Austal FY2014 Annual Report to Shareholders

104 Pages·2014·2.88 MB·English

AAustal Limiteed
Appeendix 4E for the year endded 30 June 2014

1. The reportting period is fromm 1 July 2013 to 30 June 2014. TThe previous corrresponding periood is 1 July 20122 to 30 June 20133.
2. Results for announcementt to the market. $'000
2.1 Reevenue from ordinary activities up 24.88% to $ 1,122,863
2.2 Prrofit (loss) from oordinary activitiess after tax down 11% to $ 31,859
2.3 Neet profit for the pperiod attributablee to members down 12% to $ 31,548
2.4 Dividend distributioons
Noo dividends is paayable with respeect to the year ennded 30 June 2014.
2.5 Reecord date for deetermining entitleements to the divvidends N/A
2.6 Exxplanation of figuures in 2.1 to 2.4 that may be reqquired Refer too Review of Operations within thee Annual Report
3. Statementt of comprehensiive income with nnotes Refer too Annual Report
4. Statementt of financial position with notes Refer too Annual Report
5. Statementt of cash flows annd notes Refer too Annual Report
6. Statementt of changes in eequity Refer too Annual Report
7. Details of dividend or distriibution reinvestmment plans N/A
8. Details of dividends or disttributions N/A
9. Net tangibble assets per orddinary security
9.1 Cuurrent period ($ // share) $ 1 .24
9.2 Prrevious correspoonding period ($ // share) $ 1 .15
10. Control gaained or lost overr entities during the period -
11. Details of associates and joint venture entities N/A
12. Other signnificant informatioon Refer too Annual Report
13. Accountingg standards usedd by foreign entitties
Thhe financial stateements of subsidiaries are preparred using
coonsistent accounting policies for tthe same reportinng period as the
paarent company. TThe foreign entitiies including Ausstal USA preparee
their accounts undder accounting sttandards that aree equivalent to
International Finanncial Reporting SStandards.
14. Commentaary on the result
14.1 Eaarnings per sharee
Cuurrent period – bbasic $ 0 .09
Prrevious correspoonding period – bbasic $ 0 .12
Cuurrent period – ddiluted $ 0 .09
Prrevious correspoonding period – ddiluted $ 0 .12
14.2 Reeturns to shareholders including distributions andd buy backs
Noo dividends weree declared with reespect to the yeaar ended 30 Junee 2014.
14.3 Siignificant featurees of operating peerformance Refer too Annual Report
14.4 Seegment results Refer too Annual Report
14.5 Trrends in performance Refer too Annual Report
14.6 Other factors affeccting the results iin period or futurre Refer too Annual Report
15. Audit / revview of accounts upon which this is based Auditedd accounts
16. Accounts not audited or suubject to review N/A
17. Qualificatioons of audit/revieew No qualifications

AUUSTAL LIMITED 2014 ANNUUAL REPPORT
HIEF EXECUTIVE OFFICER’S REPORT
Contents

Contents ..................................................................................................................................................................... 1 
Index to the notes to the financial statements ............................................................................................................ 2 
Chairman’s report ...................................................................................................................................................... 3 
Chief Executive Officer’s report ................................................................................................................................. 5 
Review of operations ................................................................................................................................................. 7 
Directors’ report ......................................................................................................................................................... 9 
Message from the Nomination and Remuneration Committee ................................................................................ 15 
Remuneration report (audited) ................................................................................................................................. 16 
Auditor independence and non-audit services ......................................................................................................... 28 
Consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2014 ....... 29 
Consolidated statement of financial position as at 30 June 2014 ............................................................................ 30 
Consolidated statement of changes in equity for the year ended 30 June 2014 ..................................................... 31 
Consolidated statement of cash flows for the year ended 30 June 2014 ................................................................ 32 
Notes to the financial statements ............................................................................................................................. 33 
Directors’ declaration ............................................................................................................................................... 90 
Corporate governance statement ............................................................................................................................ 91 
Independent audit report to the members of Austal Limited .................................................................................... 98 
Shareholder information ......................................................................................................................................... 100 
Corporate directory ................................................................................................................................................ 101 

1 | AUSTAL LIMITED ANNUAL REPORT 2014
HIEF EXECUUTIVE OFFICEER’S REPORRT

Index to the notess to the ffinancial sstatemennts

Basis of prepparation ................................................................................................................................................... 333 
Note 1.  Corporate Innformation ................................................................................................................................... 333 
Note 2.  Basis of preparation ...................................................................................................................................... 333 
Current yearr performancee .......................................................................................................................................... 399 
Note 3.  Operating seegments ..................................................................................................................................... 399 
Note 4.  Revenue ....................................................................................................................................................... 433 
Note 5.  Other incomme and expensses ......................................................................................................................... 455 
Note 6.  Earnings per share ....................................................................................................................................... 477 
Note 7.  Reconciliatioon of net profitt after tax to nnet cash flows from operations ........................................................ 488 
Note 8.  Dividends paaid and proposed ....................................................................................................................... 488 
Note 9.  Income and other taxes ................................................................................................................................ 499 
Capital struccture ......................................................................................................................................................... 533 
Note 10.  Cash and caash equivalentts ........................................................................................................................... 533 
Note 11.  Interest bearing loans andd borrowings .......................................................................................................... 544 
Note 12.  Contributed equity and resserves ................................................................................................................... 566 
Note 13.  Governmentt grants relatinng to assets ........................................................................................................... 577 
Working cappital .......................................................................................................................................................... 588 
Note 14.  Trade and oother receivablles ......................................................................................................................... 588 
Note 15.  Constructionn contracts in progress ............................................................................................................... 600 
Note 16.  Inventories aand work in prrogress .................................................................................................................. 600 
Note 17.  Trade and oother payabless ............................................................................................................................. 61 
Infrastructurre & other asssets ...................................................................................................................................... 622 
Note 18.  Property, plaant and equipmment ...................................................................................................................... 622 
Note 19.  Intangible asssets ........................................................................................................................................... 655 
Other liabilitiies ........................................................................................................................................................... 688 
Note 20.  Provisions ..................................................................................................................................................... 688 
Financial risk managemeent ........................................................................................................................................ 700 
Note 21.  Fair value mmeasurements ............................................................................................................................. 700 
Note 22.  Financial risk managemennt ........................................................................................................................... 744 
Note 23.  Derivative finnancial instrumments and heddging .............................................................................................. 799 
Unrecogniseed items ................................................................................................................................................... 822 
Note 24.  Commitmennts and continggencies .................................................................................................................. 822 
Note 25.  Events afterr the balance ddate ....................................................................................................................... 822 
The Group, managementt and related parties ........................................................................................................... 833 
Note 26.  Parent intereests in subsidiiaries ..................................................................................................................... 833 
Note 27.  Related partty disclosure ............................................................................................................................... 833 
Note 28.  Key manageement personnnel compensaation ................................................................................................. 833 
Note 29.  Share basedd payments ................................................................................................................................. 844 
Note 30.  Parent entityy ................................................................................................................................................. 888 
Note 31.  Business coombinations ................................................................................................................................. 899 

2 | AUSTALL LIMITED ANNUAL REPORT 22014
HIEF EXECUTIVE OFFICER’S REPORT
Chairman’s report

It is my pleasure to present the 2014 Annual Report  US operations was the largest contributor to
to you on behalf of the Board of Austal Limited. revenue, delivering $933.615 million
(FY2013: $747.739 million) and $61.682
The past 12 months represented a year of solid
million in earnings before interest and tax
operational improvement and strengthening of the
(EBIT) (FY2013: $50.100 million) as Austal
balance sheet by generation of cash and repaying
continued to perform work on its major Littoral
of debt. In that time our Group:
Combat Ships (LCS) and Joint High Speed
 Exceeded revenue guidance of $1 billion. Vessels (JHSV) contracts for the US Navy.
 Concluded the sale of surplus assets in  Australian operations delivered an improved
Henderson and used proceeds to repay debt. result as the Cape Class program matured
with $241.912 million in revenue (FY2013:
 Maintained a strong focus on cash generation
$144.058) and $16.684 million EBIT (FY2013:
also used to repay debt.
$0.041 million).
 Made operational improvements at our US
 Philippines Operation reported a $2.703 million
shipyard, which translated into improved
EBIT (FY2013: $5.020 million).
shipbuilding margins and profit growth.
Group net debt was reduced to $68.579 million
 Confirmed funding for two more Littoral (FY2013: $137.074 million) with proceeds from the
Combat Ships under our existing contract with sale of surplus assets and cash generated from
the US Navy. operations being used to repay long term debt.
 Secured new shipbuilding contracts with the Reconciliation of EBITDA:
Royal Navy of Oman and the Abu Dhabi
National Oil Company. 2014 2013
$’000 $’000
 Matured delivery of the US Navy and
Profit before income tax $ 47,144 $ 26,726
Australian Customs contracts such that the
outlook is one of lower risk and more Finance costs $ 8,742 $ 13,571
predictable earnings. Finance income (321) (2,231)
EBIT $ 55,565 $ 38,066
 Successfully delivered an 80 m high speed
Depreciation $ 21,593 $ 21,914
ferry from the Philippines Shipyard Operation
Amortisation 2,180 2,595
and grew local capability.
EBITDA $ 79,338 $ 62,575
 Profitability grew Support activities following
the restructure and consolidation in FY2013. EBITDA is a non-IFRS measure. The information is
unaudited but is extracted from the audited financial
The Chief Executive Officer, Andrew Bellamy, will
statements.
provide more detail in his report on the operational
achievements for the year, and the strategic EBITDA is used by management to understand
direction and outlook for Austal. cashflows within the group.

Financial results Board and senior management
 Austal reported a net profit after tax of $31.859 Giles Everist joined the Board as an Independent
million in FY2014, compared to $35.742 million Director in November 2013 and brings extensive
in FY2013. FY2014 earnings before interest, financial experience to the team.
tax, depreciation and amortisation were
$79.338 million for the year compared to The senior management team has remained stable
$62.575 million in FY2013. The improvement during the year and the focus has been on
in earnings was driven by stronger shipbuilding increasing the sustainability of the organisation.
margins in our US and Australian shipyards as

existing programs matured.
Strategy and governance
 Revenue for the year grew by 24.8 per cent
from $899.491 million in FY2013 to The Board has been actively engaged in the
$1,122.863 million. strategy development risk assessment process.
This has provided clear direction to senior
management about growth objectives. These
objectives are now incorporated into both short term
and long term incentive programs for executives.
The Group’s risk management framework has been

3 | AUSTAL LIMITED ANNUAL REPORT 2014
HIEF EXECUTIVE OFFICER’S REPORT
refreshed during the year at both a strategic and
corporate level. Both the Audit and Risk committee
and Remuneration committee have been involved in
that process to ensure that the necessary controls
and governance are in place.
Austal has the opportunity to leverage its intellectual
property in new markets and new opportunities to
expand the engineering services business.

Outlook
The significant steps we took to transform Austal in
the year have placed the Group in a stronger
position to deliver on our significant order book and
progress the operational improvements we have
made. The US Navy funded an additional
US$680 million of work in the 12 months, taking the
Group order book to $2.8 billion as at 30 June 2014.
This secures revenue through CY2018. With a
record amount of work in hand, our focus is to
deliver prudent cash management and continue to
drive operational improvements across our
businesses, with a near-term view to return
dividends to shareholders.
I would like to acknowledge our employees for their
loyalty and hard work during the year. The
achievements we made would not have been
possible without their professionalism and
dedication, and to shareholders, thank you for your
ongoing support of Austal during the year. I am
pleased that we have delivered on the operational
and financial performance to drive shareholder
value, and your Board will focus on continuing to
achieve this objective.

John Rothwell AO
Chairman

4 | AUSTAL LIMITED ANNUAL REPORT 2014
Chief Executive Officer’s report

Austal was able to sustain and build upon the This year saw the establishment of a production
prior year’s significant operational improvements. design team as well as small component
This translated into improved operating profit manufacture for Australian operations. The two
before tax for the Group. ferries contracted to the Abu Dhabi National Oil
Company (ADNOC) in April are being

constructed in the Philippines shipyard.
Financial summary
Consolidation of the Henderson Service base
into the Henderson shipyard yielded an improved
2014 2013 financial performance in the year. All three
Year ended 30 June $’000 $’000 business units are now generating income from
Revenue* $ 1,122,863 $ 899,491 both shipbuilding contracts and from Service and
Systems activities.
EBIT $ 55,565 $ 38,066
Net Interest (Expense) / Income (8,421) (11,340)
Operating Profit Before Tax $ 47,144 $ 26,726 Strategy
Tax (Expense)/Benefit $ (15,285) $ 9,016
We made significant progress in implementing
Operating Profit After Tax $ 31,859 $ 35,742
the strategic plan, which included further
% EBIT/Revenue 4.9% 4.2% reducing gearing through a reduction in net debt
Basic Earnings Per Share ($ per share) $ 0.09 $ 0.12
to strengthen the balance sheet. This was
Net Assets $ 433,232 $ 407,187
Return on Invested Capital (%) 7.8% 5.5% achieved from the proceeds of the sale of the
surplus Henderson Service Base and from cash
*Excludes other income generated by operations.
The order book grew to $2.8 billion following
appropriation of funds in line with US Navy
Operational improvements
contracts. This secures work through 2018 with
Management’s focus was to implement further two additional LCS funded in the year. The new
operational improvements to sustain and contract for two HSSV for the Royal Navy of
enhance the turn-around in operating profit which Oman is strategically significant because it is the
began in the prior year. Improving margins at our first example of the JHSV concept being adopted
state of the art shipyard in the US, where Austal in a new and important region. The ADNOC ferry
is contracted to construct Littoral Combat Ships contract underlines our competitiveness with the
(LCS) and Joint High Speed Vessels (JHSV) for establishment of the Philippines shipyard.
the US Navy was the primary driver in improved
Our strategy is clear for the year ahead. Austal
profitability for the Group. Both programs are
will strive to improve margins in the US through
maturing well with the number of design changes
operational efficiency. Australian Operations will
reducing and the workforce stabilising. Austal
expand to deliver the Cape Class Patrol Boat and
delivered JHSV 3 to the US Navy and JHSV 4
HSSV contracts and continue to target
was launched. LCS 4 was delivered and LCS 6
opportunities for domestic and export defence
was launched. Construction of LCS 6, 8,10 and
contracts. Technology transfer to the Philippines
12 progressed well. The award of two service
Operation will continue, and capacity will be
and support contracts for the US Navy is an
expanded in line with market potential. The
indicator of the future potential for service work.
Philippines shipyard will increase the supply of
Operational improvements at our Australian small components within the Group to increase
shipyard delivered a profitable result after a the competitiveness of the Group as a whole.
difficult few years, as production of the Cape
All three business units will pursue service and
Class Patrol Boats (CCPB) matured. The $330
systems opportunities from their well-established
million contract progressed well with two vessels
shipbuilding operations.
delivered and a further six CCPB in production.
The design of two High Speed Support Vessels A prudent cash management focus will ensure
(HSSV) for the Royal Navy of Oman is underway that costs and inflows are aligned. This will
following the contract award in March. enhance Austal’s ability to deliver on the record
amount of work in progress and strategic
The Philippines shipyard delivered an 80m high
objectives.
speed ferry to Tahiti and a further three wind
farm support vessels to the UK. A positive
financial result is pleasing as we continue to
invest in the development of capability in the
yard.

5 | AUSTAL LIMITED ANNUAL REPORT 2014
People
Our Values oof Excellencee, Customer, Integrity Future succcess will be bbuilt upon furtther
and Teamwoork have been the basis foor many improving ooperating marrgins, implemmenting
tangible andd sustainable business succcesses production efficiencies, aand prudent ccash
throughout the year. managemeent. We will inncrementally increase our
sales, markketing and ressearch and development
I’d like to thaank all of our employees and other
spend to ennsure we maiintain a strong pipeline of
stakeholderss for their harrd work, commmitment
work. These measures wwill ensure thhat Austal is
and loyalty.
well positioned to deliveer its strategicc objectives
We have conntinued to invvest in our peeople and to generatee returns for sshareholders.
developed ggreater depth of talent. Thiss has

presented oppportunities ffor many empployees to
grow and wee have augmeented this witth some
important exxternal recruitts to increase our skills
and experiennce. The orgganisation is sstronger
and more suustainable as a result.
Andrew Bellamy
Executive DDirector and CChief Executiive Officer
Outlook
Austal is bettter positionedd to deliver on the order
book as a reesult of improvved margins and
strengtheninng the Group’s balance sheeet in
FY2014.
We will sustaain the operaational improvvements
and shipbuilding marginss, delivering on our two
major contraacts for the USS Navy, the LLCS and
JHSV. We eexpect further LCS to be fuunded in
FY2015 as pper the contraact. The US NNavy has
demonstrateed strong onggoing support to the high
performancee, low-cost LCCS despite
sequestratioon. Austal is wwell positioneed to win
new US Navvy constructioon and vessell support
contracts.
The translatiion of profits from our US operations
are directly impacted by tthe USD / AUUD
exchange raate. We couldd see a beneffit in profit
translation wwith markets fforecasting weakening of
the AUD. A weaker AUDD also improvees the
internationall competitivenness of our Australian
business.
Aremiti Ferry 2 – built in the Phhilippines
We will continue to improove productivity in our
Australian opperations as production off the
remaining CCape Class Paatrol Boats matures. We
are well preppared for the start of consttruction for
the two HSSSV for Oman. A good number of
opportunitiess exist to construct similarvessels for
both domesttic and exportt defence maarkets.
We will invesst in developiing capabilitiees in the
Philippines OOperations whilst we pursuue new
commercial contracts. Foor the first timme we have
established a production design team in the
Philippines. We will continue to build uupon the
successful ssupply of smaall componentts from the
Philippines aacross the Grroup.
Our Service and Systemss products haave been
developed inn preparation for deploymeent to US
and Australiaan defence vessels. This activity
grew in FY2014 and will ccontinue to doo so. It is
expected thaat these products becomea core part
of our busineess in the meedium term.

6 | AUSTALL LIMITED ANNUAL REPORT 22014
Review of operations

A financial breakdown for each business unit has program are being effectively incorporated into
been included below, including IFRS and non-IFRS subsequent vessels.
information. This information has been extracted
USNS Coronado (LCS 4), the US Navy’s fourth LCS
from the audited financial statements and included in
and second built by Austal USA and General
order to demonstrate growth across the primary
Dynamics, completed acceptance trials and was
segments.
delivered to the US Navy during FY2014.

USNS Jackson (LCS 6) – the first LCS being built by
US operations Austal as the prime contractor under the 10-vessel
contract – was launched in January 2014 with
2014 2013
delivery scheduled to occur in FY2015. Construction
Year ended 30 June $'M $'M
of LCS 8 and LCS 10 continued with the keel laying
Revenue $ 933.615 $ 747.739 for LCS 10 performed in April 2014.
EBIT 61.682 50.100

EBIT Margin 6.6% 6.7%
Australian operations
Austal’s US operations continued to be the biggest
contributor to earnings.
2014 2013
Austal USA enhanced its contract management skills Year ended 30 June $'M $'M
as prime contractor and has delivered improved EBIT Revenue $ 241.912 $ 144.058
margins from shipbuilding activities.
EBIT 16.684 0.041
FY2014 was Austal USA’s first full year as a prime EBIT Margin 6.9% 0.0%
contractor to the US Navy for both the LCS and JHSV
programs. The pass through revenue related to Austal’s Australian operations delivered a significant
systems integration which is undertaken by major increase in EBIT and EBIT margin in FY2014.
sub-contractors had a dilutive effect on EBIT margin
This result was driven by productivity gains and cost
compared to the prior year.
optimisation achieved at the Henderson shipyard on
Continued focus on skills development and the $330 million contract to design, construct and
stabilisation of the workforce within the target range service the Cape Class Patrol Boat for Australian
of 4,100 – 4,200 has produced a tangible Customs and Border Protection. The second Cape
improvement in labour productivity which transitions Class Patrol Boat Cape Byron was delivered in May
Austal down the learning curve as the programs 2014 and there was a further increase in construction
progress. activity on subsequent patrol boats, with all eight due
to be completed by August 2015.
Supply chain activities were focussed on
improvements to material planning and logistics, The margin uplift was also driven by the consolidation
reduced inventory levels, optimisation of economic of Henderson based service and construction
order quantities, and greater alignment with supplier activities into one shipyard which yielded a reduction
production schedules to realise material cost in overhead cost, increased asset utilisation and
reductions. increased labour efficiency. Service revenue was
underpinned by the docking of two Royal Australian
Management maintained a stringent focus on cash
Navy Armidale Class Patrol Boats.
management. Capital expenditure was restricted to
sustaining activities having completed a major period The transition of the Australian business into a
of investment in FY2013. Defence organisation has necessitated and
supported a build-up of systems integration and
Two more vessels were added to the order book after
sustainment skills and capabilities.
funds for LCS 18 & 20 - the seventh and eighth LCS
under the US$3.5 billion contract – were appropriated The award of two 72 m HSSV for the Royal Navy of
by Congress in March 2014. These projects added a Oman in March 2014 increased the order book for
further US$680 million to the order book and secured Australia by $142M and extends contracted work until
funding for the LCS program through until 2018. the end of FY2016.
There was significant progress in both the JHSV and
LCS programs during the year.
JHSV 3, USNS Millinocket was delivered in March
2014 after successfully completing acceptance trials
in January, JHSV 4, USNS Fall River was launched in
January and the keel of JHSV 5, USNS Trenton was
laid in March 2014. Productivity improvement
opportunities identified in the early stages of the

7 | AUSTAL LIMITED ANNUAL REPORT 2014