70 million, six orders in order intake. This is residing in the unconditional order book of 459 million Australian dollars, and this unconditional order book does not include the conditional order, which we have signed with a Korean client. Our cash position is very positive with more than $106 million plus that is trained cash sitting for bank guarantees and other activities, and that comes on top of $106 million. In terms of investments, we have opened quite recently our new high-energy laser weapon factory in Singapore, and I will come back at a later point in time on that particular subject. We've announced the acquisition of the C2 command and control company, MASC, end of last year, beginning of this year. We have opened up facilities in the Netherlands, France, UK, and Germany will happen also this year. Our total number of employees went up to 436 people. We remain extremely sensitive in terms of adding indirect cost to our organization to keep overall indirect cost and overhead low and to stay very competitive in terms of our pricing structure. Page number nine. If you look backwards into 2025, the year was filled up with many positive events, obviously a little bit back and loaded. I just want to highlight again in August the landmark contract with the Dutch government for the first 100 kilowatt laser weapon, 71 million euro. We have been successful in bidding with land 156, which by the dollar value now is not so large, but it has a 1%. more than one billion Australian dollar or intake perspective as we are now selected with our partners to be the solution provider for the anti-drone systems for Australia. We also signed the Land 400 phase three contract with more than $100 million in October and towards end of the year, very important contracts with General Dynamics, one of our key clients, and one of them is opening up the big market towards the US Army. as he became the key supplier for the future Abrams main battle tank. I will also come back to that in a minute. The market conditions are superb. The markets are growing as the budgets are growing and as long as geopolitical tension continues to be high, we can benefit from that one. This statement is not new, but again, if you see how much budgets are growing over the last few months and how many governments have formally stated to go even higher. This is very promising for electric systems. And again, that's the key reason why we want to expand into those markets in particular into the European market as in Europe, this super cycle is extremely dominant. On this chart, again, you can see on the right side, the number of drone attacks, which is extremely growing. The number of missile strikes on Ukraine is rather going down. That has more or less a kind of price or cost structure rationale behind. The anti-drone business, in consequence of that, we become predominant. The entire warfare situation in Ukraine has changed dramatically. The Ukraine war in the beginning was pretty much a kind of war on the ground between artillery forces on the left and right side. That has changed now drastically. It's now a drone and an anti-drone warfare. where the front line is dominated by loitering ammunition, falling down and destroying tanks, tanks which are a high value target, destroyed by drones for a few thousand dollars only in terms of production cost. So this is the key reason why we believe that this drone or anti-drone warfare will be dominant not only in Ukraine, but will also play a dominant role in all the future conflicts to come. And that's the reason why we invest heavily into this kind of technology base, and why EOS is well positioned to become a global leader in this particular type of business. Page number 12. Page number 12, you can see the different types of effectors being able to defeat drones. You obviously need to have a layered response to attacking the different types of drones attacking your high-value assets. EOS is concentrating on the so-called hard kills. We're concentrating on hard kill as soft kill becomes less and less effective in military context as drones are more and more hardened. In the area of hard kill, the US has by far the broadest product portfolio globally. Our product portfolio includes remote weapon systems. Here we are one of the world market leaders. Nobody is as accurate as we are in terms of anti-drone performance on long range. We've added to our portfolio end of last year interceptor drones, drones which fly up, which kill the attacking drones by flying into them. That is a new type of effector which we are happily adding to our portfolio and which is predominantly of advantage in commercial or homeland security applications where you cannot use missiles, rockets, or cannon-based air defense systems. We have added now high-energy laser weapon actual architecture allows us to scale those weapons between 50 and 150 kilowatts. And I just want to remind everybody that there's only one other competitor to EOS in the global market. And so the overall competitive situation is very, very favorable to EOS. We have also added rocket systems and various types of missile systems on our multi-carrier platforms so we can offer the full range to be able to defeat any kind of incoming drone threat. And with the acquisition of Mars and its NIDA command and control system, we are now in a position to offer fully integrated solution. The command and control system is the brain behind any anti-drone system, as it identifies the threat, as it allocates the various factors to the threat, and it's the key to make sure that you can defeat large quantities of drones or drone swarms. So now we are in a position as one of the very, very few bidders on the markets to offer turnkey solutions to any client in the military, in the homeland security, and in the civil slash commercial context, including operators of airports, for example. Let's move on to page number 13, please. Number 13 is not an exhaustive list of partners and clients. All those companies mentioned here are also clients of Electro-Optic Systems. You can see very prominent names, big OEMs worldwide. OEMs which trust EOS, which trust our performance, our quality, our high-end products, and all of them have acquired our products. I just want to highlight one aspect. You can see on the right upper side a prototype of the M1A3 Abrams main battle tank. This is the breakthrough landmark contract which we have achieved by end of last year. Even if the dollar value is not so impressive, it is only the very first slice of something which will become very, very big. So after many years of absence from the U.S. Army market, we have succeeded now. We have been selected by the U.S. government and by General Dynamics to become their sole partner to put our R-400 Schlinger weapon station in a very autonomous version on top of the Abrams tank. allowing this very important American platform to survive the threats of the modern battlefield. As the U.S. Army is operating thousands of those tanks, and as many export lines around the world are operating Abrams tanks, we believe that the total market potential just for this type of integration installation will add up over the next 15 years to up to 3 billion U.S. dollars. So that's the reason why this contract now, even if it's only the very first slice, is extremely important for electro-optic systems. We expect further slices to come in the course of the next years, and this will add up to those large numbers then. Let's move on. Slide number 14. Slide number 14 is a selection of some partnership agreements which we have signed in the course of the last year. Very important ones. So, Calidus is a very strategic partner in the Middle East for EOS, not only for remote We aim also partnership in the other product domains with Caridus to open and to secure, for example, the very important UAE market. We've signed, under recommendation by the British government, a partnership agreement with MSI, which opens for us the UK market and associated exports market. So MSI, we produce our weapon systems under license. We've also entered into a teaming agreement with a world-leading KNDS company, which is this German-French company. multi-international company. KNDS is also highly interested in the partnership with us. We can add up there, we can add and integrate their cannons on our weapon stations and KNDS in return is interested in producing our weapon systems, our remote weapon systems in France for the French market, for example. So very important to penetrate those European markets. And we most recently also signed strategic partnership agreement with a Turkish company, Roketsan. Roketsan is also a very strong, very large company active in the missile domain today, which has decided to enter into the high energy laser weapon domain. And with Roketsan, we are in a very comfortable position and very optimistic to conquer also the Turkish and associated export market with high energy laser weapons. Page number 15. So the high energy laser weapon domain is for us the first strategic pillar of growth, over and above a remote weapon system market, which is growing by itself. Again, irrespective of whether or not the Ukrainian conflict would come to an end, the remote weapon system market will continue to grow, and the laser energy market, high energy laser weapon market, will be the first layer above that. If there's only very limited competition in our 100 kilowatt power domain, we expect that we can acquire a large chunk of the non-US international market. In order to be able to serve those huge markets, we've opened up our first, and I think it's the worldwide first, serial high-energy laser weapon production facility. It was opened on February 6th, so quite recently. It is a 20,000 square feet capability, a factory which allows us to produce 20 laser weapons per year. and we have expansion potential to go up to 40 laser weapons per year there. But even if we can produce 40 laser weapons per year there, we expect that most of our clients will ask us to localize production in their home country. And here, our unique feature comes into play as EOS is the only company worldwide in the laser weapon domain which owns all the IP relevant to do this kind of development and production. we can offer turnkey solutions and we can localize the production in each client country, which none of our competitors is able to do so. That's the reason why we strongly believe into this kind of strategic growth area. To give you some update on where we are with the Netherlands contract, so the initial design approval, the first milestones have been successfully passed. We have passed the so-called PDR. on the system. We have passed the CDR on the laser itself, which is a very successful process and progress which we have achieved. The client is extremely happy. We are negotiating now with the client to increase the scope of the contract and to accelerate the delivery time frame. The client is highly interested in signing further orders with EOS and to make EOS a strong partner, a strong strategic partner of the Netherlands government. So this is very promising and it's a world-class testimony of our quality and performance. If you look to the opportunities, our go-to-market strategy depends on the type of client, depends on the region. If you look to the NATO market, in particular here the Western European market, it's in most of the cases either a direct sale through government or we go through partners and through teaming arrangements with the respective national champions. If you look to the Middle East, It's either direct sale or it's a partnering model with local producers. In many cases, it's governmentally owned companies. And if you look to other markets, like the Korean markets, there are a range of other channels depending on the specific local market conditions. So we have continued discussions and ongoing negotiations with many countries and many governments related to future high-energy laser weapon sale opportunities. Among those ones are Germany, France, Italy, Turkey, Saudi Arabia, the UAE, India, Korea, Australia, and the United States. This list is not exhaustive, but it should give you a little bit of a perspective of how much this kind of weapon system is in demand and how much the market will grow in the future. And again, we are in the poor position because we have been the only company so far being able to sign a 100 kilowatt laser weapon contract to an export client. The conditions of the 80 million Korean laser weapon contract we have mentioned before, it's a highly conditional contract. It's not included in our internal planning. We have not spent any money on that one so far, but we expect that the conditions will be concluded in the course of the first quarter this year. But again, no guarantee is coming with that one. Page number 16, space warfare contracts. Whereas we call our product line for high-energy laser weapons in the anti-tron business domain Apollo, we have given our product family for space warfare the name Atlas. Atlas comes in different configurations. In fixed installations, like you can see here on the right side of this slide, or it comes in a mobile configuration. It comes in containers, which are coming on the backside of trucks. So the Atlas product range is designed in order to fulfill three dedicated missions. The first mission is to blind and desolate satellite centers to stop satellites from taking pictures and intelligence from the ground. That's very important in any kind of military context. The second mission is to disable or to defeat satellites. This kind of destruction capability comes by increasing the laser power. So if we include now our high energy laser vat capability, the 100 kilowatt effectors into the kind of optical chain of our telescopes, it will allow us to do those kinds of missions. And the third mission is obviously to move satellites and to move space debris. We can even cause atmospheric re-entry if we illuminate those satellites and space debris with our laser vat. So this is giving our operators, our clients, a huge portfolio of more decisive capabilities. I want to highlight that there's not any other company outside EOS being able to offer this kind of competency and capability to any client. That's the reason why this will become a huge growth opportunity for EOS. And I'm very happy to announce also that we welcome frequently commanders from tier one governments commanders of space forces coming to Canberra, coming to our Mons Tromlo installation to visit and to witness what we can do in this kind of domain. Page number 17. You might remember the slide from the last year. We always had the ticks, the ticks on markets was there, the tick on product was there as we have launched many new products. We are highly innovative. And we can also tick now the right side of this slide. We can tick sales marketing and we can tick the order book as we have increased our order book from 136 million end of 2024 to more than 459 by end of December 2025. Again, this does not include the $18 million order from this Korean climate. So this is an extremely important extreme success last year and again we expect this year to be extremely positive in terms of order intake. We will continue putting focus on order book growth as this will be the baseline for any revenue growth in the future. Page number 18. I don't want to go into all the details here. I mentioned some of them before. Important is really that our European footprint is creating much more value, much more order intake And if you really look to the development of the unconditional order book, this underlines our statements. It is very strong with 459, and we aim to realize about half of this order book value by revenue in 2026, plus all revenue coming in by new orders taken on board over the next few months to come. Page number 19, this is an updated pipeline. This pipeline is extremely conservative. So if you go through that one, you will notice that we have not included here order intake for laser weapons in 2026, but we're obviously aiming for achieving order intake for laser weapons in 2026. But even if it would not come hypothetically, the pipeline is very strong and the foundation for a very strong year in terms of revenue is extremely high. So this contains all our intake opportunities from all around the world. It is extremely diversified. It includes lots of opportunities from the Middle East, but also from North America and from Europe. And it should give everybody lots of confidence that the growth strategy of the company is intact and we are in a very, very healthy and extremely positive outlook position. Page number 20. A summary of the Mars acquisition. Mars is one of the very few companies in the market which is offering a highly customized integrated anti-drone solution. It is a company which has fielded more than 60 systems around the globe, a company which is well-established, a company which is world-leading in terms of user-intuitive C2 systems, a company with which we have collaborated in the past for a long time, And our team always came back and said that the MaaS integration is the most easiest to be done. The MaaS user interface is the best one from a customer perspective. And with MaaS being part of our EOS portfolio, once we have completed the deal in a few months or weeks from now, we are in a position to offer turnkey solutions to the client. And again, with this kind of capability, we have also the advantage of including all those AI algorithms into our weapon stations and into our laser weapons to make those weapon systems even more competitive and leading edge by being able to even better discriminate drones and to detect drones. The transaction summary, we announced that on January 12th, there's an upfront cash payment of 36 million plus an earn out in shares and cash. The earn out will happen as the order intake is happening and as all those Forex and all those orders are extremely profitable. We expect that we can pay those kinds of earnouts by the order intake cash flow to come. So I would like to hand over now to Clive to go through the details of the financial results 2025. Clive?

Thank you, Andreas. So for those that joined late, my name is Clive and I'm the CFO and COO. I joined EOS three years ago in mid-22, going on for four years. Revenue, as this slide shows, revenue came in at just over £128 million. That is in line with what we said at the end of January, which was slightly above the guidance range that we issued at the end of the year last year. The lower revenue compared to last year really reflects the end of old contracts at the start of some new ones and a little bit of a gap in between. And obviously, there's been, as Andrea said, a big focus on growing the order book this year to underpin a position next year that hopefully will be more favourable. The gross margin was 63%. This includes two main things. One was the benefit of a contract that was finalised in the Middle East. That was already reported back in June, so that's not new news. The second thing that's perhaps more significant is there has been a continued improvement in the base gross margin in our business. We do not expect to achieve 63% gross margin going forward, but we do expect a continuation of the multi-year improvement in gross margin that we have seen consistently between 23, 24 and 25. So we are aiming for continued improvement in 26 on the historical levels, perhaps over 50%. The underlying EBITDA was a loss of 24 million, mainly driven by the lower revenue during the year. The gross margin benefit was offsetting some increase in operating expense as well. The EBIT was impacted by a number of items, including higher depreciation and amortization, a big chunk of which is customer-funded capex. We also had two non-recurring items totaling $9 million. These are non-trading. Two-thirds of this relates to the ASIC matter penalty in Australia. and the other third relates to some acquisition costs with Mars that were expensed during the year, and there are some details in the back of the slide deck on these non-recurring, non-trading items. Finance costs improved. All debt was repaid in January 2025, and EOS today has no borrowings. The expense for finance costs includes the make-whole expense relating to the debt repayment. that took place in January 2025. And the total net profit after tax includes the continuing operations, but it also includes the $91 million gain on sale that was recorded in January 2025 following the sale of EM Solutions that Andreas mentioned earlier. Maybe the other thing to note and highlight on this slide is that we have done an awful lot of work, as Andreas said, on revenue diversity, and the graph at the bottom right of the slide shows the split of revenue by geography, and as we said, an increasing emphasis on Europe, not just in the orders secured that Andreas mentioned earlier, but also flowing into revenue this year. So that work going to market in different ways in different parts of the world is going to continue, and we expect the quality and the diversity of the revenue base to continue improving in future years. The next page, 23, has the segment results for defence and space. The outcomes at segment level here are largely a result of lower defence revenue because of the gap in contract activity during the year. In the space business, pleasingly, that business continued to grow during the year. As Andrea said, this is really developing, designing, developing, and starting to commercialize new products, particularly in the space control area. And it's pleasing to see that Atlas system work includes customer-funded activity, which flows through the revenue line. As we said, a big focus on growing the order book during 2025 and we have said the order book of £459 million our outlook for this year. We've not issued revenue guidance but we have said that between 40 and 50% of that order book of £459 million is what we're aiming to realise in 2026 and that should give you a little bit of a thumbnail sketch as to where revenue could end up. The next page has cash flow on it Now, the cash flow information was largely announced at the end of January already, so some of this is not new news. But as you can see, the operating cash flow was a net 24 million out the door. That's despite the lower revenue during the year. We did have some big receipts from the finalisation of the contract in the Middle East. And also in the cash flow, we had the impact of interest in the operating cash flow, the impact of the make-whole interest that I mentioned earlier. Investing cash flows, which was $130 million coming in, included the disposal proceeds on the sale of EM solutions, as well as some other items, notably the level of security deposits on bank guarantees also reduced during the year, which is a positive. Financing cash outflows included the repayment of debt of $48 million that occurred in January 2025 with the sale of EM Solutions. Maybe just a couple of other things. Cash flow discipline is quite important to us at EOS. At the end of December, we achieved the highest ever position of cash received In advance from customers. So upfront payments from customers at the end of December were 42 million, which is up 18 million on the prior year. And that's because of a consistent focus on this item as we deal with customer contract negotiations at the signing stage. We continue to manage cash carefully. We do make targeted investments in inventory where we can get a sort of competitive advantage from reducing long lead times as some of our competitors are not able to supply quickly. And if we make limited investments, we can really improve there. On the balance sheet, as we've announced previously, Cash It Bank, £107 million at the end of December. And we have a committed term loan facility for £100 million with DOCS being finalized at the moment to help cash flow liquidity protection over the next 12 and 24 months, and particularly as we get into the Mars acquisition, and aim to realize a lot of the growth that we've been mentioning earlier. That's it on cash flow, and I'm going to hand back to Andreas now, who's going to talk a little bit more strategically.