Thank you for standing by, and welcome to the Electro Optic Systems Holdings Limited investor briefing. 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, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Dr. Andreas Schwer, Group CEO for Electro Optic Systems. Please go ahead.
Good morning, ladies and gentlemen, dear investors. I am sitting here with Clive Cuthell, our CFO. We will lead you through the full year results 2022 investor presentation. I hope that you have opened the investor presentation, which we've uploaded and published this morning on our ASX platform. We will lead you slide by slide through this presentation. I start with page number five. EOS has had significant changes in its leadership team. We have welcomed from November 24th last year onwards, Garry Hounsell as our new Chairman. Garry has a very extensive experience in corporate finance, business leadership, and management. He was long, his long-standing board member of many high-profile Australian companies. Garry comes in with a very strong business acumen.
With regards to myself, Andreas Schwer, I have more than 30 years of experience in global defense and space companies, most of them stock-listed and publicly traded. My CFO, Clive Cuthell, joined us in September last year. Clive has more than 15 years of experience as CFO in global industries, most of them with ASX experience. Clive is a chartered accountant for more than 25 years. I'm happy to hand over now to Clive to lead us through the results of 2022. Clive.
Good morning, everyone. Thank you for joining again. I am going to lead us through a few slides on the financial results. I'm now looking at page six of the slide deck that we uploaded to the ASX this morning. As the slide indicates, we have been managing several challenges for the last six months and making progress in some important areas that we will talk about. As you can see from the page, revenue during the calendar year of 2022 was AUD 137.9 million. We will explain a little bit more about that in a minute. You can also see from this slide that we have split the loss for the year between continuing operations, which is our going forward business, and the part of the business called SpaceLink that we exited in November 2022.
As you can see, SpaceLink recorded a loss of AUD 61.9 million during the calendar year, and that included the impact of the AUD 47 million impairment that was reported half year. We will talk a little bit more about this in a moment, but as you can see, exiting the SpaceLink business is a big step forward for EOS, for our profitability, and importantly, for our cash flow. We'll touch on that a little bit more shortly. The other items listed here highlight the net cash used in operations and investment of AUD 79.8 million was significant, and that included just under AUD 27 million of cash that was spent during the year on the SpaceLink business that is no longer continuing.
On the table, we have highlighted the contract asset balance, which is a net balance of $142 million. This, as discussed in previous calls, is a significant matter for the company. Realizing this asset, collecting cash, primarily from our biggest customer in the Middle East, is something we've been very focused on. We're pleased to report this morning that in this month, in February, we have amended the contract with the customer in the Middle East to help deal with some of the problems that have caused the delayed cash realization on this project. We'll talk a little bit more about that in a moment. I'm gonna turn now to page seven, which looks a little bit more at the underlying performance drivers that drove our core continuing business result for the year.
Main factors impacting our result in 2022 were revenue was lower than the previous year and the cost base was higher for reasons that I will outline. On revenue, as indicated previously, we have seen delays in the market during 2021 and 2022 that meant that new business growth during calendar 2022 was limited. This was driven by a number of factors, including the impact of COVID in 2021 and 2022 as it related to the process of customers awarding new contracts. In addition, the Defence Strategic Review in Australia meant that some project announcements were delayed from 2022 into 2023, and we'll talk a little bit more about that in a moment. Most significantly on revenue, the company experienced the impact of global supply chain challenges in 2022.
Specifically, this has impacted the ability of customers and some big project customers to make available the vehicles on which our systems are installed. That has delayed some of our ability to complete work for customers, which has impacted revenue and to some extent, cash flow. We've been working on that, as I said earlier, and we'll come back to that in a moment. The cost base for 2022 was higher than it is today. As we've announced previously, the company impacted a restructuring to reduce the cost base by AUD 25 million, and that restructuring was implemented in Q4 of 2022. There were 9 months of a higher cost base in the result before we progressively implemented that restructuring in Q4.
We also have the U.S. facility, which is growing but is not yet profitable. There's a cost associated with the ramp-up process of our United States facility. Finally, clearly we've had a relatively fixed cost base that has revenue that is significantly lower than the previous year, and that flows through to an adverse impact on EBITDA. Andreas is going to talk in a few minutes about some of the things that we've been doing to address this recently and as we go forward. I'm gonna turn now to slide eight, which shows the results for our individual business segments. As you can see, the table on page eight shows the results, the revenue, and the underlying EBITDA profit and loss for our defense business and our space business.
The defense business result was primarily impacted by the lower revenues that I mentioned earlier and the cost base. In space, this business includes our EM Solutions business, which is growing very strongly. The growth in our EM Solutions business is 22% revenue growth year-on-year, and this is a consistent delivery of growth by this business. That's what's driving the increase in the overall space revenue on slide eight. The EBITDA for space as a whole has gone down year-on-year, not because of EM Solutions, which continues to grow, but because of the impact in 2022 of various central costs that the group incurred and that have been allocated to the space business as well as the defense business. That's all I was gonna say on the individual businesses. Turning to the important matter of cash flow.
Slide nine shows the cash flows separately for 2022 for our continuing go-forward business and the business of SpaceLink, which was exited in November 2022. As you can see, in 2022, the SpaceLink activity had a cash outflow for the group of just under AUD 27 million. The exit of this business, which we undertook in Q4 2022, is a big step forward because that means our group cash flow will not have this drain in future. Also shown is the cash flow for our continuing operations. The negative operating cash flow is driven by a number of the factors that I've already mentioned, the most important of which is our collection of cash from customers, in particular the contract asset that I mentioned earlier. I'm gonna turn now to the funding position for the group outlined on slide 10.
This slide summarizes the October 2022 refinancing that the company undertook. In October 2022, a long-standing equity investor in the company, Washington H. Soul Pattinson, invested AUD 70 million in debt into the company. That was a very positive step that allows the company time to improve its performance. A key task in 2023 is the repayment of the first slice of that debt. The repayment, as indicated in the top line of the table on slide 10, is AUD 26.9 million, and that is repayable in September 2023. There are details of our funding arrangements set out on this page, and important details also set out in the appendix. The most important thing that EOS is focused on at the moment and in 2023 is improving our cash flow so that we can repay that debt in September.
The initiatives to improve cash flow are listed on the bottom of that slide 10. They include the things I've already mentioned, terminating SpaceLink venture and reducing head count and costs by $25 million. There's a lot of work going on in the company at the moment to improve cash collection from customers. In particular, this has included renegotiating part of the contract with a large customer in the Middle East. That renegotiation and the signing of a contract amendment was completed this month in February. The effect of that amendment is to allow EOS to collect cash on this important project earlier than would otherwise be the case. As you can imagine, we're pleased about this and it's a big focus of our activity for the rest of 2023.
We are working on securing additional cash positive sales contracts, and as we've outlined previously, we continue to focus on managing costs and managing CapEx in a very disciplined way. We continue to be very focused on cash flow, the board continues to regularly review this matter so that it gets the scrutiny it deserves. The next few pages, Andreas is gonna talk about the outlook. We have not included specific guidance on revenue or profit for 2023. The company will provide its next updates on our performance at the end of April when we file our Q1 4C on the ASX and at the annual meeting of the company, which is planned for the end of May.
I'll now hand over to Andreas who will talk a little bit more about our initiatives and how business is going and the outlook.
Dear investors, after my arrival as group CEO to the company in August last year, we started to conduct a strategic review, which was focusing not on particular elements of the company, but which had the focus on a complete rebuild of the company. We have decided to cut costs, so and in particular, SpaceLink, and to stop any loss-making business. The restructuring program of the company was fully rolled out and implemented and accomplished in the second half of last year. Throughout this process, we had to let go more than 30% of our total workforce, mainly in indirect positions in overhead and management. We also simplified our organizational structure to be much more efficient and lean in our own operations. This is leading to cost saving of AUD 25 million per year, and again, that has been implemented, so it's effective from now on.
As I was mentioning, SpaceLink was our biggest cash drain in the last years. We have ceased investment, we have exited SpaceLink in quarter four of last year. SpaceLink has been put into a process called ABC Assignment for the Benefit of Creditors, with that becomes history of the company. This will significantly improve our cash flow for the actual business year. Our focus, as Clive was mentioning, is pretty much on cash receipts to reduce contract assets, to liquidate our inventory in our main, thanks to the two amendments which we have signed, which was a big breakthrough because those contracts have been amended to the disadvantage of the client and to our advantage. We are putting much more focus on very concrete sales opportunities. This will hopefully lead to us secure some new contracts throughout this year.
Obviously, we apply very disciplined management on cost, CapEx and OpEx. Any kind of expenditure is very, very carefully considered. This will lead to a very strong commercial culture in the company through all the levels, from the CEO down to the last engineer, down to the last technician and manufacturing guy. We are in the process of setting up potential strategic partnerships with foreign OEMs and national champions. Through those partnerships, we will be able to access future growth markets which are so far not accessible for us. Those partnerships might include capital transactions or equity transactions in the case of non-corporate or also incorporated structures. I will move now on to slide number 12. Let's have a look to the market development and outlook.
The world is currently characterized by a lot of upcoming threats, most notably the conflict between China and U.S. and the conflict in Ukraine coming with increased geopolitical tensions around. This leads to an increased focus on national security and an increase in defense spending all over the world. Our defense markets will be facing a very strong market growth over the next 2-5 years, so it is for us a very healthy business perspective. If you look to the evolution of technology, there's a very strong trend towards unmanned platforms, and all those unmanned platforms need the most weapon stations, which is our core product line. We see big opportunities there. The Ukraine war has shown that drones and counter-drone business is becoming more and more important. Those kind of new threats need to be engaged, in particular with new high energy laser systems.
Last but not least, space warfare is the upcoming new market segment where EOS is best positioned. Another lesson learned from the Ukraine war is the customer has to focus much more on cost. The cost per drone kill, the cost per missile kill. Just to give you one example, in the hard times of the Ukraine war, Ukraine was shooting up to more than 5,000 drones and missiles per month. They were shot most, in most cases by counter missiles, each of which for the cost of AUD 300,000, AUD 400,000, AUD 500,000. This becomes unaffordable. New engagement effectors like high-energy laser weapons, where the cost of a shot is around about AUD 0.10 only, just the cost of the energy, they become more and more popular.
We believe that high-energy laser weapons will become a very significant business contributor to the U.S. business in the future. Here, U.S. has lots of competitive advantages. Let's move on to the importance of secure and reliable communications. Cyber warfare is becoming more and more a subject of interest for all forces around the world. With our affiliate company, EM Solutions, we are best positioned as the leading-edge technology solutions for satellite communication terminals. Last but not least, accessibility to space is of extreme importance. The dominance in space will become the most decisive factor in the battlefield of the future. The party who can best control space assets will have a unique strategic advantage. Our space capability are best suited to enter into this type of military space domain.
Overall, if I may summarize the slide 12, the market outlook is extremely positive for EOS. I move on to slide 13. I want to give you an update on Defence Systems. As we were mentioning before, the priority is to maximize customer receipts to generate cash. Cash is king. We had, by the end of last year, net contract assets of more than AUD 139 million. Those assets need to be converted now into cash. As it was mentioned before, we've put all contractual baselines in place, which will allow us now to cash in those amounts and to improve our cash position throughout this year. Second, revenue growth. The Defence Future 20 outcome is pending. We expect first information coming out by mid of March. This is very important for the future of our business within Australia.
International markets, like the one in Ukraine are booming. I want to inform you about a business trip which I did together with our EVP, Defence, Matt Jones, to Kiev. We were traveling there three weeks ago, and we were meeting with all decision makers, and we're negotiating some deals which are very promising. We extend this as we believe into the growing market in Ukraine and some short-term benefits for the company U.S. As mentioned before, building up partnerships is also in our focus in our go-to-market approach. What U.S. has done in the past, entering a new market by its own, like in U.S., this was coming with big cost and a long lead time. We do not want to copy this into other regions like the European region.
Here, we want to build up on partnerships to have a quick access and to limit our capital expense. We built our products. We have done the product launch of our R150 lightweight product, the most lightweight weapon station in the market. We see significant product growth for the R600, with some product or contracts coming up in the next future. We will finalize the development and industrialization of the R800, our very heavy weapon station before end of this year. We also obtained at the end of last year, the clearance of our U.S. facility, which will allow us to bid now for classified U.S. programs. All that is very positive. Again, we will put a very strong focus on discipline in terms of expenditures, OpEx and CapEx. I move on to slide number 14.
Slide number 14 is talking about space systems. EM Solutions delivered another strong year of growth. We have achieved 22% of growth by EM Solutions last year, and the growth will continue to happen also throughout this year. EM Solutions is well-positioned to acquire further contracts, and EM Solutions is well-positioned to extend its product base into other product areas, which are very promising in the future. We have continued delivery to Australian and several European naval fleets, and we have achieved significant sustainment contracts for the Royal Australian Navy. Again, EM Solutions is our ground jewels, and we have very great hope in EM Solutions. Space technologies. We have long-standing and laser expertise in this domain, which we deliver first intelligence and then space control.
Space control, which is the cornerstone and the backbone of space warfare. We expect a very strong growth in global market, as mentioned before, as the military have identified space as very strategic for the future battlefield. We expect to commercialize those products in the coming years and achieve significant growth in this market segment. We need to mention that it will take some time. This is not a short-term objective, this is a medium-term objective. It will take us two to three years to develop those commercialized products and to get the growth realized. Again, it is very strategic for the company. I come to slide number 15: Conclusions and Actions. All the initial steps have been successfully completed, and we have a clear focus now on the year 2023 and following on.
We have a new leadership team in place with much more focus on business and commercial aspects. We have completed the refinancing of the group. We have successfully finished the SpaceLink activities, and we put in place all cost reduction measures. We are on a good pace with the definition and identification of strategic partnerships, and we see lots of opportunities there. All that is based on a global market outlook, which is very promising and improving day by day. However, the key actions for 2023 will be cash collection to secure new sale contracts, and all those sale contracts must be cash positive from day one on. We will continue applying a very disciplined approach to reduce expenditures and to keep an eye on CapEx and OpEx. Last but not least, we will repay our debt as promised.
Overall, we have lots of confidence in what we are doing, and we are very optimistic if you look on the way ahead of us. We come now to the questions, and let me check with my colleague, Clive, whether we received some questions online.
I think that Sally, our operator, will now remind people the process for taking questions. Sally?
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. We will pause for just a short moment for questions. Pardon me, I've just got one question coming through from James Lennon from Petra Capital. Please go ahead.
Oh, hi, guys. Congratulations. Just a quick, two questions from me. First one, you might have mentioned it, so apologies if you have. The contract assets, are we expecting those to come down noticeably in the next year or so?
Thanks, James. It's Clive here. We have not given specific guidance on cash flow for the year. What I can say is that the net contract asset, which is AUD 142 million, there are a number of initiatives in place to collect substantial cash from that. We would like to see the amount of that come down, and that depends on two things. Obviously, that depends on how successful we are at collecting cash, and it also depends on new contracts signed. As Andreas said, new contracts are intended to be cash positive, and we're working to collect. If we do that, we'll get the right outcome on the contract asset.
Right. Maybe another way of asking it, you know, if you sign new contracts or maybe this contract going forward, what's the sort of... what level of contract efforts would you expect to have? You know, is there a % of sales or How should we look at it going forward?
Yeah. Going forward, we are looking for a substantially reduced level of contract asset on new contracts. The company has unfortunately been in the position in the past where the contracts that have been signed have required significant working capital investment. Our go-forward approach that we've been working on with new contract sales is to have very little contract asset on new projects.
Right. Thank you. Just one more. I couldn't see it in the accounts. Tax losses. Is there a level of utilization going forward? Can you maybe just give us an update on the tax situation?
Sure. The company has obviously had a very difficult year in 2022 and is in the process of completing its tax returns for the 2022 year. We have got tax losses. As some members of the audience may be aware, the new government rules on carryback of losses means that if we make a tax loss in 2022, we can carry it back and get a refund. We will be looking to do that.
Okay. Thank you very much.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. We will pause for a short moment for questions to register. At the moment, there are no... Pardon me. We have a question from Samuel Watkins from PIMCO. Please go ahead.
Hi. I'm just referring here to the delays that we've seen around the announcement of the strategic review of defense. Want to understand whether or not management has a view on the change in the funding position, you know, that EOS has seen over, let's call it, the last 12- 18 months. Whether there's a view that that undermines some of the strategic positioning to win contracts as a result.
Sure. We expect, as part of the package, an announcement on LAND 400 phase III, which is a multi-billion AUD product to introduce a new track-based infantry fighting platform to the Australian forces. As you know, EOS has participating in one of the two downselected bidder teams, and obviously, we hope to get downselected with our partners and to be in a position to participate to this huge program. The discussion's ongoing about the potential reduction in the number of vehicles to be introduced, so we believe this is likely to happen. Even then, the contract is still of very significant value and can contribute significantly to the growth of our company.
Thank you.
Your next question is from Ryan Canney, who is a private investor. Please go ahead.
Good morning. My question relates to potential sales for the remote weapons in Ukraine. Do you have an expected timeframe of when that would be confirmed? It is, at the moment, looking like a one-off purchase or for an ongoing series of purchases?
It is undoubtedly a very strong demand in our administrations in Ukraine. The situation in Ukraine is changing day by day, week by week. Currently, Ukraine is more in the defensive mode. In defense, you need more high caliber, large caliber weapon systems, like 155 millimeter artillery systems. Once Ukraine is coming on to the offense, they need more infantry fighting vehicles with our type of weapon systems. The situation is very volatile and extremely dependent on the military action on the battlefield. This was almost impossible to predict when those contracts will begin, as those contracts are not driven by strategic needs and long-term demands. They are driven by the needs on the actual battlefield, and the decisions are made by the Ukrainians more or less on a day-by-day basis.
I kindly ask for your understanding that we cannot give a very solid prediction here.
Thank you.
Current business.
Sorry, the second question, Ryan, you asked about whether things are recurring. Look, I think you have the same information that we do, which is the situation is evolving very quickly. It could be the case that there is business that could run for an extended period of time or maybe not. It's not, we're not in a situation where we're talking solely about a one-off possibility. Can I put it that way? The other thing I would add is that the market outlook for national security products in, particularly in Europe, has changed completely in the last 12 months. We are seeing a significant investment and investment plans by many national governments into national security.
we expect a higher rate of growth in the market over the next 5 to 10 years than there has been in the last.
Thank you. Kindly, if I could quickly ask, one question. EOS is involved in the Sovereign Missile Alliance. I know the DSR is happening now. If there was an emphasis on, sovereign production of components, would EOS stand to benefit? Is there an estimated timeframe on that?
Yes, we expect a big role in the upcoming air defense missile system development in Australia and the consecutive production phase. It is too early to say what our detailed role will be. It may depend on the selection of the system by the Australian government and whether all the systems will be off-the-shelf U.S. systems or whether the government will put some of its budget into the development or these localization of existing systems to the greater benefit Australian industry. Yes, we expect to get some share in that one. This is nothing which will play a significant revenue role in this year or the next year. It's more for the mid and long term.
Thank you so much.
Thank you. There are no further questions on queue at this time. I'll now hand back to Dr. Andreas Schwer for closing remarks. Please go ahead.
I want to close the session by giving a big thank you to all of our investors for staying loyal to us, for staying with us through very challenging times. We are very confident if we look to the future of this company with the new leadership in place and with the market evolutions and our strong product base and strong innovation and IT base. We are very convinced to make this company a big success story in the future. We kindly invite you to stay with us and to continue with us the journey. We're looking forward for further discussions with you and further announcement to come. Thank you very much to everybody.
That's conclude our conference for today. Thank you for participating. You may now disconnect.