Good morning, everybody. On behalf of Electro Optic Systems, I'd like to welcome to you to our Phase 31 interim results presentation. I'm in Sydney in lockdown, but Doctor. Seth Green, Michael Locke, our CFO and Morgan Bryant, our company's Secretary and Legal Counsel are in Canberra, and we'll be going through the presentation for you this morning. First of all, we have 2 pages of our disclaimer, which I'll lay through your pleasure.
And now I'll hand over to Ben Green to start the review. Ben?
Thank you, Neil. Welcome everybody and welcome to our first half results review. Can we proceed? Yes, thank you. So this is the slide summarizing the first half and our posture going into the second.
And these key six points are summarized here. Obviously, the number one can number 1 the primary asset of the company is its people and we need to take care of our staff very, very much so. So, our primary focus is always on safety of personnel and their sustainability in the high level function they provide. And during this first half, of course, we still had to take quite strong precautions. Everyone knows that the lockdowns across most of the areas we operate in Australia have impacted from pretty much the end of the first half.
But even so, the COVID-nineteen management program in the first half succeeded in keeping COVID at bay across all of our global operations. The second key point here is revenue and profit is at the first half and as we sit here now are pretty much on track, despite the usual slow start, which is endemic to our customers in the first half of calendar year and some constraints on our operations. Both revenue and profit are tracking within the range of prior guidance. 3rd point, which is I think quite important to the market in terms of the feedback we get from our shareholders, Cash recovery from our contract asset is now flowing. We made a quite distinct announcement in April 2020 that we were going to invest around $120,000,000 maybe a bit more in contract asset to keep working through what was a serious COVID lockdown globally.
Dollars 30,000,000 of that is unwound back to cash and another $100,000,000 will be converted back to cash through the balance of 2021. And I'll be talking a bit more detail about that as we get to the sector. SpaceLink has made spectacular progress. We have been in several months of redesign of the satellite in the constellation. We've modified the constellation a little bit.
Satellites have been upgraded in design. So we have now stronger performance from the constellation at lower cost than originally forecast and customer buy in at this stage and I'll talk again in detail about this when we get to the sector, customer buy in is also running ahead of our program. The tenders for the satellite have been called and expect to have a contract in place for those satellites within 30 days. Capital flexibility, this is something that is new for EOS. EOS has essentially avoided debt almost entirely for the last 20 years.
We're now cautiously moving back into embracing debt. Clearly, equity is very expensive capital when debt is at the interest rates, available interest rates through the market today. So we've got quite strong engagement with what we would call Tier 1 lenders for financing of SpaceLink or a significant proportion of SpaceLink. And we also have recently engaged executed agreements for a $35,000,000 working capital facility as the first step in our re engagement with debt to change the equation in terms of capital raisings versus debt to fund operations and expansion going forward. And the last point is a point that was made quite strongly at the AGM in May.
There is a logjam of contract awards that is unwinding now and we have quite strong responses in momentum in the global market and in Australia as these contracts move. They're not so much moving back on to schedule, but resume the op tempo that they would have had without COVID. And also we have significant announcements in Australia in the last few months, which I'll talk about, illustrating the scale of the opportunity in this sector. So those are I think the highlights BOS, but in summary, results delivering the expected performance and momentum building as we go forward. On the financial headlines, I guess I'm only going to hit 3 points on this slide.
Revenue, profit and cash. So revenue obviously is up 30%. Profit is well, profit is still negative, but it is on track. This is exactly pretty much exactly where we would have expected to be at the half year. Now the second half has some additional headwinds, but nothing that's a major concern.
The additional headwinds I'm talking about are really the COVID lockdowns which hit us at the end of June and the cash position of $51,000,000 I'll talk about in more detail in 2 slides. I'm going to pass on the segment performance because my intention here is to leave a significant amount of time today to talk about our question to answer questions. The net cash flow movements on this slide show cash in the half dropping from $66,000,000 to $51,000,000 We expect this cash position to strengthen through the second half towards in excess of $90,000,000 at the end of the second half notwithstanding some significant other expenditure that we're planning to make towards our expansion. So in terms of the reporting cycle, I think the $51,000,000 should represent the nadir or the low point of our cash reporting in terms of the half year results. Company guidance on the next slide.
There is an adjustment to guidance given there is a very small setback in terms of profitability, which is running at about 1% to 1.5% of revenue reduction in profit And that's simply because we've moved back to our 2020 configuration of production. We've got split shifts running in the plant. So if we have an outbreak in the workplace and most people listening to this will know that the principal concern from COVID at the moment from the adult Australians is outbreaks in the home, being communication in the home and in the workplace. And so the workplace precautions are as stringent as they were last year and that splitting of shifts so that we at worst will only lose one half of production has been implemented from in July. The impact of that has been quite successful.
We've had a number of positive tests within our plants and we're writing that out. I think we have in isolation roughly 10 people at a time within EOS and they're involved in the production process. And we think as long as that situation maintains as it is, we have no reason to believe it won't because of the precautions we're taking and because the balance of risk in the population in Australia is decreasing every week significantly. We see a downgrade well of the guidance by effectively 1.5 percent of revenue from the bottom line $3,000,000 to $8,000,000 underlying EBIT to $1,000,000 to $4,000,000 And we as we sit here today, that's the guidance we're going to update to. So I'll move now to the sector descriptions.
Defense Systems, the Defense Systems has had a very, very rapid expansion of its pipeline because customers have accelerated the requirements for some of the newer products we have. C4H is growing quickly. The T2000 turret is maturing fast. The counter drone programs are in full test now. We've been testing subsystems for the last 5 years in the U.
S. With the U. S. Army programs, but now we're doing full system tests involving radar, kinetic engagement, direct and energy engagement and what we call soft kill electronic warfare engagement all included in a suite of command and control. It's been spun out in the C4H program for our application.
And most recently, of course, we've got the missile program which I'll talk to shortly as well. So the highlights in Defence, obviously most of the revenue growth, we see that 30% growth in revenue is Defence surging back into production and again further momentum into the second half. So we're a third of the way through the second half and that momentum is continuing. Notwithstanding the split shift operation for our plants, that momentum is continuing. And so you can infer from that that the revenue guidance that we've given is going to be reasonably sustained.
The new product area is probably most exciting because this is drawing a lot of small scale initial contract funding right now. And so we have on the counter drone programs several funded and customers don't fund demonstrations unless they're quite interested several funded demonstrations at the level of $5,000,000 to $15,000,000 per demonstration running through the balance of this year and early into next year. That product is performing really well. T-two thousand is performing well in its testing. The current upgrades to our remote weapon system and remote lethality programs are also doing exceptionally well.
So across the, I guess, the development, the technology, production and delivery, all of those elements of the OS are in a rhythm which reflects the lessons learned in 2020 and coming to terms with COVID notwithstanding Delta is a little bit more aggressive. The next page is Sovereign Additional Alliance. This is a program which EOS had anticipated engaging in 2022. However, the Commonwealth of Australia brought forward by about 6 months its requirement to surge forward in what Commonwealth calls its missile enterprise, capital enterprise and the enterprise concept from Commonwealth is they anticipate spending about $100,000,000,000 over 20 years in missiles generally and there are some other smaller categories. EOS, it's not well known.
EOS is probably the leading company in Australia in terms of A, the technology for missiles and B, the relationships with the current missile providers in terms of technology exchanges that would allow us to acquire the technologies we don't already have. I'll just quickly explain here because this is the right place. EOS has if you look into a missile, there's a propulsion unit at the back and there's a warhead at the front. They're in fact the easiest parts of a missile to make. The hard parts are all in the middle.
They're the guidance and control, the seeker systems, the navigation, stabilization and ultimately the command and control systems, which include an ecosystem around the missile that allows it to be managed to the target. All of those things that I just mentioned is being the harder parts are strengths of EOS. And so when our own government proceeds towards spending $100,000,000,000 in a missile enterprise over 20 years, of course EOS is going to be engaged. Within the company, we determined that this was a matter of scale. Clearly, dollars 100,000,000,000 is a lot of money.
And EOS, even though we're the largest defense aerospace listed entity in Australia and the largest defense exporter and arguably the largest defense aerospace company that's sovereign in this country, with probably the exception of Nova Systems. Nova Systems is comparable in scale to EOS and so we took the decision that a joint venture between Nova and EOS called Sovereign Missile Alliance was the appropriate corporate vehicle to address this new market. And so you'll be hearing more about Sovereign Missile Alliance, but it is in simple terms a fifty-fifty JV with Nova Systems who are very welcome partners to us. We're finding Nova is an exceptional company to work with and we will be addressing this market through a tender process which will begin in about 60 days. So this is one of the opportunities that I would have been referring to in previous reports when I was talking about an explosion of demand.
Briefly to space systems and it's always easy to underestimate Space Systems looking at the pure numbers. Not all of the business of this sector can be reported in quite this way. For example, there's several contracts that Space Systems has originated, which are being executed and are reported under the other sectors, which is the proper way to do it. What we're finding with Space Systems is every year that passes now, as these technologies mature, space becomes operationally closer to the other 2 sectors. And probably one of the best examples I can give here is that the space domain awareness and the space asset protection services of space systems are fundamental in the value equation for SpaceLink.
So the SpaceLink satellites can capture a particular tier of customers that will not buy data or communication services from anyone that doesn't have secure constellations and we at this point in time, we are the only company in the world that can secure their own satellites. In terms of the securing space aspects, the space systems, this is a progress year on year from activities we've been doing for some time and not a significant headline here other than within alliance programs. So within Five Eyes which is I think well known to all my shareholders, all our shareholders, The Firewise Alliance will spend about $1,000,000,000 over the next 5 years on space security contracts and programs and the U. S. Is well placed for a share of that, not a majority share, but a share of that because our technology is uniquely suited to deliver a particular part of that solution.
Those programs have been held up through 2020 because they're quite complex and they require coordination which cannot easily be managed through COVID. They're all recovering their own schedules as well. And of course in space we continue to be a hub for the other sectors in EOS. I think shareholders will be pretty familiar. I'm restating here the capabilities that we have in space.
Probably the most important element here is we've unveiled and moved forward in a public area with our GuideStar laser application, our inverse propagation technology, which allows us to propagate lasers from ground to space with typically at least 100 times the efficiency of the normal process of propagating lasers from the ground to space. And that technology has matured over the last 5 years in EOS. We've made an announcement earlier this year and we're continuing to commercialize that technology both for communication and for space control and satellite defense purposes. In communication systems, the overview here, this area is surging for EOS. We at the moment, we're talking about a $17,000,000 order backlog, which is only from the antenna division of Space Communications in Brisbane.
That business is growing at a terrific rate, but that business is developing antennas which are compatible with our SpaceLink as well as all the current satellite constellations that our defense users are accustomed to using. We announced, I think last week on Friday that space our communications sector had won major contracts to deliver these antenna to NATO navies. Now we will fairly soon on a year on year basis be the largest supplier of antennas to European navies as well, pre configuring those Navies to be customers for SpaceLink as well. What's I want to highlight here the risk sales pipeline on this slide, where we're talking about it just for the antenna business $200,000,000 $209,000,000 in total of risk pipeline, but more interestingly $269,000,000 a year annually in SpaceLink. And again, we'll talk about that in just a moment.
The EM Solutions highlights again in the interest of efficiency, this speaks to itself, but the EM Solutions business is a cornerstone of our communications business in space is performing exceptionally well. We have record revenues and record profits in that sector. Briefly highlighted before I move to talk about SpaceLink as a whole, one of the things we're particularly proud of is the way the SpaceLink has been constructed from the human resources point of view. Of course, SpaceLink is part of the communications sector in EOS, which is run by Chief Executive Glenn Tindle who reports to me. Glenn, Glenn has put together an exceptional team in the U.
S. To manage the SpaceLink opportunity. And so what we're looking at here is just a brief summary of over 100 years of C suite experience in multi, multi $1,000,000,000 space entities in the U. S. And this is representative of the quality of the organization that we've put together in the U.
S. It is pretty much a who's who of satellite communications in this sector that we put together to address this opportunity. Look, the key point I want to make about SpaceLink here is that it is something completely new. There's lots of space communications companies and I guess everyone if they've got revenue, they're delivering a service which is of value to the market. What we're doing here is we're breaking through with it to deliver a capability and to meet a demand that has been until this point not met.
There are 3 tiers of communications in space, LEO, MEO and GEO low earth orbit, medium earth orbit and very high earth orbits. Our customers have been clamoring for mid earth orbit capability for almost a decade. It's been quite difficult to manage the technology, but now we have technology that can deliver this which is literally space qualified and proven and can be integrated into satellites that can meet this requirement immediately. There are no other providers meeting this market. And so we're overcoming LEO limitations as well as geo limitations.
Most people involved in investing in space will be familiar with SpaceX, Elon Musk's company, which is providing effectively a low earth orbit, thousands of satellites providing a mesh communication around the world in low earth orbit. This is a very valuable commercial service. It's not particularly useful for our customers. So deconflicting in the marketplace, our offering from other people's offering is relatively easy because the buyers know what they want. So the next slide is the update on SpaceLink and the key point here is the first bullet where we talk about the next 6 months.
We've got fantastic interest in SpaceLink and to use a very old expression, interest in $3 will get you a cup of coffee. So we've got a couple of 100 MOUs that have been signed. I want to explain briefly here how this business works. When you have a great idea, lots of people will subscribe at no cost and no commitment. That's the MoU stage, which we've just completed.
Obviously, we're quite picky about who we sign MoUs with. If they're not entities that are fully funded, they have a program requirement and we can see the alignment of our offering with their business requirements and their business models. If we don't see all that, we don't even start the engagement. So we have a couple of 100 MOUs signed. The next step starts in 30 days.
So we will sign within 30 days a contract for give or take $500,000,000 a bit more to deliver the SpaceLink Constellation Block 1, which is the first capability in space. I want to be clear, there's no impediment as I sit here, there's no impediment to us signing that contract. We could sign it today. It's just got a few weeks of tidying up negotiation to finish. But we're obviously if I'm saying within 30 days, it's obvious to anyone with experience on half $1,000,000,000 contracts that we must be getting pretty close.
We've conducted international tenders months ago. We've down selected. We've been in negotiation with key parties for some time. So I wanted to spell immediately and preempt maybe 1 or 2 questions later. We can sign this contract without diluting any capital within the Irish shareholder register and there's no reason at all why we couldn't sign that contract today.
Once that contract is signed and we're committed to the constellation, I should say SpaceLink is committed to the constellation, The MOU is going to a different process because once you're committed to put the satellites up, it is then a service which is coming. I think everyone who's in commercial arena will know how that works. So the MOUs convert to contracts which have specific fee scales and so on. Obviously, we've had preliminary engagement with probably our 20 leading customers already about what those fee scales would look like because that feeds into the whole satellite pricing and value analysis that we did before we would sign contracts. So we've got we're just about at the point where we finished the first phase of SpaceLink and we're pivoting into a really critical and interesting and exciting phase.
And if you read through the other bullets that follow below the first bullet over the next 6 months, it will be really very interesting 6 months period. We've made all of the key steps in market acceptance and commitment that we expected to get from here including being selected for the ISS as on a contract basis to demonstrate ISS commercial communications capability. I've probably preempted a little this slide, but the under risk sales pipeline of US1.2 billion dollars there, that's a snapshot of a proportion of the MoU set that we've signed. And as I said, that moves now within 30 days, we'll pivot into contract negotiations with those because the moment we signed the contract for the satellites, we have our launch dates, they'll all be locked in. They're locked in for early 2024 and again those who follow the company closely will know that we'll meet all of our statutory requirements, licensing requirements under the very broad spectrum licenses that we hold today.
Everything in this area is going exceptionally well. Moving quickly now to the strategic outlook and the focus areas. Lawson, here it is, it's coming up now. So we're in the last stages now of converting back to $120,000,000 contract asset back to cash. First 25 percent has been converted and we're in the process now of converting the balance of that contract asset investment back to cash.
What's happened in the last, I guess, 2 months since the 30th June this year, we've now agreed a set of amendments to the delivery contract that's in question here that we're talking about. There's been an increase in scope and increase in value and a reset of the delivery schedule to effectively erase from history the fact that on the customer side and on the EOS delivery side, there was some hiatus due to COVID-nineteen in 2020. So that full contract has been reset on a proper go forward footing. It's slightly enhanced in scale and under that domain, we will within this quarter be submitting the next tranches of invoices. So we're comfortable, very comfortable with the position of that contract.
It's basically funny. I think I've talked enough about that on the previous slide, but we're on track in terms of schedule with SpaceLink. We're probably well ahead of where we expected to be in terms of business models, the costs and the return on investment that we can expect from Block 1 and Constellations. Converting defense pipeline to order book, I have to say that the second half of twenty twenty and the I guess the first half of twenty twenty one were a bit disappointing in terms of the pipeline conversion because of various program delays that our customers have faced all around the world, but and including in Australia. I think most of our Australian programs are running about 6 months behind schedule in award.
But most of the contracts that we have been discussing with customers for to close contracts on, most of those in dollar values, so most of that $1,000,000,000 contract award is still expected to close in this calendar year. And the 4th thing which is a key focus which is in some sense stressing the resources of EOS and still driving our expansion is this massive growth in demand. I mean, it sounds like a ridiculous number but we talk about the $100,000,000,000 of missile outlays and by the way, the U. S. Does not expect to be even a majority shareholder in terms of that market share of $100,000,000,000 over that 20 years.
But we have seen we have a very, very strong value proposition for a significant slice of that market. And there are opportunities like that erupting whether it's in counter drones, whether it's in missiles, whether it's in space asset defense programs. We continue to see rising demand and particularly rising demand in sectors which we are specialized in. And I think I can talk for that in fact on the next slide if we go quickly to the next slide. Just by way of example on the 26th August, so 4 days ago, the Commonwealth announced through Minister For Defense Industry Melissa Price and I'm quoting her directly here.
They just announced 4 priority areas for the Commonwealth of Australia to focus government expenditure and defense spending and program priorities. And these are robotics, autonomous systems, artificial intelligence, precision guided munitions and hypersonic weapons, etcetera, space and information warfare and cyber capabilities. EOS is a very significant Australian entity in all of those priority sectors and in fact we're dominant in some of them. We don't have to go into which ones we're particularly dominant in, but we've got exquisite technologies in all of those areas and some of them quite dominant technologies. So this is just a snapshot very recent taken from last week of the emphasis on the technologies that we're invested in and I want to remind everyone who's listening here that we have well over $1,000,000,000 worth of IP outlays which we've aggregated under EOS which are all falling under these priority areas.
And so most of that is yet unexploited. And so when you see EOS engage in a missile enterprise, what I can tell you is that's based on our access to more advanced technology for the high-tech elements of that missile than most companies in most countries would have access to. And if you look at just the Australian Defence Capability Investment, there's a significant compound annual growth rate of 8% and our share of the individual of on a year by year basis, we expect our share to grow as well because the emphasis is changing from the old technology platforms to the new technology platforms. So there's an underlying 8% compound annual growth rate, but there's also a change in emphasis on more high technology capability through space, remote weapon systems, command and control systems, counter drone capabilities and so on hypersonic weapons. So those are the areas that are growing fastest within that overall growth as well.
Moving to the last slide. Just to discuss briefly the I guess the outlook. This is what drives the outlook of EOS. We still see whoops. We still see $3,000,000,000 of fully risked pipeline.
So that's $3,000,000,000 worth of business we expect to be competitive for and that's rated against that's fully rated with probability of win from existing customers. This is not taking industry surveys from those companies that go out and do market surveys what the global market might be for X, Y or Z. This is our own direct report from our customers that say we have $16,800,000,000 worth of business and then we internally in EOS, we rate our chances against winning that $16,800,000,000 with probabilities based on our own capabilities and our own resources. And we believe about $3,000,000,000 of that is still on probability weighted basis accruable to EOS. So that's still a significant growth pipeline in the next few years.
We continue to commit to meet that growth. So we're obviously still funding growth, investing in growth areas and SpaceLink is a perfect example. SpaceLink is not just a highly profitable business in its own right, but SpaceLink is a fundamental enabler to 2 or 3 other space areas which are comparable in value to SpaceLink itself. And it's well known in the industry that 200 companies that have signed MOUs with us generally refer to SpaceLink as essential space infrastructure as important in space as roads are on the earth's surface and that infrastructure can be used by EOS, other parts of EOS deploying space capabilities that can use that communications infrastructure themselves and use it in ways that are nuanced to leverage the very best performance out of it. So we continue to invest quite strongly in these growth opportunities at the same time as obviously wanting to deliver profitability going forward and maintain guidance.
I think I'm exactly on time to stop for questions there, Neil.
Thank you, Ben, for that presentation. We'll now go into questions and answers. So if anyone would like to ask a question, please put it in the chat facility. And I've got a question from the company that's Canaccord. Nick, can we unmute Erinn, please?
Or Owen, if you could put your question into the chat, then maybe we'll do it that way.
Can you guys hear me now? I think I've got it.
There we go. Okay.
Good day, team. Just, I've got a few questions, but obviously, an exciting 6 months coming up for you guys. But just targeting second half just around the margin profile. Obviously, you're revenue pickup in the second half and call it 100 in the first half to 140, call it in the second half and the margins to go from neutral in the first half to 16% in the second half. Can you just talk me through the drivers of that uplift, both the revenue and the margins?
It sounds like the defense systems, we could just maybe divulge that if that's possible.
Yes. Most of do you hear me? Yes, most of that is in defense systems and it's really it really comes down to scale. So the scale of operations is back to a profitable level. As I said in my commentary, not all we're standing with working split shifts, We still have scale which moves us and we're very sensitive to volume above breakeven in the plants as most companies are.
And so as the scale moves up, profitability goes up significantly. So that would be the single largest factor I think. So I can't hear you.
There you go. I have to ask to be unmuted. Okay, good one. Yes, that makes sense. Now just talking about, Titania's for a second.
So you said just with COVID lockdowns, just talk me through how many funded developments have been completed to date? How many expected to be completed in the second half? And basically just understand how much this COVID and Delta and lockdowns will slow down the pipeline for that opportunity?
Okay. So the in reverse order, so the COVID lockdowns are hurting us a bit on titans in ways that you bit unexpected, I guess, if you're not if you can't see the internal operations of the company. Our test facility is in Western New South Wales, not far from the South Australian border. The human resources that we use for Titanus are spread across Melbourne, Sydney, Canberra, Queanbeyan and so we've got staff in lockdown in 3 different places. And yes, because some of the demonstrations are for allied governments, we do get lockdown relief by government directive for some for some of those processes, but not all of them.
It's really not that well coordinated yet. So we probably had to slip by a month. All our test programs at the EOS test facility in the Outback. The funded demonstrations, I think you asked me what's the progress in terms of current contracts. So the contracts we the key contracts we have now are what I call leading contracts.
So customers funding between I think it's between $7,000,000 $15,000,000 for demonstrations and in some cases the demonstration costs we're quoting are higher than that. These are expensive systems of course and sometimes you have to fly them a long way to meet the requirement. Those are also about a month behind schedule because the pre qualification process through our own facilities has slowed. But having said that, there is no current prospect of any competitor surging into those markets and into the arms of those customers. So the Titanus program, yes, it slipped, but no its prospects haven't dimmed.
Okay, Ben. Thanks for that question. So Sam Tigger from Citi says, can you provide some color around the final ratification process regarding the amendment to the major overseas contract? Does that happen in a committee meeting and when is it scheduled for?
So the we're dealing with 1 of the largest defense buyers on the planet. And as you'd expect that and this is a $500,000,000 program. And in any country, even in Australia that well, Australia is a smaller defense buyer, I guess, in material than this country. So there is a process. And the process has run for some I guess some months.
So the amendments include technical changes to the product going forward to bring it up to the current configuration, remembering that this contract was signed in 2018 and EOS is moving the technology fairly quickly. So the pause if you like caused by COVID shipment delays has allowed us to make upgrades for some customers and this customer in particular wanted to be upgraded to the same standard for the second for ongoing deliveries. So there has been there's been a process running some months for testing in that country of those improvements and changes. There's been a whole detailed set of alignments of our delivery schedule along with the delivery schedules of the other contractors independent of us who have to deliver the same capability. And again in parallel with that, there's the fielding schedule with the COVID restraints on the customer's own forces.
And so all of that's been completed. And all of the from end user through contract managers and all legal authorities in country have signed off on it. So it's literally in Australia, we'd say it's moved up to the minister's desk. And it's scheduled for ratification this month.
Great, Ben.
Early next month. Early next month.
Yes, early September, correct. And what's the probability the next batch of cash collection falls in September versus Q4 Q3 versus Q4 for gas collection?
I guess fifty-fifty. Now that the contract amendments are agreed, we're in the process right now of amending all our invoices for slightly larger value and to be able to submit those under the new contract. And the expectation is they will be submitted in September. Because it's a letter of credit process, that normally would obviate the, I guess, 30 to 60 days delay in country for if we were not operating under an LC. So again, our letter of credit is confirmed by an Australian bank.
So we actually get paid in Australia on submission documents. So, look, it's a bit that's a hard question, but let's say fifty-fifty we'll get the invoices will definitely go in September, whether we whether the process through the bank will be fast enough to fall within the quarter, I'm not sure.
Okay. Great, Ben. And the
We'd be highly confident when we're reporting it in our ForeSee, even if it was a post 30 September event.
Okay. And the adjustment to profit was a $3,000,000 reduction. How much of that relates to inefficiencies at the ACT plant versus other locations? Almost all of it. Okay.
A question for Teflon Muminov. From the 2020 half yearly reports, it said EOS said that you were shortlisted in over 250,000,000 dollars of potential space sensor procurements globally. Where are we with this contract, locked or deferred?
Space Sensor contracts, okay, that would be 5 Eyes programs. So Space Sensors, we have a very, very short list of customers we're allowed to sell to. Those programs, the key program there was deferred for 12 months. It's now coming back on well, maybe more like 15 months. We the discussion with the customer is that's that was not awarded to anyone, of course, if it was deferred.
That contract is being brought forward in Q4 this year to be progressed. And it's really a matter of look, it's an Australian program. That program if you look at what's happening with Australian Defence Expenditure, it's escalating really, really quickly. There have been some controversial programs from Australian Defence, which have made Defence more cautious and more prudent and a bit more circumspect about how quickly they move forward on programs of that scale. Of course, we're not talking about a $30,000,000,000 submarine program here, but the I guess, this the additional diligence required for the processes has delayed a lot of programs.
And this is one of them.
Okay. Thank you, Ben. A question from Andrew Nestor and a similar question from Sean about SpaceLink. Can we get an update on the likely equity share for EOS in SpaceLink? I think this is still 50% with no capital funding required at the from ASX shareholders.
Is that still the case?
That is still the case. As I sit here now that's still the case. One of the things that the company will have to come to terms with over the next 30 days is that current indications we have from SpaceLink is its value is being appreciated more and more each month. We've just come out of face to face, which is quite rare face to face customer engagements in Colorado at a very special space meeting for the space defense community in the last 2 weeks. And it's quite clear that the market demand and the market appreciation for the offering of the services and the capability from SpaceLink is growing very quickly.
And therefore, the implied value of the asset, the SpaceLink asset to AOS is growing quite quickly. And there's no question at the moment that we can get it funded. We now have, I think, almost, I don't want to speak too soon, but once we have the contract signed and on foot, I think we will have the luxury of being able to choose what we do in the U. S. Shareholders' best interest.
I mean, the there are a whole range of options, including as we've said in this document I've put out today, we've got quite advanced discussions with debt facilities available. Yes, we're engaged with the investment community in the U. S. About providing all the funds directly in the space link one way or another. And right now, the team here at EOS is just assessing which is going to be the most deliver the biggest bang for the buck for the ASX shareholders.
And then you said that $800,000,000 capital requirements to Space Inc. And let's say 40% debt. So does that mean that Space Inc. Is raising $480,000,000 in equity? That's from Tony Vucic.
In a nutshell, yes. But whether we need to do that, we need all in one go or not. Well, I can tell you, we don't have to do it all in one go. The best example I'll give you is if we only needed $100,000,000 to get moving, then in 6 months from now, we will have enough customers signed up to deliver almost a breakeven position for SpaceLink and therefore it will be risk free. Well, there's no such thing as risk free, I guess, but it will be heavily derisked.
And its valuation will go up. So raising equity capital in tranches and raising the minimum equity that's prudent to do is obviously what we're going to do.
Great. Thank you. So Sean Ratcliffe again. Does Phase 2 of the Middle East contract have the same payment terms that have been problematic on Phase 1?
No. But the entire contract process has been moved onto a commercial basis through a commercial entity. So and this is public knowledge in that country. The what I'll talk in Australian terms, the Defense Department's procurement arm has been completely dissolved in that country and it's been replaced by a commercial entity, which is performing the role as the number one free buyer in the world of defense equipment. And that commercial entity is a very, very professional outfit, which frankly has been a delight to work with over the last 6 months.
Okay. Can you provide an update on the NATO remotely operated combat vehicle contract?
Only that it's progressing. The entire NATO position look EOS is as you track our announcements, we're strengthening very, very quickly in NATO. We have the relationship executed with Diehl, which is rolling out our products into the German market. We already are a major provider of our lethality products for the Dutch forces. We are on the verge of completing a contract in the Netherlands for what will be the next generation first of the next generation fully remotely controlled semi autonomous combat vehicles.
That process involves a complete change in doctrine. So I would the way I would comment on that is there's nothing about the contractual relationship between us and the customer that's holding things up. It's the fact that customer now has to address quite significant changes in their structure, their training and their doctrine because we're talking about deploying vehicle mounted combat systems that have no people in them. And that's a big step for any army you take.
Yes. Okay. And on the defense business carrying on there, Kongsberg was awarded the CROWS contract in May. What are the implications for EOS for future U. S.
Army contracts?
Look, the May contract, that's part of an ongoing support maintenance program that the U. S. Runs on the Kongsberg weapon systems. It's not material to any of our future plans in the U. S.
And Ben, would you just like to comment on the prospects for the U. S. Defense business?
There are 2 elements to the U. S. Defense business. 1 is the future programs, which I'll come to shortly. But the other one is, I guess, programs on foot.
And the U. S. Has requirements for quasi conventional technology, which is the sort of thing we can deliver now in standardized weapon systems, special forces, combat lethality systems and so on. These are not large contracts. There's they're typically $40,000,000 or $50,000,000 at a time, sometimes a little less, sometimes a little more.
Those contracts continue to be brought forward. And I think we've bid on 2 of those already with awards expected with next year's money. So U. S. Next year's money comes from 1 October.
And so that would be a Q4, Q1 type award. And I think we're well placed to start picking up those, although the U. S. Plant, of course, is already producing some of our Middle East requirements as a backup plant for Australia. In the advanced programs, the U.
S. Has got a very, very strong appetite for the directed energy programs, counter drone programs, the more advanced remote weapon systems that actually can shoot down drones. And the U. S. Has been through a fairly comprehensive test program the last 3 years where EOS has been probably the largest single participant.
But they've tested just about every weapon system they can get their hands on. And the EOS system is and this is proven by other customers as well as the only system that can bring down drones with kinetics. That's not by itself a panacea, because shooting down drones with bullets or explosive rounds is under U. S. Doctrine extremely difficult to deploy because there's the military code in the U.
S. And in Australia requires one to know where the round will land if it misses and what damage it will cause before you engage even a drone. So if you can imagine shooting bullets, a 1,000 bullets at drones and having to know where all those rounds will land 3 miles away, whether it lands in a village or on a town. So there's a sophistication in the command and control of this, which EOS is overlaying. Again, I think we're the one of the very few companies in the world that can do this.
So it's not quite as simple as just can we kill drones? Of course, we can. And we've proven we're the only ones who can do that. But can we kill drones safely? That's the next level of gating this market.
I don't know that the prospects in the U. S. Continue to be strong. But our investment there is modest and quite sustainable.
Great. Another question from Owen. The risk pipeline is down $500,000,000 over 6 months from $3,600,000,000 to 3.1 $1,000,000 I understand COVID has had an impact. But keen to learn whether contracts have been lost or are now unlikely. I think I might ask that one, Ben.
Owen, if you look at unrisked pipeline, and the unrisked pipeline has expanded from about $12,000,000,000 to around $16,000,000,000 So the total scope of opportunity has expanded by about onethree. But we have applied more conservative assumptions in terms of our PGO assumptions. That's the probability that projects go ahead. Because we have seen a number of projects deferred due to COVID, we've effectively just taken some more conservative assumptions for how we go from unrisked to risk pipeline. And I think so it's not really it's kind of a bit of a change of flavor rather than any program being lost.
But a number have been lost, but a number have been deferred. Another question on SpaceLink. How much leeway then is there between the launch of the SpaceLink satellite constellation and the FCC regulatory deadline? And what options are there if the deadline is not met?
We have a buffer in the schedule already. And we have a fair amount of confidence in that buffer because we're using proven technology. So there's nothing about satellites from whichever vendor we choose in the next 2 weeks. There's nothing about satellites that is new technology or unproven technology. So we have reasonable confidence that we will be able to meet the launch deadlines.
That said, if they were to slip beyond the notional use by date on our licenses, we already have a sufficient buffer in the COVID exemptions that would cover that anyway.
Okay. Great. Question from Sam Tigger of Citi. Any comments around why Fred stepped down from the Board?
Look, I would have thought that was self evident. Fred was a very heavily occupied Director in ASX terms with more than 1 chairmanship and so on. And Fred's got some very interesting interests. EOS is rapidly maturing as a commercial operation. And Fred's, I guess, history has been bringing forward startups.
And although in U. S. Terms, we might still be classified as a startup, we are an ASX 300 company and pretty much found our feet and able to ride out things like the 2020 issues that hit the company through COVID and so on. So I think it's quite clear that EOS has a stability and a momentum that of his portfolio of interest. I'm just interpreting what Fred told the Board.
And I think it's what he told the market in his release. He's got other interests which require much more day to day attention.
Great. Thanks, Ben. Also from Tony Vucic, can you please indicate a value of the IP EOS is contributing to the SpaceLink venture?
So to I'll answer that in 2 ways. Space Communications IP that we hold right now represents an actual cash investment by our partners of about $800,000,000 We're not contributing more than about a sixth of that to SpaceLink in the first Block 1 and Block 2 satellite constellations. So I mean if we had put a number on it in terms of what's been invested, not more than $100,000,000 or so of IP investment, maybe 150 is going into what we call Block 1 and Block 2 because remember what I just said a few minutes ago, it's basically Block 1 and Block 2 are going to be largely off the shelf proven space technologies that are leveraging the space that concept of operations for their value more than any new technology in the satellite. That's why it's such a great deal because the concept and the licenses where the value is and the satellites that we need to deliver really high return on investment on that initial rollout of the concept can be off the shelf technology satellites. When I talk about the last, I guess 80% of the technology portfolio that we sit on that will play into Block 3, Block 4, Block 5 and Block 6 with Spacelink.
Each one of those is typically a $600,000,000 constellation investment. And we of course won't make those investments until we then accumulate customers in advance for each block to roll out.
Great. Thank you very much. A quick one from
the next floor.
Excluding SpaceLink, can Erez please confirm its average R and D expense for the past 3 years? And is this likely to change over the next 5 years?
The average R and D expense over the last 5 years, I could take a pretty good swag at that, but I've got my CFO here. But do you want to take that on? I think we'd add it up and come back to the list. Well, look, I'll answer the second part of the question. I don't think it's going to change.
No. We've the EOS process of R and D investment is that we operate a very conventional R and D process by U. S. Standards, where we put pretty much 100% of the R and D money on the table for years 1 for year 1 and maybe year 2 of an R and D program. Now R and D programs typically span 5 or 6 years, and they're quite deliberate.
They're planned out over 5 or 6 years. So products we're launching now were envisaged 5 or 6 years ago when the R and D started. By the time we get to year 3, we get early buy in from customers who want that product and they're typically putting in 20% in year 3, 50% in year 4 and 75% in year 5 of the R and D costs. And of course, the R and D costs are much heavier in year 5 than they are in year 12. So we typically finish up taking the high risk investment, but it's only about 28% 25% of the total investment.
And our customers and our partners will fund the other 75% of the R and D costs. That profile won't change how much money we put into it won't change much because we've accumulated such a significant pile of technology that our early stage investments even as the business grows, our early stage investments in dollar scale don't have to grow in proportion to the business volume. So we've it's not quite a perpetual motion machine, but it is it's much more efficient than it was for EOS, say, 5 years ago.
Great. Thank you, Ben. A question from Angus Robertson. EOS is making losses and has several developing businesses. When roughly do you expect NPAT to settle down to an NPAT increasing each half?
If the world doesn't change much from now, so I'm saying we don't need COVID to go away. If we talk about the COVID reality we're living in now and that becomes reality that we live in for the next 3 or 4 years, within 2 or 3 halves, we should achieve that position.
Great. Okay. Well, Ben, I think we're pretty much up against a loss of time and seem to have through plenty of questions. So thank you to all our shareholders for attending this webinar. Thank you for Ben and Michael and Morgan for presenting.
And we look forward to talking to you all again very soon.
Thanks, everyone. Thanks for coming.