Electro Optic (ASX:EOS) share price plunges 13% on net loss

Why did the defence, space, and communications tech company report a loss?

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Key points

  • The Electro Optic share price is down 13% today 
  • The company reported a net loss of $16.8 million 
  • COVID-19 is continuing to have an impact on its business 

The Electro Optic Systems Holdings Limited (ASX: EOS) share price is plunging today amid the company's 2021 full-year earnings results.

The defence, space, and communication technology company's shares are currently trading at $1.83 apiece, down 12%. They fell as low as $1.77 earlier in the session. For perspective, the S&P/ASX 200 Index (ASX: XJO) is up 0.51% at the time of writing.

Let's take a look at what the company reported today.

Electro Optic share price dives as profits slip

Highlights of the company's FY21 results include:

  • Net loss after tax of $16.8 million, 33.2% improvement on the loss in FY20
  • Underlying EBIT declined 12.2% to $14.3 million
  • 11.8% boost in revenue, including other income, to $212.8 million
  • 17.5% increase in revenue from ordinary activities to $211.8 million
  • Net cash outflow of $6.9 million
  • No dividend was declared

What else happened in the half?

Electro Optic said the FY21 loss was due to deferral of revenue and EBIT into 2022. However, the company's cash conversion improved in 2021.

COVID-19 had a significant impact on the business, the company said. This included supply chain costs, product delivery delays, contract negotiation and execution deferrals, less production, and restricted access to customers. This impacted operating performance and the awarding of new work locally and internationally.

The underlying EBIT loss of $14.3 million included investment of $27 million on critical product development.

The company's space revenue fell 28% due to the end of contracts. There were also delays in the awarding of new contracts. Lower earnings from contracts ending and more investment in research and development impacted the Space segment's EBIT.

Defence Systems revenue, including other income, surged 17.6%, while underlying EBIT strongly rebounded as profit delayed in 2021 was realised.

Electro Optic's Communications business achieved a 20.4% boost in revenue and solid profit. However, underlying EBIT in this business fell significantly due to higher SpaceLink operating expenses.

The company invested $37 million in Spacelink in FY21 to spearhead engineering and business development.

Consolidated revenue fell just below the market guidance of $215 to $220 million.

What's next for Electro?

Elecro Optic said it is well-positioned to support "allies" currently under intense national security pressure. It also said there remains a risk that new COVID-19 variants could impact suppliers, customers, employees, and operations. However, since the start of COVID-19, the company and its suppliers have improved resilience.

Electro Optic commented on "rising geopolitical tensions in Eastern Europe, COVID-19 and the federal election creating uncertainty for future outlook in 2022. However, management expects revenue to grow in 2022.

In its preliminary final report to the ASX, Electro Optic said:

The Company enters 2022 with substantial positive momentum from 2021, as well as headwinds [which] emerged in 2021.

Revenue deferred from Q4 2021 is on track to be received in 2022, and provided Q4 2022 deliveries are maintained on schedule, could add momentum to 2022

Electro Optic share price summary

The Electro Optic share price has plunged almost 60% in the past 12 months, while it is down 22% year to date.

Electro Optic shares have shed nearly 13% of their value in the past week.

For perspective, the benchmark ASX 200 index has returned around 5% over the past year.

The company has a market capitalisation of about $277 million.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Electro Optic Systems Holdings Limited. The Motley Fool Australia owns and has recommended Electro Optic Systems Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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