Electro Optic Systems Holdings Limited (EOS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Electro Optic Systems Holdings Limited 2021 Annual General Meeting. I hope that you found that introductory video interesting and also illustrative of the sort of work that we're doing. It showed you some of our very talented employees as well as some of our industry-leading products. At the heart of EOS-grade products are the 550 people we employ across the globe. My name is Peter Leahy, and I'm the Chair of Electric Optics Systems. Before we proceed, I'd like to acknowledge the Gadigal people of the Eora Nation, the traditional custodians of this land, and pay my respects to their elders both past and present. The time is now 9:31, and as we have a quorum, I declare the meeting open. I'd like to introduce my fellow directors on the podium, Dr. Ben Greene, David Black, Deena Shiff, Geoff Brown and Kate Lundy. Also in the room is Morgan Bryant, the Company Secretary. And on the floor is Chris Beeman. Chris, I'm glad you made it through the fog out of Melbourne this morning. Chris is from our auditor, Deloitte; along with Grant Sanderson. If -- perhaps if you just put your hand up over there, fellas. Thanks, Grant, the CEO of Defence Systems; and Glen Tindall, the CEO of Space Systems. And we have a smattering of other Senior Executives in the room as well. And I'll encourage you after the meeting to perhaps have a chat to them and they can give you some more color beyond what we'd give you. Let me begin by saying how disappointed the Board is in the performance of our share price over the past 2 years. The Board believes that the current share price does not fully reflect the value of the company. And we are fully committed to addressing this and rebuilding shareholder value. And we are confident that the strategic review currently underway will determine the right outcome to deliver long-term value, and I'll discuss this later in my address. Before I speak on the strategic review and macro environment, let me post the proxy results and make some remarks on the conduct of the meeting. Rather, let me just show the disclaimers, and these are available on the ASX website and our own website. So these are the proxy results as they stand. So I will speak first. Ben will then take you through our operational performance. And there will be a number of opportunities for you to ask questions during the meeting. And I encourage you to take advantage of them. Towards the end of the meeting, we will undertake the formal items of business as per the Notice of Meeting dated the 27th of April 2022. During Item 1, which is the adoption of the accounts, there will be an opportunity for further general questions on the company. And then again, before voting on each item of business, there will be a time for questions on that item. In regard to the proxy votes, Computershare has been recording all proxies and online voting prior to the meeting. The results of the proxies and online voting are shown there on the screen. Voting by shareholders present today who have not already lodged a valid proxy will be carried out by poll as required by the ASX during the meeting. Those who have still to vote should have blue voting papers, which were distributed at the registration desk prior to the meeting, and they'll be collected at the end of the meeting. Shortly after the end of the meeting, voting will be finalized and the results lodged with the ASX. And so at this point, I'd like to open the polling. So if anyone needs to leave early, you're able to lodge your votes before you depart. I just want to cover a couple of the strategic issues at the moment. Firstly here, and you're all aware that we're doing a strategic review. This was initiated by the Board in March this year. Given the scale of the SpaceLink funding commitment, conflicting demands on capital and the linkages with EOS shareholder value, the Board believes there is merit in ensuring all feasible funding options are fully explored and assessed in the context of the broader range of strategic options for EOS. Needless to say, these are important decisions for the company, which need to be carefully assessed, particularly in the context of the general global macroeconomic challenges, including inflation, higher interest rates and the recent stock market declines. The Board believes that the company has significant growth potential. The ongoing geopolitical tensions, global need to grow capability in the space sector and enhanced focus in Australia on sovereign defense capability only further supports this perspective. The Board has engaged Greenhill & Co to undertake an independent assessment of the business to consider options to maximize shareholder value. And the scope of the review was to, firstly, provide an assessment of the underlying value for Defence Systems, Space Systems and SpaceLink. Second, given the competing capital needs, explore the range of alternative capital solutions available and a framework to assist the Board prioritize resources on opportunities that have the greatest risk-adjusted return profile in the context of those capital solutions that are available. And finally, determine an appropriate execution strategy at a time of volatile market conditions to maximize value for EOS shareholders. Let me give you just some words on the status of the review. As I've indicated, Greenhill & Co are undertaking a strategic review that involves engaging with a broad range of stakeholders, including strategic and financial counterparties. And these are both domestic and globally, to assess the full range of funding options in light of the strategic alternatives available. These confidential discussions have provided strong validation of the strength of the Defence business and the unique proposition of SpaceLink. While we've always had high conviction around our products and the SpaceLink opportunity, the validation through the strategic review from credible external parties, both strategic and financial, has been very pleasing. The nature and extent of the interest expressed from counterparties during these discussions so far has ranged from commercial partnerships, potential debt and equity funding at different points of entry into the corporate structure, business combinations or mergers. We've also had interest in the sale of assets to more transformative transactions. So in this case, different funding structures are being fully explored. Following extensive analysis, we've reached a point where a shortlist of potential outcomes has been identified, including potential alternative capital solutions to ensure EOS has the most optimal capital structure in place to enable the company to continue to diversify its business and invest in these significant growth opportunities. As part of the final stages of the review, EOS is pursuing confidential discussions with a small number of credible counterparties to refine funding and transaction terms with a view to landing on the best deliverable outcome for EOS shareholders and the future of the company. Whilst the strategic review is well progressed, including confidential discussions with third parties on potential nation and funding options, there is no assurance that any particular outcome will eventuate. And the Board expects to provide an update on the outcome of the strategic review over the coming weeks. These conditions and discussions are critical to the company, and the Board is mindful to ensure we determine the best path forward and allow sufficient time to explore all suitable options to best ensure we make the right decision. Some points now on the landscape at a global level. And I wanted to focus here on several points and key factors. This will be both global and domestic. And in our view, they underpin a strong future for EOS. Since last year's AGM, there's been a marked increase in the geopolitical tensions around the world, 3 critical influences are China's assertiveness in the Indo-Pacific, Russia's invasion of Ukraine and the contestability of space, which is becoming a great security concern. So on this slide, I've outlined some of the responses which are driving long-term shifts in defense policy. What is clear is that the greatest global emphasis is on areas where EOS is investing heavily and where we have the highest probability of success: counter drone, directed energy, SpaceLink and space control and missiles. When we turn our attention domestically, there have been some recent fundamental shifts that EOS hasn't seen over our corporate life. Until now, EOS has predominantly been exporting our technology. COVID-19 and Ukraine have demonstrated the fragility of global supply chains and the importance of domestic manufacturing capabilities. And in our view, the recently appointed federal government will take further steps to enhance sovereign capabilities in both defense and manufacturing. So on this slide, I've highlighted some of the defense and manufacturing capabilities that have become increasingly important to Australia. We've identified that these changes will present significant opportunities, which is why the company has established both the sovereign missile alliance and the Australian satellite manufacturing hub. EOS is one of the few Australian aerospace entities with technology and capabilities to support the government's initiative both across defense and space. So with that introduction, I'd now like to hand over to Dr. Ben Greene to focus on the operations of the company.

Thank you, Peter. Of course, we published the financial results of the company earlier this year, and I'd like to hear -- talk about those results in the context of last year and the go-forward plan for this year. Context of last year's performance, and we have our challenges, and I will be talking about challenges in the outlook part of this discussion because those challenges for last year persisted this year. And I think -- and we know generally what they are because we referred to them in the report. There are things like the human resource shortages in Australia, inflation, cyber threats to the company and so on. I'll deal with those, so please don't feel when we talk about the milestones, we're not -- we're glossing over the fact that there are challenges remaining. But here, we can record that last year, we did have record revenue. We did have record production in our Defence business, which is the largest revenue part of the company and a highly profitable part of the company. We've been successful in adding to our product range so that we don't leave spaces for competitors to penetrate on requirements that slip in between our capability to deliver particular requirements to the customers. And I'll speak a little bit more about those under the Defence Systems description of the business. We've been very successful in product demonstrations. We have -- I think we are amongst the most highly tested by U.S. allied and NATO forces, the most highly tested weapon systems providers in the world. And that speaks to the fact that those tests which are funded by customers are very expensive, and they wish to test those systems which are more likely to find their way into service than less likely. We've had significant targeted investment. This is not without some controversy, I know, but the company has invested $77 million last year into growth areas. And as Peter said, you can argue we lack a good management, but every area of investment that we've invested in has been in the areas of top priority in the landscape that we sit in today, areas like counter drone capability, directed energy capability, protection of space assets, new technology for missiles and so on. These are all the highest growth areas in the highest growth element in our economy. One of the things that we have done last year -- initiated last year and is coming to completion now is a restructure of the company. Clearly, as we grew from -- over the last 3 years from a $30 million company towards a $300 million company in revenue, it becomes more appropriate to create stable, profitable business units that account within themselves as what we call P&L, profit and loss centers. So we've established at the beginning of last year profit and loss centers in space and in defense. And you'll hear in this report that the space segment is transitioning to profit. And the defense sector has been very profitable and continues in that direction. In terms of space and commercialization, we made considerable progress last year, and I'll have more to say about that in the go-forward slides as we come to them. In the context of profitability, we note that, the net loss of $13.8 million is a disappointing outcome. In the context of the underlying performance of the business, and taking into account the investments we've made, I think that puts that into context. The key points here we'll make is that we have invested $37 million in SpaceLink, and the Western one out of that will be determined through the strategic review process. But so far, we have no reason to believe that hasn't been a wise investment on the part of shareholders. Our R&D investment of $27 million has been mostly expensed. So that, of course, impacts the profit result. I want to make a clear statement about how we do R&D in EOS. This is not R&D done in laboratories, in back rooms, where we research with scientists, hoping that we'll find a customer for the outcome. The R&D programs in EOS are always done in collaboration with customers towards a defined requirement, which those customers feel we are best suited to drive the technology forward for the objective outcomes. So R&D in this context isn't airy fairy scientific. We hope that this will have an application. It's research that's driven by customer discussions towards specific product outcomes. Defence and Communications businesses performed really well. If we took -- look at EM Solutions, I know those results speak for themselves. Record growth, record revenue, record profits. The Defence business, record production, record revenue and very strong gross margins going forward. Space Technologies did contract slightly last year, but it will resume its trajectory to profit this year. And one of the things that impacts us going forward, because we're on the cusp between an SME and a larger-scale defense company is, the cost associated with security. So the cybersecurity threat, in particular, has caused millions of dollars of additional expenditure in EOS to protect us from what is a growing and accelerating cyber threat, particularly under the kind of stresses that we've seen emerge this year. In terms of the financial performance breakdown, I don't -- by the way, I'm not going to talk to every point on every slide here because there's about 20 slides, and we want to leave a lot of time for questions at the end. This is just by way of showing the underlying EBIT profitability of the defense sector, which is continuing to grow and continuing to deliver good margins and good results. This slide is particularly addressing people's concerns about how we rationalize segment EBIT to the NPAT reconciliations that we report. We have had some questions on this leading up to the meeting, and we've specifically included this information for clarification. Just EOS at a glance, summarizing the position that the company has transitioned into this year from. We finished last year in Defence with $185 million in revenue and $17 million in EBIT. And this is roughly -- this is underlying EBIT. This is roughly the 10% net EBIT result that we would be looking for. Space Systems, a small loss, which we have -- these are temporary factors, literally in between contracts expiring and contract renewals. And those renewals are resuming this year and have already started. And SpaceLink, of course, I've mentioned, an overall $21 million loss. I did mention the higher figure of $37 million in investment. Some of that has been capitalized. But the revenue prognosis on SpaceLink continues to be very strong. I want to talk specifically now about the 2 P&L sectors that I've discussed we've built the company into. And we have -- each of those profit and loss units has their own CEO. And those 2 gentlemen in the room, Grant Sanderson for Defence and Glen Tindall for Space. And here, I'll talk about the Defence business update. The overall result for Defence, I think, was very strong. As I said, record revenue, record production in units, very strong margins and strong profitability. The production levels have stabilized with additional capacity implemented. And we've been building out capacity, as shareholders know, in the United States and in the Middle East and also in Asia. A key development here has been after almost 3 years we are approaching, we expect within this half to complete full security accreditation of the U.S. facility in Huntsville, Alabama. We're in the final documentation stages with the United States government after almost 3 years of work and over $25 million of investment in that facility. From that point, Huntsville will be able to take on significant U.S. government contracts, which we have in the past won and have to hand back because the facility clearance wasn't available. The U.S. development programs, though, which did not require those clearances have continued to go on schedule with the U.S. Department of Defense. The other issue, which I think Peter touched on is the global environment on supply chain is quite complex. And what we're seeing is a change in the business here relating to localization of supply chain. So it's been a long trend over previous years to globalize supply chains to reduce costs. And we have 2 factors now driving the company to look the other way. One is increasing demands from customers to localized supply chains. And the other one is the, I guess, the fraying at the edges of the global supply chain process because of things like embargoes and the eruption of what looks like trading blocks. So the company is in the midst of this, and I think we're doing relatively well. Frankly, defense companies in this area are doing much better than nondefense companies because the first impetus, which is coming from customers about localization under offset programs, has insulated us from the first wave of those supply chain shocks. Our RWS continue to exhibit superior performance in every category in which we compete. I won't go into all of the detail here, but we've had -- we continue to have very significant range and accuracy advantages over other competitors, sorry. And that's become -- every year, that becomes more and more important. Because every year, customers want to field more systems for lower costs, which means less manning. The less manned a system is, the more accurate it has to be because you can't reload the ammunition, so ammunition use has to be more frugal. And so we're finding the pendulum is swinging. Peter talked about the landscape globally and the landscape domestically. There's also a momentum in the marketplace towards where it's cost effective, towards these advanced technologies, which provide much more reliability, much more accuracy, much more frugal use of ammunition and allow -- for the very first time they allow us to think about deploying completely unmanned systems into the combat roles. And EOS again was amongst the first companies in the world to foresee this and to pioneer the technology to enable it. One of the major developments in EOS, and I think something we're particularly proud of is our directed energy program. We can say that there's no directed program in the world that we know of that is more advanced than ours. And some of them have had substantially more funds. And that's not to say we're privy to the secrets of all foreign governments, but certainly, we would expect our peers in western countries, who we do know about, to be at least matching developments in places like Russia and China. And as far as we can tell on our competitive information against our compatriots in the United States and Europe, EOS is doing really well. We have had successful field trials of operational directed energy systems fully integrated with combat-proven and militarily qualified software. And using weapons, whether they're kinetic or directed energy, requires a very complex process of safety qualification on software. EOS is one of only half a dozen companies in the world that has that software qualified and accepted by all western military organizations. So that software and that systems integration has been applied in field trials of our directed energy capability, I'd say, very successfully. Those results exceeded all the company's own expectations over the last few months. Those activities now transition to higher levels of customer funding in the demonstrations and development and operational concept so that those new types of weapons can be effectively used against robots and drones in future with minimal impact on the human environment. As I said, I'm not dealing with every point on these slides because they're there for future reference and speak, I think, for themselves. One area that EOS technology has enabled and one of the reasons why EOS is probably the most tested weapons system on unmanned, uninhabited ground vehicles is the reliability and accuracy that we're able to show. And so you see here 2 photographs of several prototype systems that we're working on around the world with partners and customers. So all of these are customer-funded demonstrations and leading programs with a view to being able to deploy advanced uninhabited -- what's called uninhabited ground vehicles in the future. One of them is a NATO program. One is the U.S. program. Another one is an Australian program. It is a major growth segment that I think the company has been particularly well positioned for. And we have complementary technologies and products that are missing elements of -- when you just look at these vehicles, what you don't see is there's an integrated command and control environment that has to go around that. There's a safety environment, because you don't have human operators to make sure that you engage safely. And so our C2 programs that run in defense systems loosely under the C4 EDGE program are quite critical to this. The SpaceLink program, which provides the ability to integrate realtime global control of assets that have -- need realtime responses. Safety is a realtime issue. Lethality control by all western militaries is controlled under very tight rules of engagement and which conditions you can use such systems. So there are company and technologies in EOS that are helping break down the barriers towards the release of this wave of demand for uninhabited ground vehicles. And customer funding in this area is growing quickly. Another area that we've talked about in previous meetings where we've invested significant amounts of shareholder funds has been in counter drone capability. Those of us following what's happening in the very latest conflict in Europe will know that drone's a critical part now of both of offensive and defensive capability in that conflict. And EOS, I think, quite rightly regards itself as one of the world leaders in counter-drone technology. We don't make drones, but we've seen for a long time that the ability to defend against drone attack and drone surveillance is going to be particularly important. So the need, I think, is kind of very obvious to everybody now. I think we -- amongst in the western world, we sided with the defense planners who saw this need several years ago and demanded that the technology accelerate to be able to meet these threats. We've had significant number of demonstrations of our capability, both in segments that is subsystem by subsystem. So a particular kinetic solution will be tested by the U.S. Army multiple times. We've had fully integrated tests. We've had directed energy tests with the counter-drone software integration with radar and so on. So we're working up to the higher levels of system integration test for a suite of counter-drone capabilities, I think, in the western world. C4 EDGE is a program that we're particularly proud of in EOS. This is a program where EOS is acting as the prime contractor to deliver to the Australian Army a new generation of command-and-control communications capability. This is a risk-mitigation program by the Commonwealth. And there are at least 2 more years of risk-mitigation activity likely before major contract awards, that is acquisition category 1 level awards for communications, will be made. But this program is growing and has been -- so far, the success of this program has exceeded both the customers' expectations and ours, and it has very good momentum. This is a fundamentally important thing for EOS because if you think about our weapons systems, you can think of them as points in the battlefield. If you think about command and control, that's what integrates them into a capability. And as I've said, our customers are moving more and more towards remotely operated -- in a sustained way, remotely operated systems and capability. And a fundamental element of that is how those systems integrate and operate, work together in the battlefield. And so the C4 EDGE program is a key part of our delivery of that to other customers as well. I want to move now to a brief discussion about the Space business, and I'll talk about this in 3 elements. The first will be the -- what we call the space situation awareness, space demand awareness. It's fundamentally space intelligence operation that EOS is running for 35 years. Then we have the Communications business in Space, which was acquired 2 or 3 years ago, which is EM Solutions in Queensland. And I'll talk about SpaceLink. So those are the 3 elements of this business I'll speak to. In Space Domain Awareness, I guess, just speaking briefly to the graphic here. During last year, the Australian government formed the Defence Space Command as a recognition of the increased contestability in space and the need for the Commonwealth to increase its investment and commitment to the defense in space for Australia. I'm very proud that the cover of that agency's -- of the agency's yearbook features EOS. So coming back to the real world. Space Domain Awareness is the fundamental element for all space activity. It's the intelligence you can't act if you don't know, and EOS has always been -- our first foot in the door in space has always been in delivering space intelligence. And our contractual relations with allies continue to grow and to consolidate around more and more qualification and test programs. As Australia steps forward, the context through which EOS works into the Western Alliance changes and is rebalancing to be more in concert with the Commonwealth rather than directly with the U.S., and I think that's as it should be, and it's a welcome development. In space protection, again, the knowledge we have about space includes the approximate environment around specific space assets. So we can generate general knowledge about space environment, but we can also generate quite detailed knowledge about the dynamic environment around a particular satellite or a set of space assets or a constellation. And this is fundamentally important from the point of view of protecting those assets against accidental damage from space debris or less-accidental damage from other space actors, you want to mitigate those capabilities. And those capabilities from EOS continue to be in demand. EM Solutions continues to go from strength to strength. It's had a record year, record profits. It's penetrated now to 6 navies globally. And my feeling is that the product is so technically superior that once you've tried it, you're not going back. And once you've demonstrated it next to the competitors from anywhere in the world, you're not going back. So the fact that 3 of the new customers are NATO navies, and they have -- since the first orders 18 months ago, have doubled and redoubled their orders because the product is really in a class of its own. So EM Solutions, I think, what we can say here, it's successful and surging forward, looking at very, very strong growth. And the prognosis for EM Solutions, and that part of our communications interest in space is very, very good. And of course, it forms one end of a communications chain for which SpaceLink could form another part. But this business is fundamentally profitable in its own right, regardless of what the SpaceLink would be, whether it's an EOS space asset or someone else's space asset. So SpaceLink itself has been through, as many of you all know, significant changes in the past 12 months. We have -- a key point here and the fundamental point I see here is, we have linked our development programs with the United States' Defense Department Space Development Agency. They have invested a huge amount of money in terms of what can be done with certain types of technical capability in space. And so what we've seen -- if you look at the significant reduction in the capital cost of our SpaceLink program and the significant improvements in the profitability of that program, even over the last 12 months, a significant proportion of that is linked to developments that we haven't funded. They've been funded by the Space Development Agency. So we're able to piggyback on their new ability to generate lower-cost MEO platforms. Many of you will -- there's no need for you who have known this in the past. But a MEO satellite, where we need to put our satellites, has radiation environment there is 100x more lethal to satellites than the LEO domain where Musk is putting his thousands of satellites. So the engineering requirements to move from LEO to MEO, where we need to be, are considerable. And so we had budgeted that into our program using conventional MEO technology, let's say, a year ago. In the past 12 months, SDA's investments have created the possibility for much lower cost technology to deploy to MEO. So we've seen the capital cost shrink. We've seen the business model improve. And so the barriers to entry into that market for anybody who's got spectrum licenses and got the customer catchment with companies like -- that EOS has through SpaceLink, those barriers to entry have fallen. And so that's a significant dynamic in this business. So the other element has been we've made our own investments in terms of payload elements for MEO. And those investments, particularly in terms of the optical communication heads, have been also rather successful. And they have, in their own way, contributed to the improvements in the business model and the cost of capital and risk. So the SpaceLink proposition as a whole has changed, and those elements have been fed directly into the strategic review process, which has to weigh the SpaceLink opportunities within this company against the other opportunities -- and other risk-weighted opportunities for growth and shareholder wealth creation. So I did say I wanted to save as much time as I could for the company outlook because I think this is -- we've spoken about where we are and a little bit -- I don't like to ruminate too much on previous years. But given the results that we posted, I think everyone's had a right to know how we got to where we were and why we were driven to make that $77 million of investment that drove an underlying EBIT result of $11.5 million loss. So this is the company outlook as we stand here today. We still have significant growth opportunities across the whole portfolio of EOS. One of the questions that I get asked at least every other month by our shareholder is what's happened to the pipeline conversion? What happens -- what's happened to the billions of dollars of opportunities? And all I can say is none of those major opportunities that we've identified and reported on in the past have been lost. COVID has brought havoc with us. We've got programs in Australia like LAND 400 that have been deferred and so on. So we can talk in more detail about that. I'm not saying we haven't lost programs out of the pipeline. But the question was put me in the context of the $1 billion tickets that were on -- in our portfolio. So again, this is a complex slide. There's a lot of information here for people to take away. But the bottom line here is significant opportunities are still there. And there hasn't been a rebuff or a major loss to our product or the company in any of the markets we've identified. Remember, please, when we talk about our pipeline, we don't report a market analysis by a consulting company to say, well, we think the market is $6 billion. In our pipeline, we report conversations with our own customers about their funding and the prognosis of different programs coming forward. So it's a much more firsthand approach to establishing. And one of the reasons we do that, of course, is it's far from certain we would be allowed to or we would want to export to most of the countries that a consultant company might come back with a potential customer. So the outlook for 2022. Peter has talked about the landscape. Clearly, very strong tailwinds from global and domestic events, very strong tailwinds. And they're really quite compelling when you look at them collectively. And when you look at the momentum that EOS has within that context and look at islands of information like the satellite manufacturing hub that we've been selected to establish, other than by itself, not important. But in the overall context of the strategy of the company and the plan we're executing, quite significant. The selection of SMA, our joint venture with Nova, is a fundamental -- 1 of 3 fundamental partners on -- for the Australian -- we call it the Australian Missile program. The government calls it the Guided Weapons and Explosive Ordnance Enterprise. That's, again, by itself, perhaps not significant, but as part of the collective of establishing the fabric of where we fit into this total landscape that's evolving quite quickly in front of us, I think, quite telling. The other thing that's really important to us is we look always where we're sinking EOS funds relative to is that market growing? And more importantly, are our prospects within that market improving or declining? And the answer to both of those has to be positive for us to continue. And as Peter said, in counter drones, in directed energy, in our embryonic investments in missile technology, in our commitments to unattended combat vehicles, uninhabited combat vehicles and so on, in all of those areas, the -- I'm thinking very carefully. The overall customer feedback from us in all the relationships we're working in has been positive. So I think the unfolding events reinforce landscape and the momentum that we've identified. So the other thing that's important is how we're doing around execution. If you look at -- so setting aside the $77 million investment, is the underlying machinery of the company functioning? If you look at Defence Systems, its profit margin is quite strong. Its underlying EBIT quite strong. That's a revenue machine and a profitable machine for the company. So the -- to say that these things are going on plan is not to say the results to be endorsed and applauded is to say that the machinery of the company which we're paying careful attention to is able to execute these new things profitably as well. We've had stronger inbound inquiries in the first half of this year, as you'd expect, probably, than any other 6 months on record. And we have a change domestically where, although the policy changes might be nuanced, we feel that the commitment of the new government to -- and it can be a function of the dynamic nature of the year that we're in, the commitment of the new government to sovereign manufacturing, sovereign defense capability will be reinforced. And we have preliminary reasons to believe that will be true. So I did say I'd skip the challenges of 2021 because they're almost the same as the challenges of 2022. And I think we would be remiss not to talk about what our challenges are going forward. Human resources, we know record unemployment, 3.9%. That doesn't speak to the shortages of skilled people within this economy. Many of you here have got direct experience in business. And the skill levels -- shortage in skill levels is acute in this country. And I want to explain what EOS is doing to remedy this, and it started 5 years ago. We have planned for years to move EOS to revenue per capita in terms of capita per employee, which is changing in a positive way. So if you look at directed energy, if you look at counter drone technology, if you look at C2, all of these product areas have much lower people per million-dollar revenue than our traditional weapon system business. So the company has been very deliberately and carefully addressing the human resource problem, which is not to say it's not a challenge. It's here in black and white that it still is a challenge. But the fundamentals of the business are being driven and have been driven for years to address this problem. Supply chain, I think I did talk a little bit about supply chain along the way. We did get a little leg up in this direction on supply chain because our customers globally have been demanding localization of supply chain. And so we have got at the early stages, but we are building local supply chains in the Middle East. We're building local supply chains in Australia and in the United States for those 3 key market areas. And we are actively growing our supply chain in Europe as demand from NATO increases. Backlog. Backlog, we reported in our annual report that the company is less than happy with the state of its backlog. Backlog right now is down to a little bit more than a year of revenue. And the company's preferred position is 1.5 years of revenue. And the best companies, best practice in our industry would be closer to 2. And the -- this comes to the question -- I did mention we have been questioned sometimes what's happened to the conversion pipeline. And there have been major delays, thankfully, many of them ending now. And particularly now we're through the election process in this country, we can expect some momentum to resume in the domestic market. But backlog conversion in terms of timeliness is a key issue for us. Our backlog conversion in terms of efficiency is not yet a problem, but that's the lesser problem. The bigger problem is the timeliness of conversion, which the company is focusing quite a bit of effort on. Inflation. We've been modeling inflation into our calculation since the first half of last year. And inflation hurts us in -- potentially hurts us, if we're not very well protected in a number of ways. It really relates to interest rates. And it relates to the fact that in a 0 interest rate environment, when something like COVID comes along and interest rates are low and everything gets delayed by 12 months or 18 months and sometimes even longer, if interest rates are low, there's a lot of flexibility within the procurement process, within the supply chain and the customer relations for time to be fungible. We can -- we're already allowing for the fact that, that's not going to happen. So we're having to take plans, and I won't go into too much detail here, within the company about how we would deal with something like a COVID event which causes massive disruption and delays across the whole industry in an environment where costs are going up by 2% a quarter or even 3% a quarter. So those are issues -- as I said, that's a challenge for the company, and we're addressing it. And the other -- the last one -- and these are the headline challenges that I wanted to talk about. The cybersecurity challenges is significant. We believe based -- and we, of course, work very closely with the appropriate authorities here because we're in the defense industry. We believe we're keeping up with the challenge. But the other side of this equation is aggressive, agile and very responsive to the fixes and the protections we put in place. So these -- the cyber threat to the company -- by the way, I believe this applies to all companies. I'm just now talking about how it applies to us. And when I see how much resource we're having to put in this direction, of course, our customers are taking that as a loaded cost. And we have to load that through to our customers, but it is an ongoing challenge. And the last point I will make here is on guidance. The only indication we've given for this year -- so far have been able to give is that the company believes its revenues for this year will be stronger than last year. Peter has made, the Chair has made reference to the fact that there's a significant process underway in the form of a strategic review, which is looking at the big picture of the whole of the company. And some of the implications of that on what the actual scale of that growth will be have yet to be played out. So there'll be further guidance to be given after the strategic review. Thank you.

Thanks, Ben. Let's see. Intend now to open up to the floor for questions, and you're all invited to make questions. If I could just make a couple of comments, please. There will be microphones that will rove around, not on their own. Someone will carry them so that you can please speak into the microphone and wait until someone comes along to hand you a microphone. Could you please give your name and affiliation? It's a bit hard up here. The lights are right in our face. So if I just point you out, please, excuse me, it's a bit hard to identify people. Could I ask that you might limit the question to about 2 minutes because we anticipate that there are plenty of people who would like to ask questions. Ask one question at a time. That will allow other shareholders the opportunity to participate. So can I open the floor to questions? In the middle of the room here. Thank you.

[ Ben Kaplan ], private shareholder, a number of entities. Can I ask a question first before I can actually ask the question? What's the timing on SpaceLink? Because what seemed to be indicated previously was, I think, June or May '24, you had to be up and operational.

I'll invite Ben, and we also have Glen Tindall over there to answer the question. So Glen do you want to...

That's not a hard question.

No. Glen, do you want to answer?

Yes. So we did [indiscernible] June 2024, which is the sort of [ plan ]. So that's about 25 months. So we're [indiscernible]. So we're getting [indiscernible].

Because it sounded like in the strategic review that you could possibly be letting SpaceLink go. Would that be an assumption to -- that could be drawn?

I think it's a very large assumption that could be drawn. We are working towards implementing SpaceLink, and that's been a large part of what the strategic review is. But as we've said on a number of occasions, we're considering all options. But I wouldn't make the assumption that we're letting it go.

Right, because last year at the AGM, Ben Greene indicated that the funding was going to be done externally from EOS rather from internal source funding, that you're going to create a new entity for funding. Is that still the case?

And I'm going to ask Ben to answer that question, and we've got a microphone up along the podium there. So Ben, would you like to answer that question, please?

Is this on?

Yes.

So the guidance we gave a year ago, I think your recollection is not wrong. We gave guidance that there was no intention on the part of the company to impair dilution of shareholders at that level to fund SpaceLink. And since then, there have been other developments, and it's moved into a domain where it's in a strategic review with the funding. I'll put it in my way. The fundamental interest of shareholders have got to be represented at all times. And if there have been changes in the strategic environment with SpaceLink, it should be either increased or decreased in priority or increased or decreased in our commitment to it. There is a process which is outside -- obviously, it includes the company, but it's an entire strategic process. Because we've talked about all the opportunities in defense. We've talked about how well we believe we've positioned the company in other areas. As Peter said in his opening remarks, there are tremendous growth opportunities within this company. There may or may not be capital to meet all of those requirements. There may or may not be strategic partners to spin off into different activities with. That -- making those judgments is something that the company has decided should include a much broader strategic assessment with an objective assessment of the value of those enterprises in their own right, both as stand-alone and in various configurations and strategic partnership.

Surely when the Board...

That's a third question. If there's others who want to ask questions, perhaps we can invite them and then we might come back to you if there isn't. Thank you. Anyone else? Right down the front here. Thanks, Margarite.

[ Justin Cage ], just a shareholder with numerous entities. I was just curious -- Deena Shiff, welcome to the Board. I was just curious, you've been on the Board now for 3 or 4 months. Just your initial overview of the -- or thoughts of the company.

Thanks for the question. I've been on the Board for 5 months now. I chose to join this Board and to come off another Board to free up capacity to do so in the knowledge that it's an unusual company in the Australian domestic environment for technology. My executive career was largely with Telstra, and before that, with OTC. So obviously, have a strong interest in communications and very interested in what the Board is doing in the space and believe that having been a professional nonexecutive director for 10 years, I can make a contribution to things like the strategic reviews that are going on now.

Thanks, Deena. Just secondly, just the cost of that U.S. facility's been, if you've had that running -- the U.S. facility -- manufacturing facility that's been running now for 3, 4, 5 years. Just curious on how do you see that playing out? The U.S. contract -- or the bigger U.S. contracts at this stage haven't come. Do you think there is -- once you get this certification clearance with that facility, how do you see that plan playing out in that U.S., I suppose, market?

So Justin. Grant, can you come up here? So I'm not passing the back. I'm very happy to take the entire question myself, but we've got someone who knows more about that than me. And it would make sense for shareholders to hear from Grant.

There are 2 markets in the world -- defense markets really, there's the U.S. and there's the rest of the world. That's the way it generally breaks down in terms of value. We've had a strategic decision made 4 years ago that we would move back into the U.S. market for defense products. And there are a number of basic building blocks that you're required to be able to do that. It's -- every market has its own particular limitations. None of the defense markets in the world are open markets. You have to comply with a significant number of market realities and government restrictions. The United States is ostensibly an open market, but they will buy only from American entities, unless they have no other choice to do so. To get the tick in the box to become a Category 1 supplier to the U.S., you have to jump through all of the certification hoops. That process has taken significantly longer than we originally anticipated. Part of it is to do with COVID. It's a heavily bureaucratic process. But the other big part of it was that the U.S. government over the last 4 years is to fundamentally change the security parameters around how it wants to engage with -- our industry should gauge with the United States. They learned a lot of tough lessons about the control of IP, in particular, from dark money flowing into the U.S. system. So rather than being just a full security accreditation, it became very much a commercial accreditation process for the company. All the Board members have been through some pretty deep reviews by the U.S. government, the flows of our capital, how we're structured has all been wrapped up into that process. We are at the back end of that. We're literally waiting for the guy in Washington to sign our certificates, so we can hang it on the wall, and that should happen within weeks. We've also run into COVID, and we've also run into some pretty destabilized times in the U.S. So the U.S. Defense Department has been running under a continuing resolution for its budget for the last 2 years. A CR is reflective of a congress that can't approve a budget because of other political reasons. Under a CR, no new major programs can start. A CR keeps the lights on, keeps the system running. Anything that's already been previously approved can run on the budget that it originally had, which is duplicated, but you can't start new major programs. So the main programs that we went to the U.S. to win, which is the light recon vehicle program, the infantry squad vehicle program and to be involved in the optionally manned fighting vehicle program, none of those have -- 2 of them haven't been approved yet. So they're still -- we're still waiting for them. They were supposed to be new starts in 2020. We are hoping that the CR is -- all the information we're getting out of Washington is that because of Ukraine and because of China, even the Republicans will approve our budget this year for President Biden. And that we'll be out of the CR envelope for at least 12 months until whatever happens, happens politically in the United States. The major programs are all still there. We are -- and of course, there's also the Ukraine issue. So there's a bunch of -- $40 billion was approved last weekend for Ukraine for immediate rollout of capabilities from the U.S. to the Ukrainians. We are significantly engaged in that process, but again, that took almost 2 months longer than it should have to get approved. And we -- as Ben mentioned earlier, we've been working very hard over the last 2 years to get our war stocks up. So we actually have stock that we can move very, very fast. So I expect -- I'm hopeful that we will be able to continue to work closely with the U.S. government to generate the outcome that we're looking for. The team in the U.S. is heavily engaged. The demonstrations that we've struggled very hard to achieve over the last 2 years during COVID, I think have paid dividends. The counter UAS, working with the U.S. primes. We have really -- we've effectively demonstrated to the point now where we have U.S. -- very large U.S. companies telling the U.S. government we're the only company that can do what needs to be done, and I expect that to pay off as well. So yes, we're aware of how long this has taken. It -- and we're not investing because we're stubborn. We're investing because we actually believe the strategic goals and the outcomes will pay significant dividends in the short and medium term.

Thanks, Grant. And thanks, [indiscernible]. Anyone else? Over here on the wall, please, Marguerite?

Mark [indiscernible], a shareholder [indiscernible]. You might recall, Ben, 6 or 7 AGMs ago, in a different room, I asked a question about cybersecurity. My question is quite simple. Has EOS' systems ever been penetrated by foreign hostile power?

Our main systems, to our knowledge -- and we have very good tripwires in our systems, our main systems have never been penetrated by foreign hostile power. We have had one penetration of a part of the EOS group that is not part of the central Canberra operation. That penetration was limited by tripwires to a very minimal level. And so -- and it's not determined yet because we were not able -- and the people who do these things were not able to trace what that agency was, whether it was commercial or whether it was actually foreign power. But we do know that there was no loss of data, and there was no major penetration.

Right up the back, I've got one. And then there's one just on the left-hand side, midway.

Yes, [ Glen Myers ], a long-suffering shareholder for about 20-odd years. And I'll see now market capitalization dropped from effectively a loss of $0.75 billion under the stewardship of some of the Board members and Ben. And I'd like to understand how you can go and spend $49 million on space and then employ someone else to conduct a strategic review when I would have thought that would have been under the stewardship of the Board and the CEO.

Thanks, Mark. Ben, would you like to handle that?

I think the strategic review is partly driven by the opening part of your comment, which is the market capital of the company has pulled back, and that's a separate issue for which we have to be held accountable in another sense. But in -- the context of your question was, would that fall in market cap? Why do we need a strategic review? It's because of all the things we've talked about in this room. The Defence business has diligently produced profit and met customer expectations and continued to invest in R&D. So the Defence business itself is poised to grow very significantly. In parallel with that, the SpaceLink activity has changed dramatically as well in terms of its cost effectiveness. The barrier to entry in terms of capital, the profitability of the business model, all these things have improved in parallel with what we see as the potential improvements in the growth options in Defence. The third element, and I couple them together, has been the market capital and the share price issues at EOS coupled with a decline in a more difficult market and in particular, the inflation prospects in the global economy and the impact this is likely -- we say likely to have on interest rates and therefore, how that flows into the share market and access to capital. And another element here which we have taken account is there are still very large pools of unused capital, but the expectation in terms of return on those pools will change as inflation starts to gather momentum. So there are all these elements. And I'm not saying the Board doesn't have the wit to calculate these, but because there's so much at stake for long-suffering shareholders -- and I take your point, there's so much at stake for long-suffering shareholders, it seemed appropriate to the Board that there should be an independent review, not us reading our own tea leaves. It should be an independent because there's always a tendency -- and we have to admit this happens. There's always a tendency in companies if you invest $100 million in something, you want to believe it's worth something. So given the breadth of opportunity and the acceleration of those opportunities because of the landscape that Peter talked about and the momentum that this company has built with our customers, it's not set off enough. Not one of our customers is in dispute with us. Not one of our customers says our product is not the best thing they've ever had. Not one of our customers says they don't think they're getting value for money. So we have -- we -- all the fundamentals are right, but the picture is -- the growth options are so diverse and the environment is so complex and the company itself is invested and therefore, could take benefit from having an independent. And Greenhill has never had any association at any level ever with this company. So it's a completely clean skin approach to looking at what the strategy of the company is and where -- and how much capital is likely to be available under what circumstances and from what kinds of parties for which kinds of growth opportunities. And that's a dimension, I think, that adds value to shareholders. And it adds frustration because it seems like we're inserting a delay. But another shareholder asked a really good question, what are the -- which I interpret as what are the deadlines driving us in terms of SpaceLink? And are we still going to meet the mid-2024 deadline? And Glen answered that question. So within -- and I put that caveat on it, within the constraint of what fundamental deadlines are we facing, and that seems to be one of them, another one seems to be Russia's invasion of Ukraine has accelerated something, so the Defence questions need to be answered maybe this year rather than next year, so they've been brought forward. So there's a whole strategic complexity about the company. And as I said, I believe my colleagues on the Board have the wit to resolve this, but it's in the shareholders' interest to step back. If we have time, step back and say, "Let's have someone independent, who's never been involved in the company before, who's got credentials in the marketplace to look at such things and give us an independent review of what our -- how we should set our priorities and what the diverse range of options we might be." There might not be a monolithic approach to let's just put in a lot of money and do everything we want to do or might want to do. There might be joint ventures. As Peter said, there might be mergers, there might be joint ventures at a more fragmentary level. And so I understand the frustration you have in the question because the long-suffering part is quite apt, but I hope I've answered your question.

Not really because that's the issue, all should be doing the strategic review themselves. That's [indiscernible].

Perhaps I could just add a little bit here. It is a Board review. We have a capital committee, and David is -- and Deena are on that Capital Committee. Ben is working with them in the more operational -- some of the financial sides, but it is very much a Board activity. David, would you like to say a couple of words?

Yes. Look, I think I'd just reiterate that the absolute focus of the Board is rebuilding and maximizing shareholder value. That is the #1 focus of the Board at the moment. The strategic review was initiated by the Board in that context. It is a broad-ranging whole of business review, exploring all the opportunities. Clearly, Ben and Peter have spoken about the significant opportunities facing in front of the company. We do not have the resources or capital to adequately exploit all of those opportunities at the speed that we would like to. Greenhill are assisting us with prioritizing those and also reaching out to potential investors, financial or strategic, to assess what the market appetite for entering into arrangements to move forward those businesses as quickly as possible but with the fundamental objective of rebuilding shareholder value and maximizing shareholder value.

Would you mind if I leave it there, please? Glen will just go to another question, which is in the aisle just on your right-hand side, Marguerite?

I suspect the answer's going to be more of the same, so [indiscernible].

Okay. Anyone else? In the front of you, please.

Yes, so I just have a question about whether...

Can we get your name and affiliation, please?

Oh, I'm sorry. [ Graham Newen ], private investor.

Thank you.

Just wondering whether your reduced market capitalization is affecting your business in that the type of clients you deal with are used to dealing with billion dollar companies. They'd rather deal with a $20 billion or $2 billion company, then a $0.2 billion company. I'm just wondering what your take is of that.

We'll get Ben to answer that.

I think in general, your comment is sound. But I'll point out that this company has won a multibillion dollar contract from the U.S. Army when it was sub-$50 million market cap. We've won a $500 million contract from a valued customer 3 years ago when it was a sub-$50 million company. So it's about relationships. And I want to make this point very carefully. I made it in my talk. We don't have 300 customers or 200 or we don't even have 50 customers. Our products fall into a category that are so tightly controlled, we have less than 20 customers around the world. Thankfully, they're the biggest spending customers in the western world and in allies of the western world. So it's very much a relationship-based business. And the relationship is not he's a good guy, we're a good guy. The relationship is based on decades of confidence in the technology, the quality of the company, the quality of the people, the integrity of the processes we apply. And all these things, I mean, it's not in our place normally to talk about such things, but you've asked the question, these things transcend the market cap issue to a very large degree.

Thank you. There's another question behind you there, Marguerite, on the right-hand side. Thank you.

[ Lawrence Rodney ], a private investor, been a shareholder quite a while. Ben, I've listened to you each year for the last 20 years. And the way I see it now, the story is much the same. You talk about the technology, all the IP, all the wonderful opportunities the company has, which no doubt is true. But at the end of the day, it matters not if you don't have the ability to monetize those opportunities. As I said in 20 years, I mean, you have 2 sources of income at the moment. One is EM Solutions, a wonderful business. That was an acquisition. And the only part of your technology that I understand you've monetized to date is the -- in the Defence Industry, the weapons control system, which you've mentioned, there's a slight issue in terms of the order backlog. You mentioned a few years ago, and it's interesting to hear what you say today about the opportunities in space and issues with particularly tracking items in space. I remember it wasn't that many years ago, you told shareholders that monetization of that opportunity was not far away because you have this wonderful opportunity and deal with Lockheed. You had built a base station in Western Australia on government-owned land. You were shortly going to build a new base station, which was required and you explained why, in Queensland on government land. And we've heard no more since. That seems to have evaporated without mention or explanation. It was a wonderful opportunity that was going to be a wonderful source of income, recurring revenue, selling data, particularly about space junk to some key customers including potentially the U.S. military, obviously. It disappeared without a mention. Perhaps you can explain because here today, we're hearing again about all these wonderful opportunities.

So I'll hand to Glen in a second. But I will say because Glen wasn't here in the meetings you were talking about, before I hand over to Glen to talk on what the current is, the program you're referring to is called JP9360, which was a government-funded program 6 years ago, 5 years ago. Still is a funded program today. It's coming to award this year. The government deferred that for successive years, partly due to COVID and partly due to the fact that it withdrew to form the [ Defence Strategic Command ] for space. And that's all now done and all those programs, which were effectively suspended. And Glen will give you a more refined and even more accurate view of this. But from my position, because I spoke to you at the time and I recall the conversations, we were talking with Lockheed about 9360 when -- pre-COVID, when Lockheed felt that 9360 was going to be deferred as it was by 4 years and wouldn't come to contract until this year, Lockheed didn't have the patience to stay. And one might argue that where was the logic for us to maintain our patience. But they, Lockheed, withdrew from that venture with us by mutual agreement, by the way. And so I'll hand over to Glen to give a prognosis on where that is now because the names have not even changed, it's still JP9360.

Yes. So look, as Ben said, I can only speak to the last couple of years. Space Domain Awareness as a thing has been around for a while, but it's basically been science, right? So there's been organizations like EOS, like universities and others, that have been developing technologies for tracking space junk and doing things. And it's a scientific curiosity. Everybody is interested in it, but who the hell pays for it, right? So now that the space has been officially recognized as a war-fighting domain by the Australian military as well as many other nations, they're looking to conduct operations in space. The first thing you need to have is awareness of the domain in which you're operating. So all of a sudden, Space Domain Awareness is a thing that the government must have. Now they could keep on relying on universities and companies like EOS that are doing it on a shoestring to make all this stuff happen, but that's not the way the military operates. The military wants Space Domain Awareness as a service in a secure wrapper, where all of the IT systems are built up and it's a highly reliable and resilient system. So we've been continuing to invest in that. If you also think back 3 years ago, there was no space command in Australia. So it was a -- sort of part of the Air Force. There is now an independent, if you like, space command, that's been tasked for building up a space capability in Australia. The programs of record in the integrated investment plan totaled more than $10 billion just for Australia, right? So we're at the -- government and Ben mentioned a program like -- called JP9360, that's got multiple phases in it. Some of those phases are applicable to EOS. And we have very favorable prospects of being awarded contracts under that suite of programs. And that is the reason that we said, although this year, the Space Technologies division or a part of EOS is -- was underperforming, we expect it to return to profitability in 2023. And so that's the reason. I'd also highlight that in the strategic context, the U.S. government also is very interested in Space Domain Awareness. But lo and behold, what can they see from the continent of the United States, they can see the northern and western hemispheres. They can't see the southern and eastern hemispheres, but space is a global thing, strangely enough. So the partnerships between Australia and the U.S. are very significant. And the programs such as [indiscernible], which are strengthening those relationships, will inevitably a closer relationship in Space Domain Awareness as well. And so for those reasons, we think the investments that are being made in Space Domain Awareness are going to deliver. And you could argue that the previous years, they didn't pan out. The buyer was not ready. It wasn't -- it was looking like they were ready, but they weren't ready, and we think that they are now.

Thanks, Glen. Any other questions? Yes. Thanks, Lawrence.

Another question for you, Ben. Last year, obviously, one of the things that was already being talked about was the share price. And if I recall correctly, you had no explanation other than the action of the short sellers, for whatever reason, was obviously a large short sale position, I think it's fair to say with what we now know, looking back on it, the short sellers, as often is the case, they short sell for a reason. And I would put it to you that, that reason is the effect on the company and its balance sheet of SpaceLink, a -- which has led you to spend money you didn't have, but for the first time in those 20 years, taking on debt, taking on debt from a second-tier lender, which does not reflect well on a -- even ASX 300 company. And if we go back a couple of years when you first started talking about SpaceLink, you told shareholders -- apart from telling us what a wonderful idea it was, you told us it would not be a financial drain on the shareholders because it would be set up as a separate vehicle, which EOS Limited, I hoped and expected, would work towards holding a majority interest in, but that separate vehicle with funding from other entities that would join in that special purpose vehicle would carry the cost. Speaking to many other shareholders, I think it's fair to say after last year's AGM, a lot of shareholders were in shock to learn that you, in fact, had spent, I think it was $47 million or $48 million of money, which it's fair to say you didn't have. And in so doing, you, in effect, have bet the house. You put the company into, I say, into jeopardy because of that expenditure and taking on that debt. You talked about the long-suffering shareholders, that suffering appeared to have ended 2 or 3 years ago. And we had a share price that was going up. We had a profitable company. And it appears that it has all turned around, not because of COVID, but because -- directly because of SpaceLink. How do you explain what you told shareholders a couple of years ago in that SpaceLink would not be a financial drain on EOS Limited versus what has now taken place? And at what point, if you don't get the funding, which has been coming, coming, coming from outside sources, at what point -- is there a point -- putting aside the strategic review, speaking as the CEO, is there a point where if that funding doesn't materialize, you take it on the chin and cut your losses?

I won't comment on the strategy of shorts. But as you say, they often have their logic and best looked at in retrospect as you're doing now. The issue that you raised, I think, is a reasonable one, and that is -- but the one point I'll make is I don't think it -- the investment was quite at the scale that you said a year ago. It's quite clear we've declared how much we've spent up until now. The clear commitments that we made to the company, both in 2020 and in 2021, were that -- looking at a capital investment program of $1 billion, it was not reasonable [ to contemplate that this ] would be funded by EOS shareholders. So I think the -- that was clearly stated that there was no intention that there would be a dilution of EOS shareholders on that scale to fund SpaceLink. Now I take your point that the company has spent some fraction of that to keep exploring and developing and surfacing what the real value is SpaceLink might be. And as a -- as the Chairman has said, other people are now determining that independent of management of the company. They've gone out independently to assess what the value of that particular investment might be. In parallel, of course, we've been making investments in Defence also. And it's -- what your question is not the investment in the space, in the Defence portfolio, but the investment in SpaceLink, per se, I think, and whether or not that's the fundamental reason for the decline in the share price. And when I look at -- the peak of the share price was 27 months ago. And 27 months ago, it was -- I think share price peaked a bit over $10 and the market cap of the company was about $1 billion. These are [ painful facts known to all ] major shareholders -- all shareholders, sorry, not just the major ones. And the Board of this company and the company itself looked at that share price decline every quarter along the way and made decisions about what was appropriate in the best interest of shareholders. Now as I said, it's easy to be wise in retrospect. And I don't even know what the conclusion would be if you had that postmortem, but those were decisions were made. I think the -- what we're dealing with now is the present, and this company took a view in the latter part of last year, let's say within the last 9 months, that a more objective process was required around this and started reaching out to get from strategic investors, particularly people who would be close to this type of investment in their normal course. I think that's the best way to put it. And so that's a comment -- sorry, that's been rolled into because Defence is also part of my strategic review of setting priorities and what the go forward is from here. The decisions that come out of that will be independent of without, I guess, you'd say, fear or favor as to what investments have been made in the past. So it will be purely with a view to what's best going forward. And when those decisions are made then, then we can look back and see whether the company, even though it thought it was acting in the best interest of shareholders throughout that whole 27-month period, whether the company was, in fact, correct or not and what decisions -- what conclusions you draw from that.

Thank you, Lawrence. There also will be a second question for you, Ben, why don't we go to you for a second question, and then I'll be looking to sort of curtail the questions and move to the items of business as per the notice of business.

Clearly, SpaceLink is the flavor of the month here. Based on the time line that you've got left and seeing you're waiting from a third party to tell you what you clearly seem to know yourselves anyway because you can't get funding, when do you start to extricate yourself? And will there be any value for the shareholders in the extrication against the funds spent or will it be a total write-off?

I'm going to ask David to -- because this is a question we've been asking ourselves. So I'm going to ask David to make a comment on that. And then we might go in terms of what's left, perhaps to Glen.

Yes, like I think as I touched on before, the strategic review is covering all options ahead of the company and how we maximize the value. And that may involve -- as Ben and Peter touched on earlier, it may involve funding projects. It may involve exiting projects. It may involve joint ventures. Clearly, abandoning SpaceLink would not be a great -- well, sorry, let me rephrase that. We have the objective of maximizing shareholder value. Clearly, one way to maximize shareholder value is to extricate as much value as we can from SpaceLink. And that is clearly the intention of the Board that we will maximize the value of all of the businesses that we carry within EOS.

But based on the time line of 24 months, is there time for anyone else to buy this and utilize it? Or is it just handing it back to the regulator?

Yes, I won't comment on the spectrum. I can comment on the strategic review. It is well progressed. It has been ongoing. And we expect that we will have some -- as a Board, we'll be making some decisions coming out of a strategic review in the next few weeks.

Which is actually one of the frustrations. We're close, very close. And we've also had the requirement to have the AGM. I said we.

Sorry for inconveniencing you with it.

Well, it's -- we'd like to be telling you what's going on, we're just not there quite yet. Down the front. Down here please.

I understand from what Glen was saying that there's only 1 month left. Is that right, Glen, before the window closes to use that spectrum?

Oh, I'm sorry if I miscommunicated. No, that's not quite correct. But typically, we've got 25 months left to bring to use the spectrum. And there are ways to get there and -- but we will need to be making a decision fairly soon.

And I think it's [ ready ], if I'm right. Down the back, please.

My name is [ Fred Bart ], a private shareholder. I promised myself I wouldn't say anything, but I can't help myself. So a couple of things. First of all, I think the technology is excellent. It always has been. There's -- but I think there's been some problems in terms of commercial acumen on the Board for quite a long time. And the Board has had certain input from the CEO. And my question to -- with the exception of the new Board members, Deena Shiff and David Black, I'd like to ask the other Board members, including Ben Greene, to please articulate for shareholders what information was given to the Board and shareholders in terms of the prospects of getting funding for SpaceLink prior to having committed -- or committed the company on a course which currently, we've got potential bankruptcy if we don't get funding. Can you hear me?

Yes.

Potential bankruptcy. We talk about wealth creation. All we've had is wealth destruction. That's a fact. And if somebody looks at the balance sheet, you've got -- I presume there's still $30 million owing to the lender, which is due in October, which has got to be paid. The company desperately needs to raise additional capital to run or cancel a whole lot of programs. So I'd like to know what evidence of -- what documentary evidence did the Board have and to share with shareholders to make the decision to pump the whole company, yes -- to pump the whole company on a project to take our capital, [ punt it ]. I'd like to know because we've spent, as Lawrence said, $40 million or $50 million. There's no guarantee in any way, shape or form that money is going to come from this strategic review. And I would have thought that before you embark on a policy to bet the company, yes, you have some documentation or assurances that you're going to get the money because you started off with a project for USD 1.2 billion. The fact that it's been reduced from $1.2 billion to $280 million is -- doesn't really matter.

Ben, do you want to work on that one, please?

So I think the question specifically was what -- if I read correctly, what documentary evidence did the Board have in front of it. And as I recall, the first Board meeting on this [ basic ] was in September of '19, when the Board authorized a $10 million expenditure on SpaceLink. Of course, without any documentary evidence, the $10 million at that time, I think, was a very small percentage of our market cap. And I don't think we need to revisit that decision. I think what you're addressing is subsequent decisions. And the documentary evidence that was put before the Board consisted principally of forecasts that documents would happen, which then did subsequently happen on the schedule that were proposed. One was the U.S. government security clearance approval for us to acquire the businesses that we then transformed into SpaceLink. And that was -- I think the Board, quite rightly, read into the fact that in the middle of COVID, that was the fastest security approval that U.S. Treasury Department, who give such approvals on behalf of DOD, that was the fastest on recent record in the middle of COVID. So that's one document. Second document was the approval, the award by the FCC committee, which is chaired by the head of the FCC in the U.S. And then the subsequent approval of that in a documentary form by the U.S. government of the transfer of all the licenses to EOS. So that would be the second document. The third one would have been the customer lists that were submitted showing the -- and by the way, the initial customer list for SpaceLink, predominantly U.S. government agencies, organizations or entities operating in that space. And that list was submitted to the Board and was subsequently resubmitted many times as it was reviewed. And so those -- and forgive me, I'm taking this question up without notice, I'm quite happy to go back and look at notes. But those will be the 3 sets of documents that -- I think the other things would have been documents that's submitted to the Board in 2020. And bear in mind, in 2020, the business models were based on billion dollars -- AUD 1.2 billion cost. The business models, which were documents submitted to the Board, looked sound, and they've only improved since. So those -- that would be the document set that comes to my mind. Other directors will have a different recollection perhaps.

Sorry, it doesn't answer my question. My question really came back down to the -- all those documents, I'm sure, were there and table. The question was at that time, you had a market cap of $300 million or $400 million. You took on a project to fund USD 1.2 billion. Was there any assurances? Or can you tell shareholders what assurances did the Board have that the money was going to be there? Because without the money, it was commercial incompetence to go ahead and fund that.

I'm just a little bit confused by the last part of your question, the commercial incompetence to go ahead and fund that. I mean it would have been -- and as I recall, our market cap was -- and this was discussed at the Board at the time. The initial decision was made in September of '19. The CFIUS approval and the FCC approvals came through, I believe, in the end of February 2020. And at that time, the market cap of the company was about $900 million. And the discussion at the Board was some small fraction that mean much less than 10% of the market cap of the company, it was not inappropriate to develop the asset. So everything has its own context. And I know that, Fred, you're in the room and you can test the veracity of what I say as I go. The context that the Board is operating in, in the first quarter of -- and I recall very clearly and I've got my own notes that the Q4 '19 meetings authorized $10 million, which was enough to explore the option and go forward and see whether the U.S. government actually was as supportive as the management was reporting. And the U.S. government doesn't give you letters of recommendation. It reflects its views and its position by its actions. And it acted through its 2 agencies. One was the FCC and the other one was through the Treasury Department, which controls foreign investment and control of national security assets. And it acted with a degree, I think, of alacrity, which I think gave the Board, at the time, as -- quite a bit of comfort. So the commercial incompetence relates to the scale of risk. This is why I would -- and other directors will have their own view. The term commercial incompetence reflects judgment on the scale of investment at risk relative to market cap of the company. And at the time, and I have to go and check this, the general parameter that management was working from the Board at that time, even after the U.S. government had voted its confidence in the approach we were taking and accelerated our rights to the spectrum, which everyone in this room knows, is the largest allocation of spectrum ever given to any company, the scope that we were working with was some very small fraction, way, way under 10% of the market cap of the company at that time. Now you say the market cap was $300 million. But the market cap at the time was closer to $900 million. And the percentage was never expressed direct to management by the Board, and I know you were there. But the number that management was working with was way, way under 10% of the then market cap of the company. So when we embarked on this journey -- and at the time, we made it very clear, in May of 2020, and again in 2021, we said -- and of course, by 2021, the market cap was different, but that's -- the decisions that were made in 2020 were based on a completely different environmental context. Now I will say that the commercial environment is -- I agree with you on one point that you made, commercial environment hasn't really changed as much as -- the capital requirements have shrunk dramatically, but the capital environment because of that issue that I raised about inflation and potential interest rate rises, I think the capital environment has almost exactly compensated. What's improved dramatically has been the actual return on investment of whatever capital you invest, that model has improved dramatically. So if we were to take what we would know today relative to what we knew 27 months ago, when the Board committed to this direction, you'd say there's a setoff between fantastic improvement with us collaborating and working with space development agency in the U.S. to reduce costs compensated by a deteriorating environment, not that there's not a lot of capital, but there's a deteriorating environment in terms of interest rates, potentially, we all know that's coming. So those can offset each other. What has changed is the consolidation of the customer base around the solution and the willingness of customers to move forward.

Can I just rephrase it another way because we're getting long, convoluted explanations? Would it be fair to say that your expectations of funding and how you expressed your expectations of funding from various parties, whether your expectations were correct or incorrect, but your expectations of funding and how you presented that to other Board members didn't materialize? I mean that's a fact because it hasn't materialized to date. And Board members made the decision to go ahead -- not all of them, but some of them made the decision to go ahead based on those assumptions or presentations or representations that you made, in hindsight, would you say that wasn't an appropriate thing to do or decision to take based on those representations?

I'd have to disagree. This is a point -- a very important point. I fundamentally disagree because the representations have proven to be the opposite of what you said. All the representations have been proven. What was said to the Board at the time was management has had interactions with the customer base and with the governments involved. That's why we -- I know what I said to the Board, Fred, and we have no reason to believe that there won't be support forthcoming. We sit here today, the Commonwealth and -- the 2 governments that are involved in this are the Commonwealth of Australia and the United States government. The Commonwealth of Australia has -- through the government has indicated its support for this program. And we've made an announcement citing what we've received from government agencies on that front, even this year. So the -- and at the level of control of the national interest account of the Commonwealth of Australia, our interactions continue to be and reported transparently to the Board as they were then 2 years ago, continue to be very strong support for SpaceLink. So -- and now it's -- now there are documents hitting the table that support that. So I disagree fundamentally because I think you -- I think there was -- I'm not sure you meant it, but there was a suggestion that the Board could have been misled. So the key elements of information to the Board at the time were customers and government support this and are shaping to provide funding support in one lever or another. We had no reason to believe that the support we're getting from the Commonwealth will not be followed by -- no reason to believe this at all, that it will not be followed by parallel support from the United States government. So...

I can't speak for the rest of the Board, but my certain -- my impression was I certainly was misled, and I can certainly express my view that coming up over the next couple of months that if we don't raise capital, we will not be able to continue. So I would have thought that, that decision on its own speaks for itself. Maybe the strategic review will change that. And the share price will dramatically run up. The only beneficiaries of that, to date, are yourself. You haven't -- the share prices, as you rightly say, decreased from $10 to $1.80 or $1.90, yes. Salaries went up on the basis that we're going to be an ASX 300 company. They didn't come down because we were thrown out of the 300. They haven't done that. The only people -- as you rightly say, every year, the only people who are disadvantaged are the poor, suffering shareholders.

I'll give my point of view of what went on. And I think the point here, most importantly is that it hasn't been funded yet, but there is every prospect. And I've seen over that time that we've been developing a very, very compelling business case. And you wouldn't expect that at the start of -- we've got a bit of spectrum. We've got these capabilities that the funding would be there. We've been developing that business case, and the strategic review has allowed us to have a good look at that. And within weeks, we'll be able to make a decision. And there is an anticipation that the funding will be there. So I think it's worthwhile waiting. So I think I might just [ cease ] Lawrence one more, and I think I'll then go to the business of the meeting. Thank you.

Thank you, Peter. So the question for you as Chairman of the Board, it looks like from the numbers you put up, Ben will be reelected as a director. I don't think there should be any joy for Ben based on the numbers put up in that he'll be reelected with basically 10% of the total shareholding. So I call it a low -- very low vote to turn out. And I suspect a large proportion of those votes in favor are coming from the employee share scheme or whatever you call it. But the question really, Peter, is Ben is the only executive member of the Board of Directors. In every other public company I can think of, when a CEO has presided over such a drastic underperformance, destruction of shareholder value and -- which I think depending on how you calculate it, is close to $1 billion, any other public company Board that I've seen presented with that situation forces -- follows a particular course of action. And basically, the CEO's position is usually -- has, at that point, become untenable. So why has the Board which you now chair, not done anything about Ben's position as CEO? And in asking that question, I acknowledge Ben's value to the company on the scientific side of things with his knowledge and experience on that other side of things that's fundamental to aspects of the company. But I think there's an overwhelming feeling amongst shareholders that -- especially given what's happened in the last couple of years that Ben should not be the CEO.

Lawrence and others, we're certainly aware that there's agitation by some and I'm not sure what the mathematics and the number of voting and so on, but we've got a clear result today that he's been reelected. I know it's not -- it's probably not finished, but there's a reelection pending there. We're aware of the agitation there. With the strategic review not being yet complete, we are anticipating as a Board that any outcomes from that review will shape the skills required from the C-suite to take the company forward. And certainly, I think, internally to the company, there's been some really good work done on succession and transition. CEO succession and other broader succession planning is taking place, and Ben is very much involved in that, and we are talking about exactly these sorts of issues as a Board and in private. As you've correctly noted, Ben has a unique set of scientific, technical, strategic and managerial skills as well as the personal trust and confidence of many of our customers across the globe, and that has been instrumental in the development of the company over the last few years. And the Board acknowledges Ben's expertise and experience and supports his continued and active involvement in the company. So with that, ladies and gentlemen, if I can indulge and thank the question askers. And I know that a few people are starting to leave, so I think it's probably time now to turn to the items of business. So why don't we just go there? And I'll allow you to have a bit of a look at that while I get some notes up here. Thank you. Again, I thank you for your questions and for your interest in the company. So you'll see here -- just allow me to fire up my computer. You can see here that this is the business of the meeting as detailed in the Notice of Meeting dated 27th April 2022. With respect to each item of business, there will be time for questions before casting the vote. And I would suggest that we'd be fairly specific about how those questions are related to the item of business at the time. So the first item of business is the consideration of financial statements and reports, to receive and consider the financial report, directors' report and auditors' report for the financial year ended 31st December 2021. The reports have been made available to those shareholders who've requested copies and have been lodged with the ASX as well as made available on the company's website. There is no vote required on this item. However, shareholders may wish to make a comment or ask questions regarding the financial statements and report. Does any shareholder have a question or comment? As there are no questions, we'll move on to item 2, and this is the reelection of Dr. Ben Greene. To consider and if thought fit to pass the following resolution as an ordinary resolution, that Dr. Greene, who retires by rotation in accordance with clause 60.1 of the constitution of the company and being eligible, be reelected as a director of the company. Given my statement earlier, I would now state very clearly that the directors fully support the reelection of Dr. Greene as a doctor -- as a director of the company rather. Does anyone have any questions? Given that there are no questions -- sorry, I thought I saw someone move their hand down there. No questions. Can you please mark your blue voting paper for this resolution? So those who have a blue voting paper, now is the opportunity to mark. [Voting]

Item #3, reelection of Mr. Geoffrey Brown. The next item of business is to consider and if thought fit to pass the following resolution as an ordinary resolution, that Mr. Geoffrey Brown, who retires by rotation in accordance with clause 60.1 of the constitution of the company and being eligible, be reelected as a director of the company. Geoff has served as a director for 6 years and brings immense military and other knowledge to his role. His reelection is fully supported by the directors. Does anyone have any questions? Can you please mark your blue voting paper? [Voting]

Item 4 to consider and if thought fit to pass the following resolution as an ordinary resolution that Ms. Deena Shiff, who was appointed as an additional director of the company on 7th of December 2021, retires in accordance with clause 59.2 of the constitution of the company and being eligible, be reelected as a director of the company. In the short time that Deena has been involved with EOS, she has brought considerable and commercial business acumen to the discussions of the Board. Her reelection is also fully supported by the directors. Does anybody have any questions? Can you please mark your blue voting paper? [Voting]

Item 5, the remuneration report. The final item of ordinary business today is the remuneration report to consider and if thought fit to pass the following resolution as an ordinary resolution that the remuneration report section of the directors' report of the company for the year ended 31 December 2021, be adopted. Please note that the vote on this resolution is advisory only and does not bind the directors of the company. All management and key personnel are excluded from voting on this item. Are there any questions? There have been no questions. Please mark your blue voting card. [Voting]

Ladies and gentlemen, this concludes the formal part of the meeting, and I now ask that Computershare goes around the room and collects the voting cards. Once that's done, I'll be able to close the meeting. I'll just wait a short moment here and ask those people who might still be filling out their cards, so please take your time, and we'll collect everything through Computershare. If you're left over at the end, just put your hand up and someone will come and take your card. [Voting]

I'll now close the polling, and the results will be available shortly. Can I thank you for your participation, your interest and for many, your passion over many years for Electro Optic Systems, and thank you for coming today. The meeting is closed, and the directors and senior executives will be available outside in the lobby if you'd like to talk to them. Again, thank you for coming.