My key takeaways are summarised below: Year end 31 Dec 21·...

My key takeaways are summarised below:

Year end 31 Dec 21

· Revenue + Other Inc: $213.3M (2020: $190.3M) representing an Increase of 12.1% ($23m)

o 18% increase ($184.5M) was from Defence

o 19.3% increase ($23.3M) from Communications

o 5% increase ($4.5M) from Space

· NPAT (consolidated): -$13.8M / Dec 20 (-$25.2M)

o Key callout was an additional $40M in raw materials and consumables used during Dec 21. There is no notation on this.

Cash

· Receipts from customers & other income has more than doubled since 31 Dec 20 ($233M vs $107M). It is notable this is not due to “more” customers, rather a major bulk cash receipt of $94.4M being crystallised

· However, payments to suppliers and employees absorbed $225M – leaving a net cashflow of only $221,454 (will get back to this later)

· It’s notable the balance sheet captures $59.2M in liquid cash/equivalents

Key concern that stick out to me – Debt management

· The $34M drawn working capital facility is due to mature September 2022. This will ideally be amortised by a bulk repayment including interest of 9% by that time (btw this is really NOT secured, a GSI technically doesn’t count as security but anyway..)

However, unless the following takes place:

· The facility can be renegotiated for another 12 months (whilst in hardcore position)

· A considerable cash receipt is realised in the next 5 months

The worst case scenario would be for EOS to absorb this through their $59.2M cash reserves; which will dwindle their already diminishing balance sheet (~$150M after excluding contract assets & goodwill). There is also the $2.5M vendor finance arrangement which is way too complicated than it has to be…

The risk here is that EFA requires EOS & Spacelink to hold an “acceptable level of contingency funds” as one of the requirements for financing the $80M and in addition to that, “satisfactory ongoing financial and trading performance for EOS”

In conclusion:

The financials tell me that EOS is still navigating through a cash crunch but this time, the stakes are higher in potentially losing a financier. The contract delays have been the smoking gun in all of this because EOS is slowly eroding it’s cash position (2 consecutive years of accumulated loss), investor sentiment and creating a self-fulfilling prophesy of not being able to garner confidence for Spacelink funding.

Despite this – defence continues to be a lucrative market and no doubt EOS Defence will continue to capitalise on that. The challenge for the board is to arrive at a material solution from their strategic review to stop some of this bleed whilst they wait out the elongated contract award(s). The solution here probably lies more in creative entrepreneurial and innovative business thinking rather than more smoke and mirrors and l hope they are able to land on it

DYOR, not financial advice