APPENDIX 4E
Preliminary Final Report
AUSTAL LIMITED
FOR THE YEAR ENDED 30 JUNE 2013
The reporting period is from 1 July 2012 to 30 June 2013. The previous corresponding period is 1 July 2011 to 30 June 2012.
Results for announcement to the market.
1.
2.
3.
4.
5.
6.
7.
8.
9.
2.1
2.2
2.3
2.4
2.5
2.6
Revenue from ordinary activities
Profit (loss) from ordinary activities after tax
Net profit for the period attributable to members
Dividend distributions
No dividend is payable with respect to the year ended 30 June 2013.
Record date for determining entitlements to the dividends
Explanation of figures in 2.1 to 2.4 that may be required
Statement of comprehensive income with notes
Statement of financial position with notes
Statement of cash flows and notes
Statement of changes in equity
Details of dividend or distribution reinvestment plans
Details of dividends or distributions
Net tangible assets per ordinary security
Current period (cents/share)
Previous corresponding period (cents/share)
10. Control gained or lost over entities during the period
11. Details of associates and joint venture entities
12. Other significant information
13. Accounting standards used by foreign entities
up 38.3%
up 224%
up 225%
to
to
to
$A’000
902,813
35,742
35,870
N/A
Refer to attached Annual Report pages 6 - 7.
Refer to attached Annual Report pages 20 and 25 – 69.
Refer to attached Annual Report pages 21 and 25 – 69.
Refer to attached Annual Report pages 22 and 25 – 69.
Refer to attached Annual Report page 23 - 24 and 25 - 69
N/A
N/A
114.0
144.5
Refer to attached Annual Report page 61 and 69.
N/A
Refer to Review of Operations pages 6 - 7 of attached Annual Report.
The financial statements of subsidiaries are prepared using consistent accounting policies for the same reporting period as the parent company. The
foreign entities including Austal USA prepares their accounts under accounting standards that are equivalent to International Financial Reporting
Standards.
14. Commentary on the result
14.1 Earnings per share
Current period – basic
Previous corresponding period – basic
Current period – diluted (refer to page 40)
Previous corresponding period – diluted (refer to page 40)
14.2 Returns to shareholders including distributions and buy backs
No dividends were declared with respect to the year ended 30 June 2013.
12.03 cents
4.62 cents
12.01 cents
4.61 cents
14.3
Significant features of operating performance
Refer to Review of Operations pages 6 - 7 of attached Annual Report.
14.4
Segment results
14.5
Trends in performance
Refer to attached Annual Report pages 35 - 37
Refer to Review of Operations pages 6 - 7 of attached Annual Report.
14.6 Other factors affecting the results in period or future
Refer to Review of Operations pages 6 - 7 of attached Annual Report.
15. Audit/review of accounts upon which this is based
This report has been based on audited accounts.
16. Accounts not audited or subject to review
17. Qualifications of audit/review
N/A
No qualifications
AUSTAL LIMITED
2013
ANNUAL REPORT
CONTENTS
02 Chairman’s Report
04 Chief Executive Officer’s Report
06 Review of Operations
08 Directors’ Report
20 Consolidated Statement of Comprehensive Income
21 Consolidated Statement of Financial Position
22 Consolidated Statement of Cash Flows
23 Consolidated Statement of Changes in Equity
25 Notes to the Consolidated Financial Statements
Inventories
Intangible Assets
01. Corporate Information
02. Summary of Significant Accounting Policies
03. Revenue and Expenses
04. Operating Segments
05.
Income Tax
06. Earnings Per Share
07. Dividends Paid and Proposed
08. Cash and Cash Equivalents
09. Trade and Other Receivables
10.
11. Prepayments
12. Property, Plant and Equipment
13.
14. Derivatives
15. Trade and Other Payables
16.
17. Government Grants
18. Provisions
19. Other Liabilities (Current)
20. Contributed Equity and Reserves
21. Financial Risk Management Objective and Policies
22. Financial Instruments
23. Commitments and Contingencies
24. Related Party Disclosure
25. Events after the Balance Date
26. Auditor’s Remuneration
27. Key Management Personnel Compensation
28. Share Based Payment Plans
29. Parent Entity
30. Business Combination
Interest Bearing Loans and Borrowings
70 Directors’ Declaration
71 Corporate Governance Statement
75
77 Shareholder Information
78 Corporate Directory
Independent Audit Report to the members of Austal Limited
AUSTAL LIMITED
2013
ANNUAL REPORT
1
CHAIRMAN’S REPORT
On behalf of the Board of Austal Limited, it is my pleasure to present to you the
2013 Annual Report.
The past 12 months represented a year of transformation for Austal. In that time:
Critical steps were taken to improve Austal’s debt position and balance
sheet through a $77.9 million capital raising.
A new syndicated bank facility agreement was executed subsequent to
30 June 2013 which extended maturity until 31 December 2015.
The new bank facility agreement had not been executed at reporting
date and therefore the debt associated with the new facility has been
designated as a current liability. The debt was reclassified as a non-
current liability as of 19 July 2013.
Operational improvements were made at our US shipyard, which
translated into improved margins and profit growth for the year.
Funding was confirmed for two more Littoral Combat Ships and the
final Joint High Speed Vessel under our existing contracts with the US
Navy.
First-in-class Cape St George was delivered to Australian Customs and
Border Protection, and construction of the other Cape Class Patrol
Boats at our base in Henderson, Western Australia ramped up.
The Philippines Shipyard Operation was fully mobilised, with the first
vessel delivered in December 2012.
The Service and Systems Division was restructured to align with
current work and anticipated opportunities.
The Chief Executive Officer, Andrew Bellamy, will provide more detail in his report
on the operational achievements for the year, as well more detail on the strategic
direction and outlook for Austal.
Capital raising
The $77.9 million Entitlement Offer, at a material discount to the share price, was
a challenging but critical decision during the year which significantly improved
Austal’s debt position and balance sheet. The Entitlement Offer was well
supported by existing shareholders and a number of new shareholders who I
welcome to the register. I wish to thank shareholders for their support and I look
forward to sharing in the Company’s future successes with you.
Financial results
Management and staff delivered operational improvements and efficiencies across
the business which were a key driver in delivering significantly improved earnings
before interest, tax, depreciation and amortisation (EBITDA) result of $62.6 million
and net profit after tax of $35.7 million which were both in line with market
guidance. The profit result was positively impacted by the recognition of $11.0
million of non-cash research and development tax credits from prior years.
Reconciliation of EBITDA:
Year ended 30 June 2013
Profit before income tax
Finance costs
Finance income
EBIT
Depreciation
Amortisation
EBITDA1
$’000
26,726
13,571
(2,231)
38,066
21,914
2,595
62,575
1. EBITDA is a non-IFRS measure. The information is unaudited but is extracted from the audited
financial statements.
The operational improvements and efficiencies implemented across the business
were sustained throughout the year. For example, the lessons learned in the
construction of the first-in-class Joint High Speed Vessel, USNS Spearhead, were
applied to JHSV 2 and improved processes implemented across the entire JHSV
program. This has driven ongoing margin growth at our US shipyard.
AUSTAL LIMITED
2013
ANNUAL REPORT
2
CHAIRMAN’S REPORT
Meanwhile, financial performance from our Henderson shipyard in Western
Australia improved as we delivered the first vessel in the $330 million contract to
design, construct and service the Cape Class Patrol Boats.
Board and senior management
Austal Deputy Chairman John Poynton, AM, resigned from the Board of Directors
in June to devote more time to his other business and not-for-profit activities.
John joined the Board in 1998 and helped Austal to expand from being a Western
Australian fast ferry builder to include international operations and significant
defence contracts and capabilities. In addition, finance executive Michael
Atkinson announced his retirement in June following 23 years with Austal, and as
such resigned from his role as Executive Director. I wish to thank both John and
Michael for their dedication and contribution to the Company over an extended
period.
Austal has commenced a process to identify and appoint a new non-executive
director following these changes, specifically targeting candidates who have solid
international and commercial experience. In addition, Austal promoted Greg
Jason as Chief Financial Officer in January. Greg was previously Chief Operating
Officer of Austal’s Asia operations, and made a significant contribution to the
successful acquisition and activation of our Philippines shipyard. He worked
closely with Michael over a six month period to ensure a smooth transition to CFO.
At Austal’s US operations in the year, we welcomed Rear Admiral USN (Retired)
John “Dugan” Shipway to Chair the Board of Austal USA. Rear Admiral Shipway’s
appointment followed a distinguished naval career, including 35 years in the US
Navy and senior management roles in naval shipbuilding and support. Austal also
promoted Craig Perciavalle to President of Austal USA, after previously working
as Senior Vice President of Operations. Their extensive experience will help to
ensure our US shipyard delivers Navy contracts efficiently and effectively, moving
into serial production of vessels that the US Navy regards as crucial to its future
operations.
Remuneration report
The Board of Directors appreciates that there were concerns with the 2012
Remuneration Report, reflected in the voting at last year’s Annual General
Meeting. Your Board has reflected on shareholder feedback on remuneration and
has taken steps to ensure that these concerns have been addressed. Key
decisions made by your Board include:
Reducing the number of executives that are entitled to participate in the
long-term incentive plan (LTIP)
The allocation of performance rights approved by shareholders at the
FY2012 AGM for the CEO was subsequently not confirmed by the
Board in FY2013
Clearly identifying the performance measures used for the LTIP, with a
strong bias towards return on invested capital (ROIC) and total
shareholder return
Short-term incentives are clearly linked to the delivery of performance
criteria over a twelve month period, principally EBIT and Cash
We encourage shareholders to read the Remuneration Report to better
understand the changes and approach your Board has taken to remuneration.
Outlook
The significant steps we took to transform Austal in the year have placed the
Company 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$825.7 million of work in the 12 months, taking our order book to
$2.6 billion as at 30 June 2013. This secures revenue through to 2017. 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
long-term view to return dividends to shareholders.
I would like to take a moment 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. After a difficult decision in
the capital raising, 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
AUSTAL LIMITED
2013
ANNUAL REPORT
3
CHIEF EXECUTIVE OFFICER’S REPORT
Austal delivered significant operational improvements which translated into
improved profitability for the Group.
Operational improvements
Management’s focus was to implement operational improvements to deliver a
turn-around in operating profit. Improving margins at our state of the art shipyard
in the US where Austal is contracted to construct US$5 billion worth of Littoral
Combat Ships (LCS) and Joint High Speed Vessels (JHSV) for the US Navy was
the primary driver in improved profitability for the Group. It is pleasing that
management and staff successfully implemented lessons learnt from the
construction of the first-in-class JHSV. Austal delivered JHSV 1 and JHSV 2 to
the US Navy and JHSV 3 was launched. LCS 4 performed sea trials during the
year in preparation for delivery in FY2014. Construction of LCS 6, 8, and 10
progressed well.
Operational improvements at our Australian shipyard delivered a break-even
result after a period of losses, as production of the Cape Class Patrol Boats
(CCPB) ramped up. The $330 million contract to design, construct and support
these vessels for Australian Customs and Border Protection underwrites work at
our Australian shipyard in Henderson until the first half of FY2016. Delivery of
Cape St George (CCPB 1) and laying the keel on CCPB 2 were the highlights of
the year.
Meanwhile, our expansion into the Philippines was successful, returning a strong
profit in its first full year of operation. Repositioning the construction of
commercial vessels to the Philippines has ensured that Austal can retain a
competitive position in the market. The Philippines operation mobilised 476
employees, delivered the first vessel, and progressed in the construction of an
80-metre commercial ferry for a repeat customer.
A number of improvements were made to the Service and Systems division. The
organisation was re-structured to a geographical basis in order to improve
efficiencies, drive margin growth, and alignment to work opportunities. The
service base at Henderson was consolidated into the nearby shipbuilding facility,
whilst the service base in Spain was closed, reflecting the challenges in the
economies of Spain and Europe. Meanwhile, Austal substantially expanded its
service capability in Darwin through the acquisition of Hydraulink NT and its
associated business KM Engineering, in recognition of the growing significance of
the Asia-Pacific region to US and Australian naval forces.
Strategy
We made significant progress in implementing the strategic plan, which included
reducing gearing through a reduction in net debt to strengthen the balance sheet.
The order book was maintained at $2.6 billion following appropriation of funds in
line with US Navy contracts. This secures work through until 2017 with two
additional LCS and one JHSV funded in the year.
Our strategy is clear for the year ahead. Austal will continue to improve margins
in the US through operational efficiency. Australian Operations will expand to
deliver the Cape Class Patrol Boat contract and target opportunities for domestic
and export defence contracts. Technology transfer to the Philippines Operation
will continue, and capacity will be expanded in line with market potential. All three
business units will pursue service and systems opportunities from their well
established shipbuilding operations.
A prudent cash management focus will ensure that costs and inflows are aligned.
This will enhance Austal’s ability to deliver on the record amount of work in
progress and strategic objectives.
Safety
Safety remains our equal priority with productivity and quality. I am focused on
achieving change across the Company without sacrificing our commitment to
providing a safe environment for our employees, customers and visitors.
We are actively and progressively moving Austal to a learning culture and analyse
our opportunities for improvement from a point of understanding how things
happen rather than why. It is disappointing to report an increased Lost Time Injury
Frequency Rate in FY2013. We are increasing our focus on training in recognition
of a large influx of new employees in the Philippines and US operations.
Our goal of ZERO Harm means no injuries to anyone, ever and while aspirational
remains a target to strive for.
Austal reports safety performance in accordance with AS1885.1.
107.0
60.1 65.8
38.9
17.8 14.3 16.0 19.7
6
0
Y
F
7
0
Y
F
8
0
Y
F
9
0
Y
F
0
1
Y
F
1
1
Y
F
2
1
Y
F
3
1
Y
F
Medical Treatment Injury Frequency Rate
(per million hours worked)
6.35
6.05 5.90
5.38
3.92
2.20 2.30 2.30
6
0
Y
F
7
0
Y
F
8
0
Y
F
9
0
Y
F
0
1
Y
F
1
1
Y
F
2
1
Y
F
3
1
Y
F
Lost Time Injury Frequency Rate
(per million hours worked)
People
A key part of our high performance culture is ensuring that Austal is a great place
to work and that we view the capability of our people as our primary source of
competitive advantage.
The people of Austal have achieved a great deal over the last year and I would
like to acknowledge the outstanding contribution and commitment of all Austal
employees, contractors, customers and partners during 2012/13 on behalf of the
leadership team.
Our Values of Excellence, Customer, Integrity and Teamwork have been the basis
for many tangible and sustainable business successes throughout the year.
Outlook
Austal is better positioned to deliver on the $2.6 billion order book as a result of
improved margins and strengthening the Company’s balance sheet in FY2013.
We will sustain the operational improvements and margins, delivering on our two
major contracts for the US Navy, the LCS and JHSV. We expect two LCS to be
funded in FY2014 as per the contract. The US Navy has demonstrated strong
ongoing support to the high performance, low-cost LCS despite sequestration.
Austal is well positioned to win new US Navy construction and vessel support
contracts.
The translation of profits from our US operations are directly impacted by the
A$/US$ exchange rate. We could expect to see a benefit in profit translation with
markets forecasting further weakening of the A$. A weaker A$ also improves the
international competitiveness of our Australian business.
We will continue to improve productivity in our Australian operations as we
transition efficiency production of the remaining Cape Class Program.
Opportunities exist to construct similar vessels for domestic and export defence
markets.
AUSTAL LIMITED
2013
ANNUAL REPORT
4
CHIEF EXECUTIVE OFFICER’S REPORT
We will continue to transfer technological capabilities to the Philippines Operations
whilst we pursue new commercial contracts building on a successful maiden profit.
Our Service and Systems products have been developed in preparation for
deployment to US and Australian defence vessels.
Future success will be built upon improving operating margins, implementing
production efficiencies, and a prudent cash management focus. These measures
will leave Austal best placed to deliver on the record amount of work in progress
and strategic objectives to deliver returns to shareholders.
ANDREW BELLAMY
EXECUTIVE DIRECTOR AND CHIEF EXECUTIVE OFFICER
AUSTAL LIMITED
2013
ANNUAL REPORT
5
REVIEW OF OPERATIONS
Austal reported a net profit after tax of $35.7 million in FY2013, compared to $11.0
million in FY2012. FY2013 earnings before interest, tax, depreciation and
amortisation was $62.6 million for the year compared to $35.4 million in FY2012.
The improvement in earnings was driven by growth in margins, particularly at our
US shipyard, where we implemented the lessons learnt from the challenges on the
first-in-class Joint High Speed Vessel (JHSV 1) and improved processes across
the shipyard.
Revenue for the year grew by 38 per cent from $653.0 million in FY2012 to
$902.8 million. The US operation was the largest contributor to revenue, delivering
$749.4 million (FY2012: $570.3 million) and $39.2 million in earnings before
interest and tax (EBIT) (FY2012: $15.8 million) as Austal continued to perform
work on its major LCS and JHSV contracts for the US Navy. Performance at our
non-US operations also improved, with the Australian division returning to a break-
even EBIT after a period of losses (FY2012: $13.7 million loss) and the Philippines
Operation reported a $5.0 million EBIT (FY2012: $0.8 million loss), its maiden
profit in its first full year of operations. The Service and Systems division, which
was restructured in the year, delivered an EBIT loss of $0.5 million (FY2012: $0.4
million). Austal’s net debt was reduced to $132.9 million (FY2012: $159.7 million)
after $77.9 million in funds from a capital raising were used to reduce
indebtedness and strengthen the balance sheet.
Financial summary
Year ended 30 June
Revenue*
Depreciation, Amortisation & Impairment
EBIT
Net Interest (Paid)/Received
Operating Profit Before Tax
Tax (Expense)/Benefit
Operating Profit After Tax
% EBIT/Revenue
Basic Earnings Per Share (cps)
Net Assets
Return on Equity (%)
*Excludes other income
2013
$’000
902,813
(24,509)
38,066
(11,340)
26,726
9,016
35,742
4.2
12.03
2012
$’000
652,996
(18,869)
16,577
(4,020)
12,557
(1,514)
11,043
2.5
4.62
drove margin growth, with an EBIT margin of 5.2 per cent in FY2013 compared to
2.7 per cent in FY 2012.
As expected, three more vessels were added to the order book under the major
US Navy contracts. Funds for the final JHSV under Austal’s 10-vessel
US$1.6 billion contract were appropriated in December 2012. This added
US$166.9 million to the order book and funds work on the JHSV program through
to 2017. Meanwhile, funds for the fifth and sixth LCS under the US$3.5 billion
contract – LCS 14 and 16 – were appropriated in March 2013, also in line with
expectations. This added a further US$681.7 million to the order book and
ensured funding on the LCS program was also secured through to 2017.
Importantly, funds for LCS 14 and 16 were appropriated following the
commencement of sequestration measures under the Budget Control Act,
providing confidence in future funding. Austal expects funds for the next two
vessels, LCS 18 and 20, to be appropriated in FY2014, and the final two, LCS 22
and 24, to be funded in FY2015.
Austal delivered the first-in-class JHSV, USNS Spearhead (JHSV 1), in December
2012. The JHSV program matured with productivity improved by lessons learnt in
the construction of JHSV 1. JHSV 2, USNS Choctaw County was delivered in
June 2013 after successfully completing builder’s sea trials in March and
acceptance trials in May which was six months after the delivery of JHSV 1.
JHSV 3, USNS Millinocket was also launched in May and Austal celebrated the
keel laying of JHSV 4. These achievements demonstrate the speed at which the
JHSV program developed during the year.
The LCS program also delivered a number of significant milestones during
FY2013. USS Coronado (LCS 4), the US Navy’s fourth LCS and second built by
Austal USA and General Dynamics, was performing builder’s sea trials in the Gulf
of Mexico by the end of the year. Austal anticipates delivery of this vessel to the
US Navy in the near-term. Meanwhile the keel of LCS 6 – the first LCS being built
by Austal as the prime contractor under the 10-vessel contract – was laid in
October 2012. Construction on LCS 8 and LCS 10 progressed well in the year,
with the keel laying for LCS 8 performed in June 2013.
Austal completed a reduced capital expenditure program at the US shipyard as
expected, following the commissioning of the majority of the facilities in FY2012
and expanded its US workforce to 3,306.
407,187
8.8
277,047
3.9
Non-US Operations
Australian Operations
A financial breakdown for each business unit has been included below, including
IFRS and non-IFRS information. This information has been extracted from the
audited financial statements and included in order to demonstrate growth across
the primary segments.
US Operations
Revenue
EBIT
EBIT margin (%)
PBT
FY2013 ($m)
FY2012 ($m)
749.4
39.2
5.2%
23.5
570.3
15.8
2.7%
8.5
Austal’s US operations continued to be the biggest contributor to earnings.
Earnings before interest and tax from Austal’s US operations was $39.2 million on
$749.4 million in revenue. This was a 148 per cent increase on the $15.8 million
EBIT reported in FY2012. Importantly, operational improvements and the
implementation of lessons learnt in the construction of the first-in-class JHSV 1
Revenue
EBIT
EBIT margin (%)
PBT
FY2013 ($m)
FY2012 ($m)
90.3
0.5
0.6%
5.4
63.7
(13.6)
n/a
(9.2)
Austal’s Australian operations delivered an improved result in FY2013, breaking
even at the EBIT level after a $13.6 million loss in FY2012 and a loss in FY2011.
This result was driven by improved productivity at the Henderson shipyard on the
$330 million contract to design, construct and service the Cape Class Patrol Boat
for Australian Customs and Border Protection. Austal delivered the first vessel
first-in-class Cape St George (CCPB 1) in April 2013 following the keel laying in
June 2012. The delivery of Cape St George underlined Austal’s prime contracting
credentials and total solution capability encompassing ships, systems and
support. A phased increase in construction activity on subsequent patrol boats
commenced in the year, with all eight due to be completed by August 2015.
AUSTAL LIMITED
2013
ANNUAL REPORT
6
REVIEW OF OPERATIONS
Safety performance
Another challenging year to maintain our overall safety performance, having a full
year of operations in our new Philippines Shipyard, restructuring to drive greater
efficiencies in our Australian Operations and continued rapid growth of our
workforce in our US Operations. The culture, experience levels and the diversity of
our workplaces all changed with the potential to impact on our safety performance.
Occupational Health and Safety Policy
Austal’s Occupational Safety and Health (OSH) Policy was reviewed and our
focus remains on safe people, safe practices and safe work environments and
promotes a workplace culture that raises awareness of individual responsibility for
safety and health. Austal’s safety culture is sustained as these components
become accepted workplace practice and are supported by strong leadership.
Safe People
Once again the US Operations received two significant safety awards during the
year: the American Longshore Mutual Association’s Safest Large Shipyard Award
and the Shipbuilders Council of America Award for Excellence in Safety. The latter
is awarded to member shipyards with the lowest rate of recordable workplace
injuries and Austal USA has received this award for the last 5 consecutive years.
Austal’s Australian Operations were again recognised by the Industrial Foundation
for Accident Prevention as a Gold level Safe Way achiever for the 3rd consecutive
year.
The safety of our people is at the forefront of everything we do.
Philippines Operations
Revenue
EBIT
EBIT margin (%)
PBT
FY2013 ($m)
FY2012 ($m)
40.0
5.0
12.5%
5.0
1.9
(0.8)
n/a
(0.8)
Austal generated EBIT of $5.0 million in FY2013, a maiden profit in its first full
year of operation at the shipyard. This was driven by the delivery of a 27 metre
trimaran wind farm vessel and the ongoing construction of an 80 metre
commercial vehicle ferry, which is expected to be delivered in the second quarter
of FY2014. Foreign exchange movements had a significant positive impact on the
financial result.
Austal mobilised 476 employees in the year as planned. The Company continued
to transfer technology to the Philippines shipyard to establish a sustainable level
of capability.
Service and Systems Operations
Revenue
EBIT
EBIT margin (%)
PBT
FY2013 ($m)
FY2012 ($m)
59.0
(0.5)
n/a
(0.4)
19.4
1.6
8.2%
1.6
Austal entered into a number of partnerships in the year to enhance its service
offering in the Asia-Pacific region, enhancing the Company’s support offering to
the US Navy and other navies active in the Asia-Pacific region.
Austal substantially expanded its service capability in Darwin through the
acquisition of Hydraulink NT and its associated business KM Engineering, in
recognition of the growing significance of the Asia-Pacific region to US and
Australian naval forces.
The US Navy’s Military Sealift Command (MSC) exercised two, six month options
in the year (August 2012 & January 2013) for the charter of the Austal high speed
vessel, the WestPac Express to support the operations of the United States
Marine Corps’ Third Marine Expeditionary Force.
AUSTAL LIMITED
2013
ANNUAL REPORT
7
DIRECTORS’ REPORT
The Board of Directors of Austal Limited submit their report for the year ended 30 June 2013.
DIRECTORS
The names and details of the Company’s Directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire
period unless otherwise stated.
NAMES, QUALIFICATIONS, EXPERIENCE AND SPECIAL RESPONSIBILITIES
JOHN ROTHWELL AO – Non-Executive Chairman
With 40 years of experience in boat and shipbuilding, John has played a major role in the development of the Australian aluminium
shipbuilding industry and is a Founding Director of Austal.
John was appointed a Council member of the Australian National Maritime Museum in June 2004 and became Chairman of the Capital Works
Committee of that organisation in November 2005. John was appointed an Officer of the Order of Australia in January 2004, for services to
the Australian shipbuilding industry through the development of trade links and for significant contributions to vocational education and
training. John was named the Ernst & Young “Australian Entrepreneur of the Year” in October 2002.
John stepped down as Executive Chairman and Chief Executive Officer on 22 August 2008 to continue as Non Executive Chairman.
MICHAEL ATKINSON CA (ZIM), CA (SA) – Executive Director
Michael joined Austal in 1990 as Financial Controller and was appointed to the Board in 1994. Michael is a qualified Chartered Accountant
10 years of experience in the accounting profession. Prior to joining Austal, Michael entered the railway and construction industry where he
served in a senior financial capacity and as a Board member.
Michael retired from the Board of Directors of Austal Limited on the 30 June 2013.
JOHN POYNTON BCom, FS Fin, FIAM, FAICD, AM, CitWA – Independent Director
John is a Co-Founder and Executive Chairman of Azure Capital. John is the deputy Chairman of Austal Limited and is a Non-Executive Director
of Burswood Ltd. In the not-for-profit arena, he chairs Giving West and the Board of Celebrate WA. John is a member of Social Ventures
Australia and the Curtin Foundation.
Previously, John was a Chairman of ASX Perth, Fleetwood, Alinta and the West Australian Museum Foundation – Director of Multiplex; Member
of the Higher Education Endowment Fund Advisory Board, Payments System Board of the Reserve Bank of Australia, EFIC and of the Business
School at the University of Western Australia.
John is a Life Member and Senior Fellow of the Financial Services Institute of Australasia (FINSIA), a Fellow of the Australian Institute of
Company Directors (AICD) and of the Australian Institute of Management (AIM).
John is a Member in the General Division of the Order of Australia and is a past recipient of a WA Citizen of the Year award in the industry and
commerce category.
John holds a Bachelor of Commerce and an honorary Doctor of Commerce from the University of Western Australia.
John resigned from the Board of Directors of Austal Limited on the 28 June 2013.
DARIO AMARA BEng (Distn) FIEAust CPEng - Independent Director
Dario is an engineer and experienced Chief Executive with business experience and networks gained over 30 years in the Australian and
International Markets; spanning the engineering and construction sectors.
Dario has a record of achievement in establishing, growing and rejuvenating businesses and strategic leadership and has served as CEO of
John Holland Asia Ltd and CEO of GRD Minproc Ltd.
Dario is currently Non-Executive Chairman of Mission New Energy Limited. He has also served as Chairman of the West Australian Opera
Company, the Art Gallery of Western Australia, Heritage Perth and as a Board Member of the Perth International Arts Festival. He is
currently a Board Member of the Murdoch University Art Collection.
AUSTAL LIMITED
2013
ANNUAL REPORT
8
DAVID SINGLETON – Independent Director
DIRECTORS’ REPORT
Continued
David brings to Austal a wealth of highly relevant business expertise and experience in both the defence and resources sectors.
David has held numerous senior roles with BAE Systems (formerly British Aerospace), which is one of the world’s largest defence companies.
He served as Group Head of Strategy and Mergers & Acquisitions in London from 1997 to 1998 and again in 2003. In the intervening years,
David was BAE’s Managing Director of Asset Management before spending three years in Rome as the Chief Executive Officer of Alenia
Marconi Systems (AMS). AMS was a European leader of naval warfare and air defence systems, C4I, ground and naval radars, command and
control training systems and naval support.
David started his career with the UK Ministry of Defence and worked in research, development and manufacturing as well as senior
management roles in Royal Ordnance which by then was part of BAE. He has also served as a member of the National Defence Industries
Council in the UK, and as a board member and Vice President (Defence) of Intellect, a leading trade association for the UK technology
industry.
David is the CEO and Managing Director of Perth-based mineral exploration company Poseidon Nickel Limited. Prior to this role, he served as CEO and Managing
Director of Clough Limited between 2003 and 2007. David is also a Non-Executive Director of Quickstep Holdings, both ASX listed entities.
David was appointed to the Board of Directors of Austal Limited on 21 December 2011.
ANDREW BELLAMY BSc (Hons) Material Science, MA (Marketing) – Chief Executive Officer
Andrew has more than 20 years of business leadership experience in North America, Europe, Middle East and Asia. Andrew is responsible
for the Group’s worldwide operations and is also a member of the Board of Austal Limited and the Board of Austal USA.
Andrew joined Austal in September 2008, initially in the capacity of Head of Global Sales and Marketing. In this role Andrew was responsible
for the Sales and Marketing function across all Austal’s international businesses, including the strategically significant US operations. In 2010,
Andrew was appointed Chief Operating Officer of Austal’s Australian businesses and oversaw the growth and expansion of Austal’s
international network of locations at a time of significant turbulence in global markets. Andrew was appointed Chief Executive Officer of
Austal in February 2011.
While at the helm of Austal, Andrew has been instrumental in Austal’s emergence as a global defence prime contractor, following the award of several significant
contracts including the Cape Class Patrol Boat programme for the Australian Customs and Border Protection Service, as well as the Joint High Speed Vessel and Littoral
Combat Ship programmes for the US Navy.
Prior to joining Austal, Mr Bellamy held senior positions within the Oil and Gas industry with Honeywell and ICI. Mr Bellamy holds a BSc (Hons) in Materials Science from
University of Sunderland and an MA (Marketing) from University of Lincoln and Humberside.
INTERESTS IN THE SHARES AND OPTIONS OF THE COMPANY AND RELATED BODIES CORPORATE
As at the date of this report, the interests of the directors in the shares of Austal Limited were:
Number of Ordinary Shares
Number of options^
John Rothwell
Dario Amara
David Singleton
Andrew Bellamy
Direct
32,200,745
50,000
28,600
799,958
Direct
-
-
-
280,000
^This represents options granted from the Employee Option Share Plan (ESOP) (refer to note 28 of the financial statements). There were no additional ordinary shares issued or options
granted to directors and exercised between the balance date and the date of this report.
AUSTAL LIMITED
2013
ANNUAL REPORT
9
DIRECTORS’ REPORT
Continued
PRINCIPAL ACTIVITIES
The principal activities during the year of entities within the consolidated entity were the design, manufacture and support of high performance aluminium vessels.
These activities are unchanged from the previous year.
RESULTS
The profit of the consolidated entity for the financial year was $35.742 million after income tax (2012: $11.043 million).
REVIEW OF OPERATIONS
A review of the operations and financial position of the consolidated entity is outlined in the Review of Operations on page 6.
DIVIDENDS
No dividend has been declared for the year ended 30 June 2013 (2012: Nil).
SIGNIFICANT EVENTS AFTER THE BALANCE DATE
Austal executed a new Syndicated Facility Agreement which provides the following facilities through until 31 December 2015:
US$190 million of Letters of Credit to support the Go Zone Bonds in the USA
US$20.7 million of Equipment Asset Financing in the USA
A$100 million of Performance Bonding and other Letters of Credit
A$50 million of Revolving Credit Facility
The Board of Directors approved the redemption of US$54.960 million of Go Zone Bonds utilising restricted cash from the capital raising that was conducted in
FY2013.
LIKELY DEVELOPMENTS AND FUTURE RESULTS
A general discussion of the group outlook is included in the Chairman’s Report on page 2 and the Review of Operations on page 6.
SIGNIFICANT CHANGES IN THE STATE OF THE AFFAIRS
A review of the significant changes in the state of affairs of the consolidated entity is outlined in the Review of Operations on page 6.
ENVIRONMENTAL REGULATION AND PERFORMANCE
The consolidated entity has a policy of at least complying with, but in most cases exceeding, environmental performance requirements. No environmental breaches
have been notified by any Government Agency during the year ended 30 June 2013.
SHARE OPTIONS
As at the date of this report, there were 9,323,790 un-issued ordinary shares under options. Refer to Note 28 for further details of the options outstanding. There
were no options exercised during the year.
TOTAL NUMBER OF EMPLOYEES
The consolidated entity employed a total of 4,269 full-time equivalents (2012: 3,237 full-time equivalents) at 30 June 2013.
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
An indemnity agreement has been entered into between the parent entity and each of the directors named in this report. Under the agreement, the company has
agreed to indemnify those directors against any claim to the extent allowed by the law, for any expenses or costs which may arise as a result of work performed in
their respective capacities.
During the financial year, the parent entity has paid premiums in respect of a contract insuring the directors and officers of the consolidated entity in respect of
liability resulting from these indemnities. The terms of the insurance arrangements and premiums payable are subject to a confidentiality clause.
AUSTAL LIMITED
2013
ANNUAL REPORT
10
DIRECTORS’ REPORT
Continued
REMUNERATION REPORT (Audited)
This Remuneration report outlines the remuneration arrangements in place for Directors and Executives of Austal Limited (the Company) and the Group in
accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, Key Management Personnel (KMP) of the
Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly,
including any director (whether executive or otherwise) of the Company.
For the purposes of this report, the term ‘executive’ encompasses the Chief Executive, senior executives and general managers of the Parent and the Group. KMP
for the year are set out in the table below.
NOMINATION AND REMUNERATION COMMITTEE
The Nomination and Remuneration Committee of the Board of Directors reviews the remuneration of all individual Directors, including the issue of any performance
rights or variable remuneration and makes recommendations to the Board in addition to reviewing the overall remuneration policy of the company.
REMUNERATION POLICY
It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high quality Board and executive team by remunerating Directors and
Executives fairly and appropriately with reference to relevant employment market conditions. Benchmarking of remuneration is undertaken against comparable
sized companies in the Australian manufacturing sector.
The Company aims to reward executives and senior managers with an amount and mix of fixed and variable remuneration commensurate with their position and
responsibilities within the Company. This is done in order to:
attract and retain exceptional employees (‘key employees’) that have the capacity to significantly impact the growth and profitability of the Company;
align key employees’ behaviour towards the growth and profitability objectives of the Company; and reward key employees for sustained
contributions to business success; and
maintain balance between the interests of shareholders and rewarding of executives in order to promote the long term benefits of driving returns to
shareholders and retaining quality personnel.
Summary of changes to the remuneration structure in 2013
At the 2012 Annual General Meeting of shareholders, more than 25 per cent of votes cast were against the resolution to adopt the 2012 Remuneration Report,
though the resolution was carried by a simple majority. In light of this vote, the Board and Remuneration Committee conducted a review of the Group’s remuneration
structure in an effort to address the concerns raised by shareholders. The Company has implemented a number of remuneration measures for 2013 including:
Reducing the number of KMP and other executives that are entitled to participate in the long-term incentive plan (LTIP)
Clearly identifying the performance measures used for the LTIP
70% based on return on invested capital (ROIC) and 30% on total shareholder return (TSR)
Deferring the issuance of performance rights under the LTIP
Specifically linking short-term incentives (STI) to the delivery of performance criteria, principally EBIT and Cash
Restructured the executive team to reduce costs
Freezing KMP and Director salaries in 2013 (except where a change in role occurred)
The Board believes that these measures address the concerns held by shareholders, specifically regarding the award of incentive payments. The Board’s intent is to
ensure the Company’s remuneration structure reflects shareholders’ interests and supports the achievement of improved business performance over the long-term
by motivating talented executives to deliver results that deliver sustainable returns to shareholders.
Structure
Non-executive directors receive fixed remuneration, in the form of salary and fees. However, they do not receive retirement benefits, nor do they participate in any
incentive programs. The board considers this approach allows non-executive directors to maintain genuine independence.
The remuneration for the KMP and executives consists of fixed remuneration, being base salary, superannuation and non-monetary benefits and variable
remuneration as listed below. Fixed remuneration is not linked to performance conditions.
The Company’s remuneration policy also provides for appropriate proportions of remuneration to be either ‘at risk’, or in the form of equity (or both), to ensure there
is alignment between the creation and development of shareholder value and executive remuneration. For example, the Chief Executive Officer’s remuneration
includes an issue of shares up to a maximum of 50% of the value of fixed annual remuneration. For the year ended 30 June 2012, the Chief Executive Officer was
issued securities to the value of 30% of fixed remuneration – the minimum equity component of remuneration.
KMP and other executives are generally eligible to participate in an annual STI scheme which is designed to align business performance with a financial incentive.
No STI was paid in 2013 as a result of the scheme suspension in 2012.
AUSTAL LIMITED
2013
ANNUAL REPORT
11
DIRECTORS’ REPORT
Continued
REMUNERATION REPORT (Audited) (Continued)
Further, the Board considers a freeze on the salaries of KMP and directors would further demonstrate the Company’s commitment to ensuring the priority of
shareholder interests in determining remuneration packages. As a result, the salaries earned by KMP and fees earned by directors during 2013 were frozen at 2012
levels, with the exception of KMP, whose roles changed during the year. Austal restructured the executive team to drive competitiveness and in order to preserve as
much value as possible for shareholders.
LONG TERM INCENTIVE PLAN
The Long Term Incentive Plan (LTIP) which replaces Austal’s previous executive share option plan aims to reward KMP with the issue of performance rights
commensurate with their position and responsibilities within the Company so as to:
attract and retain exceptional employees (‘key employees’) that have the capacity to significantly impact the growth and profitability of the Company;
align key employees’ behaviour towards the growth and profitability objectives of the Company; and reward key employees for sustained contributions to
business success.
The LTIP was developed with the assistance of Mercer, an independent employee share plan consultant. There are separate LTIP for Australian and US executives
to take into account relevant US regulations.
Suspension of the LTIP in 2013
In light of the concerns raised by shareholders through the vote at the 2012 AGM regarding the Remuneration Report and remuneration of KMP, the Company
elected to suspend the LTIP for 2013, and no performance rights were issued during the year. This was despite the LTIP being approved by shareholders at the
AGM.
Given the positive outlook for the Company, the Board expects certain KMP will be eligible for performance rights under the LTIP in the years ahead. However the
number of KMP eligible for performance rights under the new LTIP will be significantly lower than those entitled to options under the previous share option plan.
Eligibility for performance rights under the LTIP is dependent on the achievement of specific performance hurdles, being Return On Invested Capital (ROIC) and
Total Shareholder Return (TSR). The approach to these performance hurdles is detailed below.
Structure
The performance rights may be granted to KMP and executives in accordance with the LTIP rules and set by the Remuneration Committee.
The terms of each offer to participate in the LTIP may differ depending on the relevant KMP role. Shares issued following the vesting of any performance rights will
generally be subject to a restriction on trading for at least 12 months, although the holder will be entitled to any dividends paid during that restricted period.
The Board believes that following the suspension and subsequent re-shaping of the LTIP, including the reduction in the number of KMP entitled to participate, is in
the best interests of shareholders. Entitlement to performance rights under the LTIP is based solely on measures which deliver improved results to shareholders,
thereby ensuring that the objectives of KMP and shareholders are necessarily aligned.
Performance hurdles
The granting of performance rights is tied exclusively to overall company performance, measured against ROIC and TSR targets set periodically by the Board. The
targets will be based on company-wide performance, rather than business unit performance, in order to maximise alignment with shareholder interests –
Performance rights will not vest unless these hurdles, are met. Performance hurdles will be measured over a prescribed period determined by the board.
ROIC measure
70% of the performance rights that vest under the LTIP will be tied to the achievement of an average ROIC target over the prescribed period. The ROIC target will be
based on company-wide performance, rather than business unit performance, in order to maximise alignment with shareholder interest. Performance rights will vest
based on actual ROIC versus target ROIC over the measurement period. The threshold ROIC level will be set by the Board and will normally be at or above current
ROIC when rights are issued.
TSR measure
30% of any LTI award will depend on the achievement of TSR levels prescribed by the Board. To be eligible for the full entitlement of performance rights under this
aspect of the LTI Plan, TSR must exceed 25% over a prescribed period. The LTI entitlement reduces progressively as TSR figures step down below 25%, such that
if TSR over the prescribed period is less than 25% then performance rights based on TSR will not vest. Maintenance of existing TSR performance in itself is not
enough to meet the hurdle required for performance rights under this measure. The Board considers this to be consistent with its objective of improving returns to
shareholders.
AUSTAL LIMITED
2013
ANNUAL REPORT
12
DIRECTORS’ REPORT
Continued
REMUNERATION REPORT (Audited) (Continued)
SHARE OPTION PLAN
The Share Option Plan, which has been replaced by the LTIP, rewarded KMP with the issue of share options commensurate with their position and responsibilities
within the Company so as to:
attract and retain exceptional employees (‘key employees’) that have the capacity to significantly impact the growth and profitability of the Company;
align key employees’ behaviour towards the growth and profitability objectives of the Company; and reward key employees for sustained contributions to
business success.
Structure
The share options are granted to executives and senior managers based on the eligibility criteria set by the Remuneration Committee. Eligibility for the plan will be
linked to employee performance. The exercise of the options will vest after 3 years subject to meeting the company performance criteria.
Performance hurdle
The Company uses a relative Total Shareholder Return (TSR) as the performance hurdle for the share option plan. Relative TSR was selected as the share option
plan performance hurdle as it ensures an alignment between comparative shareholder return and reward for executives.
The Company’s performance against the hurdle is determined by comparing the TSR against the return of the Small Industrials Accumulation Index (or another
appropriate index) for the three year period commencing on 1 July prior to the grant date. The series of options issued at that grant date would lapse if the TSR does
not exceed the return of the Small Industrials Accumulation Index for a particular three year period.
In relation to the options issued after 3 November 2009, the options vest if the TSR of Austal Limited exceeds 25% for each three year period after issuance. The
percentage vesting reduces on a sliding scale if the TSR is below 25%, until no options vest if the TSR is below 5%.
Group performance
The graph below shows the performance of the Company as compared to the movement in the Company’s earnings per share (EPS) over time.
AUSTAL LIMITED
2013
ANNUAL REPORT
13
$0.00$0.50$1.00$1.50$2.00$2.50$3.0002468101214161820092010201120122013Average Yearly Share PriceEPS (cents per share)EPSAverage Yearly Share Price
DIRECTORS’ REPORT
Continued
DETAILS OF KEY MANAGEMENT PERSONNEL FOR THE YEAR ENDED 30 JUNE 2013
EXECUTIVES
Executive directors
Mr Andrew Bellamy
Mr Michael Atkinson(1)
Senior executives
Mr Greg Jason(5)
Mr Graham Backhouse(3)
Mr Joey Turano(2)
Mr Brian Leathers
Mr Craig Perciavalle(4)
Mr Charles McGill(7)
Mr Richard Simons(6)
Chief Executive Officer
Executive Director
Chief Financial Officer
President Australia
President Philippines
Chief Financial Officer USA
President USA
Chief Operating Officer Service & Systems
Chief Financial Officer
NON-EXECUTIVE DIRECTORS
Mr John Rothwell
Mr John Poynton(8)
Mr Dario Amara
Mr David Singleton
Non-Executive Chairman
Independent Director
Independent Director
Independent Director
(1) Mr Michael Atkinson retired on the 30th of June 2013.
(2) Mr Joey Turano was appointed to President Philippines on the 5th of November 2012.
(3) Mr Graham Backhouse was appointed to President Australia on the 3rd of December 2012.
(4) Mr Craig Perciavalle was appointed President USA on the 13th of December 2012.
(5) Mr Greg Jason was appointed to the position of Chief Financial Officer on the 15th of
January 2013.
(6) Mr Richard Simons ceased employment on the 2nd of October 2012.
(7) Mr Charles McGill ceased employment on the 28th of March 2013.
(8) Mr John Poynton resigned on the 28th of June 2013.
AUSTAL LIMITED
2013
ANNUAL REPORT
14
DIRECTORS’ REPORT
Continued
REMUNERATION REPORT (Audited) (Continued)
REMUNERATION OF KEY MANAGEMENT PERSONNEL FOR THE YEAR ENDED 30 JUNE 2013.
TABLE 1: REMUNERATION FOR THE YEAR ENDED 30 JUNE 2013 AND 30 JUNE 2012
Short-Term
Salary &
Fees
$
Cash
Bonus
$
Other
Monetary
Benefits
$
Non-
Monetary
Benefits
$
Termination
Payments
Share-
based
Payment
Options
$
Non-executive directors
John Rothwell(1)
John Poynton(2) (9)
Dario Amara
David Singleton
Christopher Norman(10)
Ian Campbell(11)
Executive directors
Michael Atkinson(14)
Andrew Bellamy
Other key management
personnel
Joey Turano(3)
Graham Backhouse(4)
Craig Perciavalle(5)
Greg Jason(6)
Brian Leathers
Richard Simons(7)(13)
Charles McGill(8)
Joseph Rella(12)
2013
2012
2013
2012
2013
2012
2013
2012
2012
2012
2013
2012
2013
2012
2013
2013
2013
2013
2012
2013
2012
2013
2012
2013
2012
2012
363,636
366,667
90,000
90,000
93,000
93,000
85,000
45,076
42,500
90,000
327,750
392,192
750,405
755,217
108,251
130,263
332,024
295,263
178,446
330,331
2,933
124,949
438,221
258,981
49,051
407,216
-
-
-
-
-
-
-
-
-
-
-
37,962
-
92,656
-
-
-
-
16,166
-
581
-
56,025
-
-
59,983
-
-
-
-
-
-
-
-
-
-
-
-
175,342
25,000
2,027
11,724
17,296
18,330
15,190
6,084
-
16,424
25,689
19,807
25,132
-
-
-
-
-
10,246
-
-
1,119
-
-
-
-
-
-
-
-
Total
$
363,636
366,667
90,000
90,000
93,000
93,000
85,000
45,076
42,500
90,000
-
-
-
-
-
-
-
-
-
-
60,337
44,524
150,590
345,165
388,087
474,678
1,076,337
1,218,038
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
332,647
-
-
-
-
-
-
40,444
74,594
52,053
39,336
428
(123,048)
66,809
(7,790)
2,672
(144,830)
120,524
141,987
389,764
389,306
261,855
375,751
3,942
350,972
586,744
270,998
76,855
322,369
%
Performance
related
%
Options
-
-
-
-
-
-
-
-
-
-
15.5
17.4
14.0
35.9
-
-
10.4
19.2
26.1
10.5
25.6
(35.1)
20.9
(2.9)
3.5
(26.3)
-
-
-
-
-
-
-
-
-
-
15.5
9.4
14.0
28.3
-
-
10.4
19.2
19.9
10.5
10.8
(35.1)
11.4
(2.9)
3.5
(44.9)
(1) Mr John Rothwell’s fee for 2012 and 2013 is exclusive of GST.
(2) Mr John Poynton’s fee for 2012 and 2013 is exclusive of GST.
(3) Mr Joey Turano was appointed to President Philippines on the 5th of November 2012.
(4) Mr Graham Backhouse was appointed to President Australia on the 3rd of December 2012.
(5) Mr Craig Perciavalle was appointed President USA on the 13th of December 2012.
(6) Mr Greg Jason was appointed to the position of Chief Financial Officer on the 15th of January 2013.
(7) Mr Richard Simons ceased employment on the 2nd of October 2012.
(8) Mr Charles McGill ceased employment on the 28th of March 2013.
(9) Mr John Poynton resigned on the 28th of June 2013.
(10) Mr Christopher Norman resigned on the 16th of December 2011.
(11) Mr Ian Campbell resigned on the 30th of June 2012.
(12) Mr Joseph Rella resigned on the 22nd of June 2012.
(13) Mr Simons’ remuneration for 2013 includes a termination payment following his resignation in October 2012.
(14) Mr Michael Atkinson’s fee for 2012 and 2013 is exclusive of GST.
AUSTAL LIMITED
2013
ANNUAL REPORT
15
DIRECTORS’ REPORT
Continued
REMUNERATION REPORT (Audited) (Continued)
TABLE 2: SUMMARY OF CONTRACTUAL PROVISIONS FOR KMP EXECUTIVES
Name
Employing company
Contract duration
Termination notice period
company(1)(2)
Termination notice period
executive(2)
Andrew Bellamy
Michael Atkinson
Richard Simons(5)
Greg Jason
Charles McGill(4)
Austal Limited
Austal Limited
Austal Limited
Austal Limited
Austal Service Pty Ltd
Graham Backhouse
Austal Ships Pty Ltd
Joey Turano
Craig Perciavalle
Brian Leathers
Austal Philippines Pty Ltd
Austal USA LLC
Austal USA LLC
Unlimited
Unlimited
Unlimited
Unlimited
Unlimited
Unlimited
Unlimited
Unlimited
Unlimited
3 months
0 months
9 months
12 weeks
3 months
12 weeks
1 month(3)
0 months
6 months
3 months
0 months
9 months
12 weeks
3 months
12 weeks
3 months
0 months
6 months
(1) Termination provisions – Austal may choose to terminate the contract immediately by making a payment equal to the Company Notice Period fixed remuneration in lieu of notice. In the
event of termination for serious misconduct or other nominated circumstances, executives are not entitled to this termination payment.
(2) On termination of employment, executives will be entitled to the payment of any fixed remuneration calculated up to the termination date, any leave entitlement accrued at the termination
date and any payment or award permitted under the remuneration policy.
(3) Termination period is accrued at a rate of 1 month per year of service.
(4) Mr McGill ceased employment on the 28th of March 2013.
(5) Mr Richard Simons ceased employment on the 2nd of October 2012.
.
AUSTAL LIMITED
2013
ANNUAL REPORT
16
DIRECTORS’ REPORT
Continued
REMUNERATION REPORT (Audited) (Continued)
TABLE 3: COMPENSATION OPTIONS: GRANTED AND VESTED DURING THE YEAR
Terms & Conditions for each Grant
Andrew Bellamy
Michael Atkinson
Greg Jason
Craig Perciavalle
Brian Leathers
Richard Simons^
Award
Year
2013
2012
2011
2010
2013
2012
2011
2010
2008
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
2013
2012
2011
2010
Options
granted
during the
year
No.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Grant Date
-
-
28/09/2010
03/11/2009
-
21/10/2011
28/09/2010
03/11/2009
24/10/2007
-
20/12/2011
28/09/2010
03/11/2009
10/09/2008
-
20/12/2011
28/09/2010
03/11/2009
10/09/2008
-
20/12/2011
28/09/2010
03/11/2009
10/09/2008
-
20/12/2011
28/09/2010
25/02/2010
20/12/2011
Charles McGill
Total
^ 420,000 options were forfeited on cessation of employment.
2012
Fair value per
options at
award date
($)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Vesting date
-
-
28/09/2013
31/08/2012
-
20/12/2014
28/09/2013
31/08/2012
13/09/2010
-
20/12/2014
28/09/2013
31/08/2012
10/09/2011
-
20/12/2014
28/09/2013
31/08/2012
10/09/2011
-
20/12/2014
28/09/2013
31/08/2012
10/09/2011
-
20/12/2014
28/09/2013
27/02/2013
20/12/2014
No. vested
during year
-
-
-
140,000
-
-
-
140,000
-
-
-
-
140,000
-
-
-
-
70,000
-
-
-
-
70,000
-
-
-
-
-
-
560,000
No. lapsed
during year
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
140,000
140,000
140,000
70,000
490,000
AUSTAL LIMITED
2013
ANNUAL REPORT
17
DIRECTORS’ REPORT
Continued
REMUNERATION REPORT (Audited) (Continued)
TABLE 4: OPTIONS GRANTED AS PART OF REMUNERATION DURING THE YEAR
Value of options granted
during the year
$
Value of options
exercised during the
year
$
Value of options
forfeited during the
year1
$
Value of options
lapsed during the
year
$
-
-
-
-
-
-
-
-
30 June 2013
Richard Simons*
Charles McGill*
1. The options had no intrinsic value as at the date of forfeiture.
END OF REMUNERATION REPORT (Audited)
DIRECTORS’ MEETINGS
The number of meetings of directors (including meetings of committees of Directors) held during the year and the number of meetings attended by each Director was as
follows:
Number of meetings held
Number of meetings attended:
John Rothwell
Michael Atkinson
John Poynton*
David Singleton
Dario Amara
Andrew Bellamy **
Directors’ Meetings
8
Meetings of Audit
Committee
4
Meetings of Nomination and
Remuneration Committee
3
8
6
5
8
8
8
-
2
-
4
4
4
3
-
3
3
-
3
* Director for part of the 2013 year.
** Attended as a guest at Audit Committee and Remuneration Committee meetings.
COMMITTEE MEMBERSHIP
As at the date of this report, the Company had an Audit Committee and a Nomination and Remuneration Committee of the Board of Directors.
Members acting on the committees of the Board during the year were:
AUDIT
D Amara^
D Singleton
M Atkinson
NOMINATION AND REMUNERATION
D Singleton^
J Poynton*
J Rothwell
^ Designates the Chairman of the committee.
ROUNDING
The amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the
Company under ASIC Class Order 98/0100. The Company is an entity to which the Class Order applies.
AUSTAL LIMITED
2013
ANNUAL REPORT
18
DIRECTORS’ REPORT
Continued
AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES
The directors received the following declaration from the auditor of Austal Limited.
NON-AUDIT SERVICES
Non-audit services provided by the entity’s auditor, Ernst & Young, during the year, are disclosed in note 26. The directors are satisfied that the provision of non-audit
services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit
service provided means that auditor independence was not compromised.
Signed in accordance with a resolution of directors.
___________________________________
J ROTHWELL AO
Chairman
Dated at Henderson this 30th day of August 2013
________________________________
A BELLAMY
Executive Director and Chief Executive Officer
AUSTAL LIMITED
2013
ANNUAL REPORT
19
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
As at 30 June 2013
Notes
3(a)
3(b)
3(c)
3(d)
5
Revenue
Cost of sales – construction contracts
Cost of sales – service
Chartering expenses
Gross profit
Other income
Administration expenses
Marketing expenses
Impairment of assets
Finance costs
Profit before income tax
Income tax benefit / (expense)
Profit after tax
Profit attributable to:
Owners of the parent
Non-controlling interests
Other comprehensive income
Amounts that may subsequently be reclassified to profit and loss:
Cash flow hedges:
- Gain/(loss) taken to equity
- Transferred to profit and loss
- Transferred to Inventory
Foreign currency translations
Income tax benefit/(expense)
Amounts that will not subsequently be reclassified to profit and loss:
Revaluation of land and buildings
Income tax benefit/(expense)
Other comprehensive income for the period, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
Earnings per share (cents per share)
- basic for profit for the year attributable to ordinary equity holders of the parent
- diluted for profit for the year attributable to ordinary equity holders of the parent
6
6
2013
$’000
902,813
(767,858)
(30,970)
(8,502)
95,483
26,015
(71,212)
(9,989)
-
(13,571)
26,726
9,016
35,742
35,870
(128)
35,742
10,644
(3,177)
(15,427)
11,516
9,894
-
-
13,450
49,192
49,320
(128)
12.03
12.01
2012
$’000
652,996
(589,391)
(12,203)
(7,912)
43,490
32,932
(44,356)
(12,299)
(2,545)
(4,665)
12,557
(1,514)
11,043
11,043
-
11,043
(28,207)
(6,404)
(922)
(1,703)
10,674
42,152
(14,661)
929
11,972
11,972
-
4.62
4.61
AUSTAL LIMITED
2013
ANNUAL REPORT
20
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2013
ASSETS
Current Assets
Cash and cash equivalents
Restricted cash
Trade and other receivables
Inventories
Prepayments
Derivatives
Assets classified as held for sale
Total Current Assets
Non-current Assets
Other financial assets
Trade and other receivables
Derivatives
Property, plant and equipment
Intangible assets and goodwill
Deferred tax assets
Total Non-current Assets
Total Assets
LIABILITIES
Current Liabilities
Trade and other payables
Derivatives
Interest-bearing loans and borrowings
Provisions
Government grants
Income tax payable
Other
Total Current Liabilities
Non-current Liabilities
Derivatives
Interest-bearing loans and borrowings
Provisions
Government grants
Deferred tax liabilities
Total Non-current Liabilities
Total Liabilities
Net Assets
EQUITY
Contributed equity
Reserves
Retained earnings
Equity attributable to owners of the parent
Non - Controlling Interests
Total Equity
Notes
8
8
9
10
11
14
12
9
14
12
13
5
15
14
16
18
17
19
14
16
18
17
5
20
20
20
2013
$’000
38,030
69,673
102,743
277,888
7,653
7,749
503,736
-
503,736
4,141
-
1,651
399,917
12,526
22,647
440,882
944,618
133,813
12,193
243,614
25,128
4,221
24,537
21,790
465,296
4,885
1,163
2,217
52,794
11,076
72,135
537,431
407,187
111,329
37,308
258,560
407,197
(10)
407,187
2012
$’000
51,811
52,940
96,172
193,529
6,538
36,041
437,031
1,561
438,592
944
18
10,625
370,383
5,045
380
387,395
825,987
128,626
2,186
18,973
18,250
3,561
27,394
27,288
226,278
5,757
246,444
2,060
48,753
19,648
322,662
548,940
277,047
31,762
22,595
222,690
277,047
-
277,047
AUSTAL LIMITED
2013
ANNUAL REPORT
21
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2013
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Income tax received/(paid)
GST refunds/(payments)
Net cash (used in)/from operating activities
Cash flows from investing activities
Receipts of government grants
Proceeds from sale of property, plant and equipment
Proceeds from the sale of assets held for sale
Purchase of property, plant and equipment
Purchase of intangible assets
Acquisition of subsidiary/investment
Net cash (used in)/from investing activities
Cash flows from financing activities
Repayment of loan – exercise of in substance options
Proceeds from issue of shares net of transaction costs
Repayment of borrowings
Loans received
Equity dividends paid
Gain(loss) on derivatives
Net cash (used in)/from financing activities
Notes
8
30
2013
$’000
894,029
(930,149)
2,231
(13,571)
(10,580)
2,172
(55,868)
4,763
9,351
6,898
(21,265)
(3,478)
(2,914)
(6,645)
-
75,065
(93,368)
50,244
-
32,227
64,168
2012
$’000
555,639
(521,472)
644
(4,665)
4,860
(1,870)
33,136
8,698
-
-
(131,459)
(1,849)
-
(124,610)
289
-
(40,557)
69,743
(11,284)
-
18,191
Net increase/(decrease) in cash and cash equivalents
1,655
(73,283)
Net foreign exchange differences
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
1,297
104,751
107,703
6,932
171,102
104,751
8
AUSTAL LIMITED
2013
ANNUAL REPORT
22
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2013
Attributable to equity holders of the parent
Issued
capital
$’000
41,075
Reserved
shares*
$’000
(9,900)
Retained
earnings
$’000
222,931
Cash flow
hedge
reserve
$’000
41,508
Other
Reserves**
$’000
(12,580)
Total
$’000
274,169
Non-
Controlling
Interest
$’000
-
As at 1 July 2011
Currency translation differences
Asset revaluation net of tax
Transfers to inventory
Net gains taken to equity
Transfers to profit and loss
Total other comprehensive income
for the year
Profit for the year
Total comprehensive income for the
year
Equity Transactions:
Shares issued
Options exercised
Cost of share-based payments
Equity dividends
-
-
-
-
-
-
-
-
298
-
-
-
-
-
-
-
-
-
-
-
-
289
-
-
Foreign
currency
translation
reserve
$’000
(8,865)
(1,703)
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,703)
27,491
27,491
(645)
(19,745)
(4,469)
-
-
-
(645)
(19,745)
(4,469)
(1,703)
(24,859)
27,491
929
11,043
-
-
-
11,043
11,043
(1,703)
(24,859)
27,491
11,972
-
-
-
(11,284)
-
-
-
-
-
-
-
-
-
-
298
289
1,603
1,603
-
(11,284)
As at 30 June 2012
41,373
(9,611)
222,690
(10,568)
16,649
16,514
277,047
Total
Equity
$’000
274,169
(1,703)
27,491
(645)
(19,745)
(4,469)
929
11,043
11,972
298
289
1,603
(11,284)
277,047
-
-
-
-
-
-
-
-
-
-
-
-
-
AUSTAL LIMITED
2013
ANNUAL REPORT
23
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2013
Attributable to equity holders of the parent
Issued
capital
$’000
41,373
Reserved
shares*
$’000
(9,611)
Retained
earnings
$’000
222,690
Foreign
currency
translation
reserve
$’000
(10,568)
Cash flow
hedge
reserve
$’000
16,649
Other
Reserves**
$’000
16,514
Non-
Controlling
Interest
$’000
-
-
-
-
-
-
Total
$’000
277,047
19,022
(10,799)
7,451
(2,224)
13,450
Total
Equity
$’000
277,047
19,022
(10,799)
7,451
(2,224)
13,450
35,870
(128)
35,742
49,320
(128)
49,192
77,891
(1,823)
1,263
1,263
-
-
-
77,891
(1,823)
1,263
-
3,499
(118)
3,381
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,022
-
-
-
-
(10,799)
7,451
(2,224)
19,022
(5,572)
35,870
-
-
35,870
19,022
(5,572)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
As at 1 July 2012
Currency translation differences
Transfers to inventory
Net gains taken to equity
Transfers to profit and loss
Total other comprehensive income
for the year
Profit for the year
Total comprehensive income for the
year
Equity Transactions:
-
-
-
-
-
-
-
Shares issued
Transaction costs
Cost of share-based payments
Acquisition of Subsidiary
77,891
(1,823)
-
3,499
As at 30 June 2013
120,940
(9,611)
258,560
8,454
11,077
17,777
407,197
(10)
407,187
** Refer to note 20 for details of movements in other reserves
*Reserved shares are in relation to the Austal Group Management Share Plan.
AUSTAL LIMITED
2013
ANNUAL REPORT
24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 1. CORPORATE INFORMATION
The financial report of the Austal Limited Group of Companies (the Group) for the
year ended 30 June 2013 was authorised for issue in accordance with a resolution
of the directors on 29 August 2013.
Austal Limited is a company limited by shares incorporated and domiciled in
Australia whose shares are publicly traded on the Australian stock exchange.
The nature of the operations and principal activities of the Group are described in
note 4.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
The financial report is a general-purpose financial report, which has been
prepared in accordance with the requirements of the Corporations Act 2001 and
Australian Accounting Standards. The financial report has also been prepared on
a historical cost basis, except for derivative financial instruments and land and
buildings that have been measured at fair value.
The financial report is presented in Australian dollars and all values are rounded to
the nearest thousand dollars ($’000) unless otherwise stated under the option
available to the Company under ASIC Class Order 98/0100. The Company is an
entity to which the class order applies.
The financial report also presents the figures of the consolidated entity only,
unless otherwise stated. Austal Limited is a for profit entity.
(b) Statement of compliance
The
financial report complies with Australian Accounting Standards and
International Financial Reporting Standard (IFRS), as issued by the International
Accounting Standards Board.
From 1 July 2012 the Group has adopted all the Standards and Interpretations
mandatory for annual periods beginning on or after 1 July 2012, including the
following pronouncements:
AASB 2011-9: Amendments
to Australian Accounting Standards
-
Presentation of Other Comprehensive Income effective 1 July 2012
Adoption of these Standards and Interpretations did not have any effect on the
financial position or performance of the Group.
A number of Australian Accounting Standards and Interpretations have been
issued or amended but are not yet effective. The relevant pronouncements which
have not been adopted by the Group are as follows:
AASB 10: Consolidated Financial Statements. AASB 10 establishes a new control
model that applies to all entities. It replaces parts of AASB 127 Consolidated and
Separate Financial Statements dealing with the accounting for consolidated
financial statements and UIG-112 Consolidation – Special Purpose Entities. The
new control model broadens the situations when an entity is considered to be
controlled by another entity and includes new guidance for applying the model to
specific situations, including when acting as a manager may give control, the
impact of potential voting rights and when holding less than a majority voting rights
may give control. Consequential amendments were also made to other standards
via AASB 2011-7 and AASB 2012-10.
AASB 11: Joint Arrangements. AASB 11 replaces AASB 131 Interests in Joint
Ventures and UIG-113 Jointly- controlled Entities – Non-monetary Contributions
by Ventures. AASB 11 uses the principle of control in AASB 10 to define joint
control, and therefore the determination of whether joint control exists may
change. In addition it removes the option to account for jointly controlled entities
(JCEs) using proportionate consolidation. Instead, accounting for a joint
arrangement is dependent on the nature of the rights and obligations arising from
the arrangement. Joint operations that give the venturers a right to the underlying
assets and obligations themselves is accounted for by recognising the share of
those assets and obligations. Joint ventures that give the venturers a right to the
net assets is accounted for using the equity method. Consequential amendments
were also made to other standards via AASB 2011-7, AASB 2010-10 and
amendments to AASB 128.
AASB 12: Disclosure of Interests in Other Entities. AASB 12 includes all
disclosures relating to an entity’s interests in subsidiaries, joint arrangements,
associates and structures entities. New disclosures have been introduced about
the judgments made by management to determine whether control exists, and to
require summarised information about joint arrangements, associates and
structured entities and subsidiaries with non-controlling interests.
AASB 13: Fair Value Measurement. AASB 13 establishes a single source of
guidance for determining the fair value of assets and liabilities. AASB 13 does not
change when an entity is required to use fair value, but rather, provides guidance
on how to determine fair value when fair value is required or permitted. Application
of this definition may result in different fair values being determined for the
relevant assets. AASB 13 also expands the disclosure requirements for all assets
or liabilities carried at fair value. This includes information about the assumptions
made and the qualitative impact of those assumptions on the fair value
determined. Consequential amendments were also made to other standards via
AASB 2011-8.
AASB 119: Employee Benefits. The revised standard changes the definition of
short-term employee benefits. The distinction between short-term and other long-
term employee benefits is now based on whether the benefits are expected to be
settled wholly within 12 months after
the reporting date. Consequential
amendments were also made to other standards via AASB 2011-10.
AASB 2011-4: This amendment deletes
individual key
management personnel disclosure requirements for disclosing entities that are not
companies. It also removes the individual KMP disclosure requirements for all
disclosing entities in relation to equity holdings, loans and other related party
transactions.
from AASB 124
AASB 1053: Application of Tiers of Australian Accounting Standards. This
Standard establishes a differential financial reporting framework consisting of two
Tiers of
statements:
reporting
requirements
for preparing general purpose
financial
(a) Tier 1: Australian Accounting Standards
(b) Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements
Tier 2 comprises the recognition, measurement and presentation requirements of
Tier 1 and substantially reduced disclosures corresponding to those requirements.
The following entities apply Tier 1 requirements in preparing general purpose
financial statements:
(a) For-profit entities in the private sector that have public accountability (as
defined in this Standard)
(b) The Australian Government and State, Territory and Local Governments
The following entities apply either Tier 2 or Tier 1 requirements in preparing
general purpose financial statements:
(a) For-profit private sector entities that do not have public accountability
(b) All not-for-profit private sector entities
(c) Public sector entities other than the Australian Government and State,
Territory and Local Governments.
AUSTAL LIMITED
2013
ANNUAL REPORT
25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(c)
(b) Statement of compliance (continued)
Consequential amendments to other standards to implement the regime were
introduced by AASB 2010-2, 2011-2, 2011-6, 2011-11, 2012-1, 2012-7 and 2012-
11.
AASB 2012-2: AASB 2012-2 principally amends AASB 7 Financial Instruments:
Disclosures to require disclosure of information that will enable users of an entity’s
financial statements
the effect or potential effect of netting
arrangements, including rights of set-off associated with the entity’s recognised
financial assets and recognised financial liabilities, on the entity’s financial
position.
to evaluate
AASB 2012-5: Amendments to Australian Accounting Standards arising from
Annual Improvements 2009-2011 Cycle– AASB 2012-5 makes amendments
resulting from the 2009-2011 Annual Improvements Cycle. The Standard
addresses a range of improvements, including the following:
repeat application of AASB 1 is permitted (AASB 1); and
clarification of the comparative information requirements when an entity
provides a third balance sheet (AASB 101 Presentation of Financial
Statements).
from AASB 124
AASB 2012-9: AASB 2012-9 amends AASB 1048 Interpretation of Standards to
evidence the withdrawal of Australian Interpretation 1039 Substantive Enactment
of Major Tax Bills in Australia.
individual key
AASB 2011-4: This amendment deletes
management personnel disclosure requirements for disclosing entities that are not
companies. It also removes the individual KMP disclosure requirements for all
disclosing entities in relation to equity holdings, loans and other related party
transactions.
AASB 1053: This standard establishes a differential financial reporting framework
consisting of two tiers of reporting.
AASB 2012-3: Amendments to Australian Accounting Standards – Offsetting
Financial Assets and Financial Liabilities: AASB 2012-3 adds application guidance
to AASB 132 Financial Instruments: Presentation to address inconsistencies
identified in applying some of the offsetting criteria of AASB 132, including
clarifying the meaning of “currently has a legally enforceable right of set-off” and
that some gross settlement systems may be considered equivalent to net
settlement.
Interpretation 21: This Interpretation confirms that a liability to pay a levy is only
recognised when the activity that triggers the payment occurs. Applying the going
concern assumption does not create a constructive obligation.
the
AASB 9: Financial
classification and measurement of financial assets. It was further amended by
AASB 2010-7 to reflect amendments to the accounting for financial liabilities.
Instruments: AASB 9
includes requirements
for
These requirements improve and simplify the approach for classification and
measurement of financial assets compared with the requirements of AASB 139.
The main changes are described below.
(a)
(b)
Financial assets that are debt instruments will be classified based on (1)
the objective of the entity’s business model for managing the financial
assets; (2) the characteristics of the contractual cash flows.
Allows an irrevocable election on initial recognition to present gains and
losses on investments in equity instruments that are not held for trading in
other comprehensive income. Dividends in respect of these investments
that are a return on investment can be recognised in profit and loss and
there is no impairment or recycling on disposal of the instrument.
Financial assets can be designated and measured at fair value through
profit and loss at initial recognition if doing so eliminates or significantly
reduces a measurement or recognition inconsistency that would arise from
measuring assets or liabilities, or recognising the gains and losses on
them, on different bases.
(d) Where the fair value option is used for financial liabilities the change in fair
value is to be accounted for as follows:
The change attributable to changes in credit risk are presented in other
comprehensive income (OCI)
The remaining change is presented in profit and loss
If this approach creates or enlarges an accounting mismatch in the profit and loss,
the effect of the changes in credit risk are also presented in profit and loss.
Further amendments were made by AASB 2012-6 which amends the mandatory
effective date to annual reporting periods beginning on or after 1 January 2015.
AASB 2012-6 also modifies the relief from restating prior periods by amending
AASB 7 to require additional disclosures on transition to AASB 9 in some
circumstances. Consequential amendments were also made to other standards as
a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010-
7 and 2010-10.
A full assessment of the impact of all the new or amended Accounting Standards
and interpretations issued but not effective has not yet been completed.
(c) Basis of consolidation
The consolidated financial statements comprise the financial statements of Austal
Limited and its subsidiaries as at and for the year ended 30 June each year (the
Group).
Subsidiaries are all those entities over which the Group has the power to govern
the financial and operating policies so as to obtain benefits from their activities.
The existence and effect of potential voting rights that are currently exercisable or
convertible are considered when assessing whether a group controls another
entity.
Financial statements of foreign controlled entities presented in accordance with
overseas accounting principles are, for consolidation purposes, adjusted to
comply with group policy and generally accepted accounting principles in
Australia. In preparing the consolidated financial statements, all intercompany
balances, transactions, unrealised gains and losses resulting from intra-group
transactions and dividends have been eliminated in full.
Subsidiaries are fully consolidated from the date on which control is obtained by
the Group and cease to be consolidated from the date on which control is
transferred out of the Group.
Investments in subsidiaries held by Austal Limited are accounted for at cost in the
separate financial statements of the parent entity less any impairment charges.
Dividends received from subsidiaries are recorded as a component of other
revenues in the statement of comprehensive income of the parent entity, and do
not impact the recorded cost of the investment. Upon receipt of dividend payments
from subsidiaries, the parent will assess whether any indicators of impairment of
the carrying value of the investment in the subsidiary exist. Where such indicators
exist, to the extent that the carrying value of the investment exceeds its
recoverable amount, an impairment loss is recognised.
(d)
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The
consideration transferred in a business combination shall be measured at fair
value, which shall be calculated as the sum of the acquisition date fair values of
the assets transferred by the acquirer, the liabilities incurred by the acquirer to
former owners of the acquiree and the equity issued by the acquirer, and the
amount of any non-controlling interest in the acquiree. For each business
combination, the acquirer measures the non-controlling interest in the acquiree
either at fair value or at the proportionate share of the acquiree's identifiable net
assets.
AUSTAL LIMITED
2013
ANNUAL REPORT
26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recovery of deferred tax assets
(d)
Business combinations and goodwill (continued)
Acquisition-related costs are expensed as incurred, and included in administrative
expenses.
When the Group acquires a business, it assesses the financial assets and
liabilities assumed for appropriate classification and designation in accordance
with the contractual terms, economic conditions, the Group’s operating or
accounting policies and other pertinent conditions as at the acquisition date. This
includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of
the acquirer's previously held equity interest in the acquiree is remeasured to fair
value at the acquisition date through profit and loss.
Any contingent consideration to be transferred by the acquirer will be recognised
at fair value at the acquisition date. Subsequent changes to the fair value of the
contingent consideration which is deemed to be an asset or liability will be
recognised in accordance with AASB 139 either in profit and loss or as a change
to other comprehensive income. If the contingent consideration is classified as
equity, it should not be remeasured until it is finally settled within equity.
Acquisitions prior to July 2009 were accounted for using the purchase method of
accounting.
Goodwill is initially measured at cost, being the excess of the aggregate of the
consideration transferred and the amount recognised for non-controlling interest
over the net identifiable assets acquired and liabilities assumed. If the fair value of
the net assets acquired is in excess of the aggregate consideration transferred,
the gain is recognised in profit and loss.
After initial recognition, goodwill is measured at cost less any accumulated
impairment losses. For the purpose of impairment testing, goodwill acquired in a
business combination is, from the acquisition date, allocated to each of the
Group’s cash-generating units that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquire are assigned to
those units.
Where goodwill has been allocated to a cash-generating unit and part of the
operation within that unit is disposed of, the goodwill associated with the disposed
operation is included in the carrying amount of the operation when determining the
gain or loss on disposal. Goodwill disposed in these circumstance is measured
based on the relative values of the disposed operation and the portion of the cash-
generating unit retained.
(e) Significant accounting judgements, estimates and assumptions
(i) Significant accounting judgements
In the process of applying the Group’s accounting policies, management has
made the following judgements, apart from those involving estimations, which
have the most significant effect on the amounts recognised in the financial
statements:
Construction contract revenue
The assessment of construction contract revenue in accordance with the Group’s
accounting policies requires certain estimates to be made of total contract
revenues, total contract costs and the current stage of completion. Management
have made estimates in this area, which if ultimately inaccurate will impact the
level of revenue recognised in the Consolidated Statement of Comprehensive
Income of 2013 and beyond.
Deferred tax assets are recognised for deductible temporary differences as
management considers that it is probable that future taxable profits will be
available to utilise those temporary differences.
Impairment of non-financial assets other than goodwill
The Group assesses impairment of all assets at each reporting date by evaluating
conditions specific to the Group and to the particular asset that may lead to
impairment. These include product and manufacturing performance, technology,
economic and political environments and future product expectations. If an
impairment trigger exists, the recoverable amount of the asset is determined.
The recoverable amount of the asset is the higher of fair value less costs to sell
and value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset.
For an asset that does not generate largely independent cash inflows, the
recoverable amount is determined for the cash-generating unit to which the asset
belongs, unless the asset’s value in use can be estimated to be close to its fair
value.
Impairment exists when the carrying value of an asset or a cash-general unit
exceeds its estimated recoverable amount. The asset or cash-generating unit is
then written down to its recoverable amount.
(ii) Significant accounting estimates and assumptions
The carrying amounts of certain assets and liabilities are often determined based
on estimates and assumptions of future events. The key estimates and
assumptions that have a significant risk of causing a material adjustment to the
carrying amounts of certain assets and liabilities within the next annual reporting
period are:
Workers compensation
The Group has carried out an estimation of workers compensation claims that
have been incurred but not yet reported.
Long service leave
Assumptions are formulated when determining the Group’s long service leave
obligations. This requires estimation of the probability of current employees
attaining the service period required to qualify for long service leave benefits.
Share-based payment transactions
The Group measures the cost of equity-settled transactions with employees by
reference to the fair value of the equity instruments at the date at which they are
granted. The fair value is determined by an external valuer using a Monte Carlo
model, with the assumptions detailed in note 28.
Estimation of useful lives of assets
The estimation of the useful lives of assets has been based on historical
experience. In addition, the condition of the assets is assessed at least once per
year and considered against the remaining useful life. Adjustments to useful life
are made when considered necessary. Depreciation charges are included in note
12.
Derivative financial instruments and hedging
When applying hedge accounting the Group has considered all relevant factors in
determining that the future anticipated transaction is highly probable.
Expected construction profits at completion
Revaluation of land and buildings
In determining the gross profit on construction projects the Group has made
estimates in relation to the assessment of projects on a percentage of completion
basis, in particular with regard to accounting for variations, the timing of profit
recognition and the amount of profit recognised. The percentage of complete is
calculated on actual costs over the sum of actual costs plus projected costs to
complete the contract and profit is recognised from commencement of the project.
The Group measures land and buildings at revalued amounts with changes to fair
value being recognised in other comprehensive income. The Group engages
independent valuation specialists on a periodic basis to determine the fair values
of these assets. The Group reviews market indicators in the interim periods to
ensure that the carrying value of revalued property is not materially different from
fair value.
AUSTAL LIMITED
2013
ANNUAL REPORT
27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(i) Leases
(f)
Revenue recognition
Revenue is recognised and measured at fair value of the consideration received
or receivable to the extent that it is probable that the economic benefits will flow to
the Group and the revenue can be reliably measured. The following specific
recognition criteria must also be met before revenue is recognised:
(i) Construction Contract Revenue
Construction contract revenue is brought to account on a percentage of
completion basis, based on actual costs incurred as a proportion of estimated total
contract costs.
Where the contract outcome cannot be measured reliably, contract costs are
recognised as an expense as incurred and where it is probable that the costs will
be recovered, revenue is recognised only to the extent of the costs incurred.
(ii) Sale of Goods and Scrap
Revenue is recognised when the significant risks and rewards of ownership of the
goods have passed to the buyer. Risk and rewards of ownership are considered
passed to the buyer at the time of delivery of the goods to the customer.
(iii) Charter Revenue
Charter revenue is operating rentals received on charter of vessels and is
recognised when the control over the right to revenue is achieved.
(iv) Service Revenue
Service revenue is brought into account on a percentage of completion basis,
based on actual costs incurred as a proportion of estimated total contract costs.
Where the contract outcome cannot be measured reliably, contract costs are
recognised as an expense as incurred and where it is probable that the cost will
be recovered, revenue is recognised only to the extent of the costs incurred.
(v) Interest income
Revenue is recognised as interest accrues using the effective interest method.
This is a method of calculating the amortised cost of a financial asset and
allocating the interest income over the relevant period using the effective interest
rate, which is the rate that exactly discounts estimated future cash receipts
through the expected life of the financial asset to the net carrying amount of the
financial asset.
(vi) Dividends
Revenue is recognised when the Group’s right to receive the payment is
established.
(g) Government grants
Government grants are recognised when there is reasonable assurance that the
grant will be received and all attaching conditions will be complied with.
When the grant relates to an expense item, it is recognised as income over the
periods necessary to match the grant on a systematic basis to the costs that it is
intended to compensate.
When the grant relates to an asset, the fair value is credited to a deferred income
account and is released to the statement of comprehensive income over the
expected useful life of the relevant asset by equal annual instalments.
(h) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production
of a qualifying asset (i.e. an asset that necessarily takes a substantial period of
time to get ready for its intended use or sale) are capitalised as part of the cost of
that asset. All other borrowing costs are expensed in the period they occur.
Borrowing costs consist of interest and other costs that an entity incurs in
connection with the borrowing of funds.
The determination of whether an arrangement is or contains a lease is based on
the substance of the arrangement and requires an assessment of whether the
fulfilment of the arrangement is dependent on the use of a specific asset or assets
and the arrangement conveys a right to use the asset.
Operating lease payments are recognised as an expense in the statement of
comprehensive income on a straight-line basis over the lease term.
(j) Cash and cash equivalents
Cash and short-term deposits in the statement of financial position comprise cash
at bank and in hand and short-term deposits with an original maturity of three
months or less.
For the purposes of the Cash Flow Statement, cash and cash equivalents consist
of cash and cash equivalents as defined above, net of cash held as a guarantee.
(k) Trade and other receivables
Trade receivables, which are within the normal credit terms, are recognised and
carried at original invoice amount less an allowance for any uncollectible amounts.
An allowance for doubtful debts is made when there is objective evidence that the
Group will not be able to collect the debts. Bad debts are written off when
identified.
(l) Reserved shares
Own equity instruments which are issued and held by a trustee under Austal
Group Management Share Plan are classified as reserved shares and are
deducted from equity. No gain or loss is recognised in the statement of
comprehensive income on the purchase, sale, issue or cancellation of the Group’s
own equity instruments.
(m) Inventories
Construction work in progress is valued at contract cost incurred to date, plus
profit recognised to date, less any provision for anticipated future losses and
progress billings. Costs include production overheads. Construction profits are
recognised on the percentage of completion basis. Percentage of completion is
determined by reference to actual costs to date as a proportion of estimated total
contract costs.
Stock and finished goods are valued at the lower of cost and net realisable value,
where costs include production overheads. Cost of stock is determined on the
weighted average cost basis.
(n) Derivative financial instruments and hedging
The Group uses derivative financial instruments such as forward exchange
contracts and forward currency options to hedge its risks associated with foreign
currency fluctuations. Such derivative financial instruments are stated at fair value
on the date on which a derivative contract is entered into and are subsequently
remeasured at fair value. Derivatives are carried as assets when the fair value is
positive and as liabilities when the fair value is negative.
Any gains or losses arising from changes in the fair value of derivatives, except for
those that qualify as cash flow hedges, are taken to the statement of
comprehensive income.
The fair value of forward currency contracts is calculated by reference to current
forward exchange rates for contracts with similar maturity profiles.
For the purposes of hedge accounting, hedges are classified as:
fair value hedges when they hedge the exposure to changes in the fair value
of a recognised asset or liability or an unrecognised firm commitment other
than foreign currency risk; or
cash flow hedges when they hedge exposure to variability in cash flows that is
attributable either to a particular risk associated with a recognised asset or
liability or foreign exchange risks on firm commitments.
AUSTAL LIMITED
2013
ANNUAL REPORT
28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(n) Derivative financial instruments and hedging (continued)
At the inception of a hedge relationship, the Group formally designates and
documents the hedge relationship to which the Group wishes to apply hedge
accounting and the risk management objective and strategy for undertaking the
hedge. The documentation includes identification of the hedging instrument, the
hedged item or transaction, the nature of the risk being hedged and how the entity
will assess the hedging instrument’s effectiveness in offsetting the exposure to
changes in the hedged item’s fair value or cash flows attributable to the hedged
risk. Such hedges are expected to be highly effective in achieving offsetting
changes in fair value or cash flows and are assessed on an ongoing basis to
determine that they actually have been highly effective throughout the financial
reporting periods for which they were designated.
Hedges that meet the strict criteria for hedge accounting are accounted for as
follows:
(i) Fair value hedges
Fair value hedges are hedges of the Group’s exposure to changes in the fair value
of a recognised asset or liability or an unrecognised firm commitment other than
foreign exchange rate risk, or an identified portion of such an asset, liability or firm
commitment that is attributable to a particular risk and could affect profit or loss.
For fair value hedges, the carrying amount of the hedged item is adjusted for
gains and losses attributable to the risk being hedged, the derivative is
remeasured to fair value and gains and losses from both are taken to the
statement of comprehensive income.
The Group discontinues fair value hedge accounting if the hedging instrument
expires or is sold, terminated or exercised, the hedge no longer meets the criteria
for hedge accounting or the Group revokes the designation. Any adjustment to
the carrying amount of a hedged financial instrument for which the effective
interest method is used is amortised to the statement of comprehensive income.
Amortisation may begin as soon as an adjustment exists and shall begin no later
than when the hedged item ceases to be adjusted for changes in its fair value
attributable to the risk being hedged.
(ii) Cash flow hedges
Cash flow hedges are hedges of the Group’s exposure to variability in cash flows
that is attributable to a particular risk associated with a recognised asset or liability
or a highly probable forecast transaction and the foreign exchange risks on firm
commitments and that could affect profit or loss. The effective portion of the gain
or loss on the hedging instrument is recognised directly in equity, while the
ineffective portion is recognised in the statement of comprehensive income.
Amounts taken to equity are transferred to the statement of comprehensive
income when the hedged transaction affects profit or loss, such as when hedged
income or expenses are recognised or when a committed and future sale or the
asset is consumed. When the hedged item is the cost of a non-financial asset or
liability, the amounts taken to equity are transferred to the initial carrying amount
of the non-financial asset or liability.
If the forecast transaction is no longer expected to occur, amounts previously
recognised in equity are transferred to the statement of comprehensive income. If
the hedging instrument expires or is sold, terminated or exercised without
replacement or rollover, or if its designation as a hedge is revoked, amounts
previously recognised in equity remain in equity until the forecast transaction
occurs. If the related transaction is not expected to occur, the amount is taken to
statement of comprehensive income for the period
(o) Foreign currency translation
Both the functional and presentation currency of Austal Limited and its Australian
subsidiaries is Australian dollars (A$). Each entity in the Group determines its
own functional currency and items included in the financial statements of each
entity are measured using that functional currency.
Transactions in foreign currencies are initially recorded in the functional currency
by applying the exchange rates ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are retranslated at the rate
of exchange ruling at the balance date. All exchange differences arising from the
above procedures are taken to the statement of comprehensive income.
The functional currency of Austal USA is United States dollars (US$).
As at the reporting date, the assets and liabilities of the overseas subsidiaries are
translated into the presentation currency of Austal Limited at the rate of exchange
ruling at the balance date and the statement of comprehensive income is
translated at the average exchange rates for the period. The exchange
differences arising on the translation are taken directly to a separate component of
equity. On disposal of a foreign entity, the deferred cumulative amount
recognised in equity relating to that particular foreign operation is recognised in
the statement of comprehensive income.
(p) Income tax
Current tax assets and liabilities for the current and prior periods are measured at
the amount expected to be recovered from or paid to the taxation authorities. The
tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted by the balance date.
Deferred income tax is provided on all temporary differences at the balance date
between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable temporary differences
except:
when the deferred income tax liability arises from the initial recognition of
goodwill or of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting
profit nor taxable profit or loss; or
when the taxable temporary differences associated with investments in
subsidiaries, associates or interests in joint ventures, and the timing of the
reversal of the temporary differences can be controlled and it is probable that
the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary
differences, carry-forward of unused tax assets and unused tax losses, to the
extent that it is probable that taxable profit will be available against which the
deductible temporary differences, and the carry-forward of unused tax assets
and unused tax losses can be utilised except:
when the deferred income tax asset relating to the deductible temporary
difference arises from the initial recognition of an asset or liability in a
transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss; or
when the deductible temporary differences is associated with investments in
subsidiaries, associates and interests in joint ventures in which case a
deferred tax asset is only recognised to the extent that it is probable that the
temporary differences will reverse in the foreseeable future and taxable profit
will be available against which the temporary
The carrying amount of deferred income tax assets is reviewed at each balance
date and reduced to the extent that it is no longer probable that sufficient taxable
profit will be available to allow all or part of the deferred income tax asset to be
utilised.
Unrecognised deferred income tax assets are reassessed at each balance date
and are recognised to the extent that it has become probable that future taxable
profit will allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are
expected to apply to the year when the asset is realised or the liability is settled,
based on tax rates (and tax laws) that have been enacted or substantively
enacted at the balance date.
AUSTAL LIMITED
2013
ANNUAL REPORT
29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(p) Income tax (continued)
Income taxes relating to items recognised directly in equity are recognised in
equity and not in the statement of comprehensive income.
Deferred tax assets and deferred tax liabilities are offset only if a legally
enforceable right exists to set off current tax assets against current tax liabilities
and the deferred tax assets and liabilities relate to the same taxable entity and the
same taxation authority.
(q) Other taxes
Revenues, expenses and assets are recognised net of the amount of GST except:
when the GST incurred on a purchase of goods and services is not
recoverable from the taxation authority, in which case the GST is recognised
as part of the cost of acquisition of the asset or as part of the expense item as
applicable; and
receivables and payables, which are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the taxation authority is
included as part of receivables or payables in the statement of financial position.
Cash flows are included in the Cash Flow Statement on a gross profit basis and
the GST component of cash flows arising from investing and financing activities,
which is recoverable from, or payable to, the taxation authority, are classified as
operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST
recoverable from, or payable to, the taxation authority.
(r) Property, plant and equipment
Plant and equipment is stated at cost less accumulated depreciation and any
accumulated impairment losses.
Land and buildings are measured at fair value less accumulated depreciation on
buildings and any impairment losses recognised after the date of revaluation.
Valuations are performed frequently to ensure that the fair value of a revalued
asset does not differ materially from its carrying value.
Any revaluation surplus is recorded in other comprehensive income and hence
credited to the asset revaluation reserve in equity, except to the extent that it
reverses a revaluation decrease of the same asset previously recognised in the
statement of comprehensive income, in which case, the increase is recognised in
the profit and loss. A revaluation deficit is recognised in the statement of
comprehensive income except to the extent that it offsets an existing surplus on
the same asset recognised in the asset revaluation reserve. Accumulated
depreciation as at the revaluation date is eliminated against the gross carrying
amount of the asset and the net amount is restated to the revalued amount of the
asset. Upon disposal, any revaluation reserve relating to the particular asset being
sold is transferred to retained earnings.
Depreciation is calculated on a straight-line or diminishing value basis over the
estimated useful life of the asset as follows:
Buildings – straight-line over 40 years
Plant and equipment – over 2 to 10 years
The assets’ residual values, useful lives and amortisation methods are reviewed,
and adjusted if appropriate, at each financial year end.
(i)
Impairment
The carrying values of plant and equipment are reviewed for impairment at each
reporting date, with recoverable amount being estimated when events or changes
in circumstances indicate the carrying value of the asset may be impaired.
The recoverable amount of plant and equipment is the higher of fair value less
costs to sell and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks
specific to the asset.
For an asset that does not generate largely independent cash inflows, recoverable
amount is determined for the cash-generating unit to which the asset belongs,
unless the asset’s value in use can be estimated to be close to its fair value.
An impairment exists when the carrying value of an asset or a cash-general unit
exceeds its estimated recoverable amount. The asset or cash-generating unit is
then written down to its recoverable amount.
Impairment losses on plant and equipment are recognised in the statement of
comprehensive income.
The asset or cash-generating unit that suffered an impairment is tested for
possible reversal of the impairment whenever events or changes in circumstances
indicate that the impairment may have reversed.
(ii) De-recognition and disposal
An item of property, plant and equipment is derecognised upon disposal or when
no further future economic benefits are expected from its use or disposal.
Any gain or loss arising on de-recognition of the asset (calculated as the
difference between the net disposal proceeds and the carrying amount of the
asset) is included in the statement of comprehensive income in the year the asset
is derecognised.
(s) Non-current assets held for sale
Non-current assets classified as held for sale are measured at the lower of their
carrying amount and fair value less costs to sell. Non-current assets are classified
as held for sale if their carrying amounts will be recovered principally through a
sale transaction rather than through continuing use. This condition is regarded as
met only when the sale is highly probable and the asset or disposal group is
available for immediate sale in its present condition. Management must be
committed to the sale, which should be expected to qualify for recognition as a
completed sale within one year from the date of classification.
Property, plant and equipment and intangible assets once classified as held for
sale are not depreciated or amortised.
(t)
Investments and other financial assets
Financial assets in the scope of AASB 139 Financial Instruments: Recognition and
Measurement are classified as either financial assets at fair value through profit or
loss, loans and receivables, held-to-maturity investments, or available-for-sale
investments, as appropriate. When financial assets are recognised initially, they
are measured at fair value, plus, in the case of investments not at fair value
through profit or loss, directly attributable transactions costs. The Group
determines the classification of its financial assets on initial recognition.
All regular way purchases and sales of financial assets are recognised on the
trade date i.e. the date that the Group commits to purchase the asset. Regular
way purchases or sales are purchases or sales of financial assets under contracts
that require delivery of the assets within the period established generally by
regulation or convention in the marketplace.
Loans and receivables
Loans and receivables are non-derivative
fixed or
determinable payments that are not quoted in an active market. Such assets are
carried at amortised cost using the effective interest method. Gains and losses
are recognised in profit or loss when the loans and receivables are derecognised
or impaired as well as through the amortisation process.
financial assets with
AUSTAL LIMITED
2013
ANNUAL REPORT
30
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(u) Impairment – Financial assets
A financial asset is assessed at each reporting date to determine whether there is
any objective evidence that it is impaired. A financial asset is considered to be
impaired if objective evidence indicates that one or more events have had a
negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset which is measured at amortised
cost is calculated as the difference between its carrying amount, and the present
value of the estimated future cash flows, discounted at the original effective
interest rate.
Individually significant financial assets are tested for impairment on an individual
basis. The remaining financial assets are assessed collectively in groups that
share similar credit risk characteristics.
All impairment losses are recognised in profit or loss. An impairment loss is
reversed if the reversal can be related objectively to an event occurring after the
impairment loss was recognised. For financial assets measured at amortised
cost, the reversal is recognised in profit or loss.
Useful lives
Finite
Computer Software
Method used
2.5 years – Straight line
Amortisation method reviewed at each financial
year-end
Internally generated
or acquired
Acquired
Impairment testing
Reviewed annually for indicator of impairment
Useful lives
Finite
Development costs
Method used
5 years – Straight line
Amortisation method reviewed at each financial
year-end
Internally generated
or acquired
Internally generated
(v) Intangible assets
Impairment testing
Reviewed annually for indicator of impairment
Intangible assets acquired separately are initially measured at cost. Following
initial recognition, intangible assets are carried at cost less any accumulated
amortisation and any accumulated impairment losses. Internally generated
intangible assets, excluding capitalised development costs, are not capitalised and
expenditure is charged against profit or loss in the year in which the expenditure is
incurred.
The useful lives of intangible assets are assessed to be either finite or indefinite.
Intangible assets with finite lives are amortised over the useful life and assessed
for impairment whenever there is an indication that the intangible asset may be
impaired. The amortisation period and the amortisation method for an intangible
asset with a finite useful life are reviewed at least at each financial year-end.
Changes in the expected useful life or the expected pattern of consumption of
future economic benefits embodied in the asset are accounted for by changing the
amortisation period or method, as appropriate, which is a change in accounting
estimate. The amortisation expense on intangible assets with finite lives is
recognised in the statement of comprehensive income in the expense category
consistent with the function of the intangible asset.
Research and Development costs
Research costs are expensed as incurred. Development expenditure on an
individual project are recognised as an intangible asset when the Group can
demonstrate:
the technical feasibility of completing the intangible asset so that it will
be available for use or sale
its intention to complete and its ability to use or sell the asset
how the asset will generate future economic benefits
the availability of resources to complete the asset
the ability to measure reliably the expenditure during development
Following initial recognition of the development expenditure as an asset, the asset
is carried at cost less any accumulated amortisation and accumulated impairment
losses. Amortisation of the asset begins when development is complete and the
asset is available for use. It is amortised over the period of expected future
benefit. Amortisation is recorded in costs of sales. During the period of
development, the asset is tested for impairment annually.
A summary of the policies applied to the Group’s intangible assets is as follows:
(w) Impairment of non-financial assets
The Group assesses at each reporting date whether there is an indication that an
asset may be impaired. If any such indication exists, or when annual impairment
testing for an asset is required, the Group makes an estimate of the asset’s
recoverable amount. An asset’s recoverable amount is the higher of its fair value
less costs to sell and its value in use and is determined for an individual asset,
unless the asset does not generate cash inflows that are largely independent of
those from other assets or groups of assets and the asset’s value in use cannot
be estimated to be close to its fair value. In such cases the asset is tested for
impairment as part of the cash-generating unit to which it belongs. When the
carrying amount of an asset or cash-generating unit exceeds its recoverable
amount, the asset or cash-generating unit is considered impaired and is written
down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
An assessment is also made at each reporting date for assets excluding goodwill
as to whether there is any indication that previously recognised impairment losses
may no longer exist or may have decreased. If such indication exists, the
recoverable amount is estimated. A previously recognised impairment loss is
reversed only if there has been a change in the estimates used to determine the
asset’s recoverable amount since the last impairment loss was recognised. If that
is the case, the carrying amount of the asset is increased to its recoverable
amount. That increased amount cannot exceed the carrying amount that would
have been determined, net of depreciation, had no impairment loss been
recognised for the asset in prior years. Such reversal is recognised in the
statement of comprehensive income. After such a reversal, the depreciation
charge is adjusted in future periods to allocate the asset’s revised carrying
amount, less any residual value, on a systematic basis over its remaining useful
life.
The following asset has specific characteristics for impairment testing:
Goodwill - Goodwill is tested for impairment annually as at 31 December and
when circumstances indicate that the carrying value may be impaired.
Impairment is determined for goodwill by assessing the recoverable amount of
each CGU (or group of CGUs) to which the goodwill relates. When the
recoverable amount of the CGU is less than its carrying amount, an impairment
loss is recognised. Impairment losses relating to goodwill cannot be reversed in
future periods.
AUSTAL LIMITED
2013
ANNUAL REPORT
31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(x) Trade and other payables
whereby employees render services in exchange for shares or rights over shares
(equity-settled transactions).
Trade payables and other payables are carried at amortised costs and represent
liabilities for goods and services provided to the Group prior to the end of the
financial year that are unpaid and arise when the Group becomes obliged to make
future payments in respect of the purchase of these goods and services.
(y) Interest-bearing loans and borrowings
There are currently two plans in place to provide these benefits, which extend to
senior management and directors:
The Austal Group Management Share Plan (AGMSP); and
All loans and borrowings are initially recognised at the fair value of the
consideration received less directly attributable transaction costs.
The Long Term Incentive Plan (LTI Plan).
After initial recognition, interest-bearing loans and borrowings are subsequently
measured at amortised cost using the effective interest method.
Gains and losses are recognised in the statement of comprehensive income when
the liabilities are derecognised.
(z) Provisions
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation and a
reliable estimate can be made of the amount of the obligation.
A provision for dividends is not recognised as a liability unless the dividends are
declared, determined or publicly recommended on or before the reporting date.
If the effect of the time value of money is material, provisions are discounted using
a current pre-tax rate that reflects the risks specific to the liability.
When discounting is used, the increase in the provision due to the passage of time
is recognised as a finance cost.
(i) Warranties
Provision for warranty is made upon delivery of the vessels based on the
estimated future costs of warranty repairs on vessels.
(ii) Workers compensation insurance
A provision for workers’ compensation insurance is recognised for the expected
costs of current claims and claims incurred but not reported at the balance date.
(iii) Provision for onerous contracts
Provision is made for unrecognised present obligations of contracts to the extent
that it exceeds the economic benefits expected to be received under the contracts.
(aa) Employee leave benefits
(i) Wages, salaries, annual leave, vested sick leave and work safe bonus
Liabilities for wages and salaries, including non-monetary benefits, annual leave
and accumulating sick leave due to be settled within 12 months of the reporting
date are recognised in other payables in respect of employees’ services up to the
reporting date. They are measured at the amounts expected to be paid when the
liabilities are settled.
(ii) Long service leave
The liability for long service leave is recognised in the provision for employee
benefits and measured as the present value of expected future payments to be
made in respect of services provided by employees up to the reporting date.
Consideration is given to expected future wage and salary levels, experience of
employee departures, and periods of service. Expected future payments are
discounting using market yields at the reporting date on national government
bonds with terms to maturity and currencies that match, as closely as possible, the
estimated future cash outflows.
(ab) Share-based payment transactions
Equity settled transactions
The Group provides benefits to employees (including executive directors and key
management personnel) of the Group in the form of share-based payments,
The cost of these equity-settled transactions with employees is measured by
reference to the fair value at the date at which they are granted. The fair value is
determined by an external valuer using a Monte Carlo model.
In valuing equity-settled transactions, no account is taken of any performance
conditions, other than conditions linked to the price of the shares of Austal Limited
(market conditions) if applicable. Where non-market performance conditions must
be satisfied, the number of entitlements included in expense recognition is
adjusted to an estimate of the ultimate number of entitlements expected to vest.
The cost of equity-settled
together with a
corresponding increase in equity, over the period in which the performance
conditions are fulfilled, ending on the date on which the relevant employees
become fully entitled to the award (the vesting period).
transactions
recognised,
is
The cumulative expense recognised for equity-settled transactions at each
reporting date until vesting date reflects (i) the extent to which the vesting period
has expired and (ii) the number of awards that, in the opinion of the directors of
the Group, will ultimately vest. This opinion is formed based on the best available
information at balance date. No adjustment is made for the likelihood of market
performance conditions being met as the effect of these conditions is included in
the determination of fair value at grant date. The statement of comprehensive
income charge or credit for a period represents the movement in cumulative
expense recognised as at the beginning and end of that period.
No expense is recognised for awards that do not ultimately vest, except for
awards where vesting is conditional upon a market condition.
If the terms of an equity-settled award are modified, as a minimum an expense is
recognised as if the terms had not been modified. In addition, an expense is
recognised for any modification that increases the total fair value of the share-
based payment arrangement, or is otherwise beneficial to the employee, as
measured at the date of modification.
If an equity-settled award is cancelled, it is treated as if it had vested on the date
of cancellation, and any expense not yet recognised for the award is recognised
immediately. However, if a new award is substituted for the cancelled award and
designated as a replacement award on the date that it is granted, the cancelled
and new award are treated as if they were a modification of the original award, as
described in the previous paragraph.
Shares in the Group held by the AGMSP are classified and disclosed as reserved
shares and deducted from equity. Refer to note 2(l) for the accounting policy
applied to these shares.
(ac) Contributed equity
Ordinary shares are classified as equity. Incremental costs directly attributable to
the issue of new shares or options are shown in equity as a deduction, net of tax,
from the proceeds of the new shares or options.
AUSTAL LIMITED
2013
ANNUAL REPORT
32
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(ad) Earnings per share
Basic earnings per share is calculated as net profit attributable to members of the
parent, adjusted to exclude costs of servicing equity (other than dividends) and
preference share dividends, divided by the weighted average number of ordinary
shares, adjusted for any bonus element.
Diluted earnings per share are calculated as net profit attributable to members of
the parent, adjusted for:
costs of servicing equity (other than dividends) and preference share
dividends;
the after tax effect of dividends and interest associated with dilutive potential
ordinary shares that have been recognised as expenses;
other non-discretionary changes in revenues or expenses during the period
that would result from the dilution of potential ordinary shares; and
divided by the weighted average number of ordinary shares and dilutive
potential ordinary shares, adjusted for any bonus element.
(ae) Operating Segments
An operating segment is a component of an entity that engages in business
activities from which it may earn revenues and incur expenses (including revenues
and expenses relating to transactions with other components of the same entity),
whose operating results are regularly reviewed by the entity's chief operating
decision maker to make decisions about resources to be allocated to the segment
and assess its performance and for which discrete financial information is
available. This includes start-up operations which are yet to earn revenues.
Management will also consider other factors in determining operating segments
such as the existence of a line manager and the level of segment information
presented to the board of directors.
Operating segments have been identified based on the information provided to the
chief operating decision makers — being the executive management team.
The group aggregates two or more operating segments when they have similar
economic characteristics, and the segments are similar in each of the following
respects:
Nature of the products and services
Nature of the production processes
Type or class of customer for the products and services
Methods used to distribute the products or provide the services, and if
applicable
Nature of the regulatory environment
Operating segments that meet the quantitative criteria as prescribed by AASB 8
are reported separately.
However, an operating segment that does not meet the quantitative criteria is still
reported separately where information about the segment would be useful to users
of the financial statements.
Information about other business activities and operating segments that are below
the quantitative criteria are combined and disclosed in a separate category for “all
other segments”. Refer to Note 4.
AUSTAL LIMITED
2013
ANNUAL REPORT
33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 3. REVENUE AND EXPENSES
Revenue and Expenses from Continuing Operations
(a) Revenue
Construction contract revenue
Charter revenue
Service revenue
Rental revenue
Sale of scrap
Interest from other unrelated parties
(b) Other income
Government grants
Training reimbursement
Gain on disposal of property, plant and equipment
Net foreign exchange gain
Foreign exchange gain on forward currency options less deferred premiums
Other income
(c) Impairment
Impairment of assets
(d) Finance costs
Interest paid to unrelated parties
(e) Depreciation, amortisation and foreign exchange differences included in the statement of
comprehensive income
Depreciation excluding impairment
Amortisation
(f) Lease payments included in statement of comprehensive income (Included in administration
expenses)
2013
$’000
849,514
15,459
32,287
500
2,822
2,231
902,813
4,763
6,754
115
6,029
3,352
5,002
26,015
2012
$’000
617,847
11,298
20,007
680
2,519
645
652,996
4,550
8,822
4,269
9,037
5,114
1,140
32,932
-
2,545
13,571
4,665
21,914
2,595
14,457
1,867
Rental expenses on operating leases
1,343
1,877
AUSTAL LIMITED
2013
ANNUAL REPORT
34
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 3. REVENUE AND EXPENSES (continued)
(g) Employee benefits expense
Wages and salaries
Superannuation
Share based payments
Workers’ compensation costs
Annual leave (reversal)/expense
Long service leave expense
NOTE 4. OPERATING SEGMENTS
Identification of reportable segments:
2013
$’000
2012
$’000
180,883
163,054
1,020
1,263
538
7,536
1,031
375
1,603
2,927
6,527
1,002
192,271
175,488
For management purposes the group is organised into four business segments based on the location of the production facilities, related sales regions and types of
activity.
The Chief Executive Officer monitors the performance of the business segments separately for the purpose of making decisions about resources to be allocated and of
assessing performance. Segment performance is evaluated based on operating profit or loss. Finance costs, finance income and income tax are managed on a group
basis.
The Group’s reportable segments are as follows:
Henderson Shipyard Operations (“HSO”)
The HSO business manufactures high performance aluminium defence vessels for markets worldwide, excluding the USA.
USA Operations
The USA manufactures high performance aluminium defence vessels for the U.S. Navy.
Service & Systems Operations
The Service business provides training and on-going support and maintenance for high performance vessels and includes the chartering of a vessel to the U.S.
Navy’s Military Sealift Command.
Philippines Shipyard Operations (“PSO”)
The PSO business manufactures high performance aluminium commercial vessels for markets worldwide, excluding the USA.
Other/Unallocated
The following items and associated assets and liabilities are not allocated to operating segments as they are not considered part of the core operations of any
segment:
Cost of group services
Corporate overheads
Revenue from property leased to other group segments
Finance revenue and costs
Taxation
Assets held for sale
Derivatives
Commercial vessel charter contracts
Accounting policies and inter-segment transactions
The accounting policies used by the Group in reporting segments internally are the same as those contained in note 2 to the accounts.
Inter-entity sales are recognised based on an arm’s length pricing structure.
AUSTAL LIMITED
2013
ANNUAL REPORT
35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 4. OPERATING SEGMENTS (continued)
Year Ended 30 June 2013
Revenues
External customers
Inter-segment
Total revenues (i)
HSO
$’000
USA
$’000
PSO
$’000
Service &
Systems
$’000
Other /
Unallocated
$’000
Eliminations /
Adjustments
$’000
Total
$’000
59,417
30,928
90,345
749,383
33,057
-
6,929
749,383
39,986
46,377
12,585
58,962
12,348
2,333
14,681
-
900,582
(52,775)
-
(52,775)
900,582
Segment result (EBIT) (ii)
506
39,184
5,020
(465)
(16,156)
9,977
38,066
Depreciation and amortisation
Gain on deferred premium
(1,030)
(18,708)
(708)
(809)
-
-
-
-
(3,254)
3,352
-
(24,509)
-
3,352
Segment assets
Segment liabilities
Year Ended 30 June 2012
Revenues
External customers
Inter-segment
Total revenues (i)
101,393
604,650
41,621
44,994
(44,944)
(517,244)
(36,960)
(46,411)
421,830
(72,492)
(269,870)
944,618
180,619
(537,431)
48,993
14,740
63,733
570,300
1,942
30,238
-
-
2,600
570,300
1,942
32,838
878
2,010
2,888
-
652,351
(19,350)
-
(19,350)
652,351
Segment result (EBIT) (ii)
(13,653)
15,796
(798)
405
31,064
(16,237)
16,577
Depreciation and amortisation
Gain on deferred premium
Segment assets
Segment liabilities
Eliminations and adjustments
(1,597)
(12,256)
(142)
(841)
-
-
130,294
480,586
-
-
-
331
(62,316)
(421,479)
(813)
(1,449)
(1,488)
5,114
-
(16,324)
-
5,114
327,546
(71,479)
(112,770)
825,987
8,596
(548,940)
Inter-segment revenues, investments, receivables and payables are eliminated on consolidation.
Reconciliation of Other / Unallocated
Revenues
Sale of stock yacht
Intercompany rental revenue
Finance revenue
Other
Total
Segment result (EBIT)
Profit / (loss) on foreign exchange
Net profit / (loss) on sale of stock yacht
Other
Total
2013
$’000
9,302
2,333
2,012
1,034
14,681
(12,942)
(4,327)
1,113
(16,156)
2012
$’000
-
2,689
123
76
2,888
27,726
-
3,338
31,064
AUSTAL LIMITED
2013
ANNUAL REPORT
36
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 4. OPERATING SEGMENTS (continued)
Reconciliation of Other / Unallocated
Segment assets
Intercompany receivables
Other financial assets
Cash and restricted cash
Property, plant and equipment
Inventories
Derivatives
Other
Total
Segment liabilities
Deferred tax liabilities and income tax payable
Interest bearing loans
Derivatives
Other
Total
Reconciliation of segment result
Segment profit
Finance income
Finance expenses
Consolidated profit before income tax
Reconciliation of segment revenue
Segment revenue
Finance income
Consolidated revenue
2013
$’000
150,883
91,306
70,698
48,904
46,297
13,742
-
421,830
(34,525)
(17,470)
(12,194)
(8,303)
(72,492)
2013
$’000
38,066
2,231
(13,571)
26,726
2013
$’000
900,582
2,231
902,813
2012
$’000
116,041
91,306
554
62,630
3,434
23,690
29,891
327,546
(47,438)
(23,024)
-
(1,017)
(71,479)
2012
$’000
16,577
645
(4,665)
12,557
2012
$’000
652,351
645
652,996
During the current and prior year one customer in the USA segment generated revenue of $736.084 million (2012: $570.300 million). In the current financial year one
customer in the HSO segment generated revenue of $59.233 million (2012: $20.281 million).
Revenue from external customers by geographical location of customers:
North America
Europe
Asia
Australia
Other
Total
Non-current assets, other than financial instruments and deferred tax assets by geographical
location:
Notes
USA
Philippines
Cyprus
Australia
Total
2013
$’000
749,382
14,887
35,478
86,806
16,260
902,813
2013
$’000
317,799
13,495
16,977
64,172
412,443
2012
$’000
570,300
23,594
12,237
31,218
15,647
652,996
2012
$’000
288,314
10,174
12,448
59,447
370,383
AUSTAL LIMITED
2013
ANNUAL REPORT
37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 4. OPERATING SEGMENTS (continued)
Non-current assets, by geographical location comprise:
Property, plant and equipment
Intangible assets
Total
NOTE 5. INCOME TAX
Notes
12
13
The major components of income tax expense are:
Statement of comprehensive income
Current income tax
Current income tax charge
Adjustments in respect of current income tax of the previous year
Deferred income tax
Relating to origination and reversal of temporary differences
Adjustments in respect of deferred income tax of the previous year
Income tax expense/(benefit) reported in the statement of comprehensive income
Statement of changes in equity
Deferred income tax related to items charged or credited directly to equity
Deferred gains and losses on foreign currency contracts and consolidation adjustments
Capital raising costs
Deferred gains on revaluation of property, plant and equipment
2013
$’000
399,917
12,526
412,443
2013
$’000
13,334
(8,686)
(5,128)
(8,536)
(9,016)
(9,894)
(784)
-
2012
$’000
370,383
5,045
375,428
2012
$’000
(6,826)
636
7,704
-
1,514
(10,675)
-
14,662
A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows:
Accounting profit/(loss) before income tax from continuing operations
At the Group’s statutory income tax rate of 30% (2012: 30%)
Adjustment for Austal USA statutory income tax rate of 36.9% (2012: 36.9%)
Other foreign tax rate differences
Branch (profit)/loss
US section 199 domestic manufacturing deduction
Other non-assessable or non-deductible items
Utilisation of research and development and other tax offsets and credits
Unrealised foreign exchange losses on intercompany loans
Adjustments in respect of current and deferred income tax of the previous year^
Income tax expense/(benefit) reported in the statement of comprehensive income
^ The adjustment represents:
26,726
8,018
809
960
(1,714)
(1,077)
3,940
-
(2,730)
(17,222)
(9,016)
12,557
3,767
2,144
(292)
-
-
234
(4,339)
-
-
1,514
(i) Research and development tax benefits associated with prior years which were recognised during the year based on ongoing assessments ($11.120 million);
(ii) Adjustments arising from the submission of the 2012 tax returns ($6.102 million).
AUSTAL LIMITED
2013
ANNUAL REPORT
38
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 5. INCOME TAX (continued)
Deferred income tax- USA
Deferred tax assets
Payables
Provisions
Statement of Financial Position
Statement of Comprehensive Income
2013
$’000
2012
$’000
2013
$’000
2012
$’000
27,631
6,456
(21,175)
(6,047)
2,919
2,013
(906)
(478)
Losses available for offset against future taxable income
8,713
6,315
(2,398)
261
Research and development tax credits
3,641
3,949
308
(3,949)
Work Opportunity Tax Credits
Charitable donations
Deferred tax liabilities
Property, plant and equipment
Inventories
457
390
(67)
(390)
34
32
(2)
(32)
43,393
19,155
(24,238)
(10,635)
(18,899)
(18,775)
124
16,717
(1,847)
-
1,847
-
(20,746)
(18,775)
1,971
16,717
Net deferred tax assets - USA
22,647
380
Deferred income tax- Australia
Deferred tax assets
Payables
Provisions
3,232
6,384
3,153
607
4,048
4,261
213
1,623
Deferred gains and losses on foreign currency contracts
2,304
(11,617)
(13,921)
512
Undeducted s.40-880 costs
Undeducted borrowing costs
627
-
(627)
-
62
62
-
-
Losses available for offset against future taxable income
-
1,053
1,053
688
Research and development and other tax offsets
202
-
(202)
-
10,414
143
(10,271)
3,430
Deferred tax liabilities
Property, plant and equipment
Inventories
(6,185)
(6,056)
129
(13)
(15,305)
(13,735)
1,570
(1,795)
(21,490)
(19,791)
1,699
(1,808)
Net deferred tax liabilities - Australia
(11,076)
(19,648)
Deferred tax expense/(income)
(30,839)
7,704
AUSTAL LIMITED
2013
ANNUAL REPORT
39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 5. INCOME TAX (continued)
Tax consolidation
Austal Limited (‘the Company’) is the head entity in a tax-consolidated group comprising the Company and its 100% owned Australian resident subsidiaries. The
implementation date of the tax consolidated system for the tax-consolidated group was 1 July 2002. Members of the group have entered into a tax sharing arrangement
in order to allocate income tax expense to the wholly owned subsidiaries on a pro-rata basis. The agreement provides for the allocation of income tax liabilities between
the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of default was remote.
Tax effect by members of the tax consolidated group
The current and deferred tax amounts for the tax-consolidated group are allocated among the entities in the group using a stand-alone taxpayer approach whereby each
entity in the tax-consolidated group measures its current and deferred taxes as if it continued to be a separately taxable entity in its own right. Deferred tax assets and
deferred tax liabilities are measured by reference to the carrying amounts of the assets and liabilities in each entity’s statement of financial position and their tax values
applying under tax consolidation.
Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses assumed by the head entity from the subsidiaries in the tax consolidated
group are recognised in conjunction with any tax funding arrangement amounts (refer below).
The Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable that future taxable profits of the
tax-consolidated group will be available against which the asset can be utilised.
Any subsequent period adjustments to deferred tax assets arising from unused tax losses assumed from subsidiaries are recognised by the head entity only.
The members of the tax-consolidated group have entered into a tax funding arrangement which sets out the funding obligations of members of the tax-consolidated
group in respect of tax amounts. The tax funding arrangements require payments to/from the head entity equal to the current tax liability (asset) assumed by the head
entity and any tax-loss deferred tax asset assumed by the head entity.
In preparing the accounts for the parent company for the current year, no amounts have been recognised as tax consolidation contribution/distribution adjustments.
NOTE 6. EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of
ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of
ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential
ordinary shares into ordinary shares.
The following reflects the income share data used in the basic and diluted earnings per share computations:
Net profit attributable to ordinary equity holders of the parent from continuing operations
Weighted average number of ordinary shares (excluding reserved shares) for basic earnings per
share
Effect of dilution – share options
Weighted average number of ordinary shares (excluding reserved shares) adjusted for the effect
of dilution
2013
$’000
35,870
2012
$’000
11,043
2013
Number
2012
Number
271,713,717
183,766,205
522,537
462,579
272,236,254
184,288,742
Earnings per share (cents per share)
Diluted earnings per share (cents per share)
12.03
12.01
4.62
4.61
There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial
statements. 9,139,165 (2012: 11,273,611) potential ordinary shares have been excluded from the earnings per share calculation as they were not considered dilutive.
Basic and diluted earnings per share for all periods prior to the Entitlement on 22 November 2012 have been restated by an adjustment factor of 1.30 to account for the
bonus element. Details of the shares issued are outlined in note 20.
AUSTAL LIMITED
2013
ANNUAL REPORT
40
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 7. DIVIDENDS PAID AND PROPOSED
Paid during the year
Dividends on ordinary shares:
2013
$’000
2012
$’000
Final franked dividend for year ended 30 June 2012: nil cents (2011: 6 cents)
-
11,284
The tax rate at which paid dividends have been franked is 30% (2012: 30%). Dividends proposed will be franked at the rate of 30% (2012: 30%). No dividend was
proposed at 30 June 2013.
Franking credit balance
Opening balance
Franking credits that arose from the payment of income tax instalments during the year
Closing balance
NOTE 8. CASH AND CASH EQUIVALENTS
Current
Cash at bank and in hand
Restricted cash:
Unutilised Go Zone Bond funds (i)
Cash and term deposits (ii)
Cash at bank earns interest at floating rates based on daily bank deposit rates.
Reconciliation to cash flow statement
For the purposes of the Cash Flow Statement, cash and cash equivalents comprise the following at 30 June:
Cash at bank and in hand
Restricted
2013
$’000
-
2012
$’000
-
583
-
583
-
2013
$’000
38,030
11,617
58,056
69,673
2012
$’000
51,811
52,940
-
52,940
38,030
69,673
107,703
51,811
52,940
104,751
(i) Unutilised Go Zone Bonds may only be spent on those capital works projects that were specifically identified in the documentation issued to investors.
(ii) Current restricted cash represents partial proceeds from the FY2013 capital raising that will be used in FY2014 to retire Go Zone debt.
AUSTAL LIMITED
2013
ANNUAL REPORT
41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 8. CASH AND CASH EQUIVALENTS (continued)
Reconciliation of net profit after tax to net cash flows from operations
Net profit
Adjustments for:
Depreciation
Amortisation
Impairment of non-current assets
Net gain on disposal of property, plant and equipment
Share based payments
Unrealised (gain)/loss on deferred premium options and other derivative financial instruments
Changes in assets and liabilities:
(Decrease)/increase in provisions for:
Income tax (current and deferred)
Workers’ compensation insurance
Warranty
Employee benefits
Other provisions
(Increase)/decrease in debtors
(Increase)/decrease in inventories
(Increase)/decrease in other assets
(Increase)/decrease in other financial assets
(Decrease)/increase in trade creditors
(Decrease)/increase in progress payments in advance
(Decrease)/increase in government grants
Net cash (outflow)/inflow from operating activities
NOTE 9. TRADE AND OTHER RECEIVABLES
Current
Trade amounts owing by unrelated entities – construction contracts (i)
Allowance account for doubtful debts (ii)
2013
$’000
35,742
21,914
2,595
-
114
1,263
-
(33,697)
526
3,989
32
2,488
(6,553)
(84,359)
(4,312)
-
5,187
(5,498)
4,701
(55,868)
2013
$’000
104,130
(1,387)
102,743
2012
$’000
11,043
14,457
1,867
45
(4,269)
1,603
(5,114)
11,227
262
(7,333)
(1,148)
(17)
(74,189)
(15,606)
(788)
(6,156)
75,793
24,611
6,848
33,136
2012
$’000
96,586
(414)
96,172
Non-current
Trade amounts owing by unrelated entities
(i) Current trade amounts owing by unrelated entities are generally on 30 day terms.
-
18
(ii) During the year the group provided for $2.19 million (2012: $0.414 million) as an allowance account for doubtful debts. These allowance accounts have been created
in relation to specific debtors whose debts were past due. The Group is currently negotiating payment arrangements with these debtors, however there is objective
evidence that these debts are impaired.
AUSTAL LIMITED
2013
ANNUAL REPORT
42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 9. TRADE AND OTHER RECEIVABLES (continued)
As at 30 June 2013, trade receivables of an initial value of $2.198 million (2012: $0.414m) were impaired and fully provided for. See below for the movements in the
provision for impairment of receivables:
At 1 July 2011
Charge for the year
Utilised
Unused amounts reversed
At 30 June 2012
Charge for the year
Utilised
Unused amounts reversed
At 30 June 2013
For ageing of debtors refer to note 21.
NOTE 10. INVENTORIES
Construction work in progress – total amounts due from customers on construction contracts
and stock vessels at cost
Less: progress payments received and receivable from construction contracts
Materials
Total inventories
NOTE 11. PREPAYMENTS
Current
Prepayments
Individually impaired
$’000
1,863
414
(1,863)
-
414
1,784
-
-
2,198
2013
$’000
2,503,102
(2,225,910)
277,192
696
277,888
2013
$’000
7,653
Total
$’000
1,863
414
(1,863)
-
414
1,784
-
-
2,198
2012
$’000
1,557,303
(1,363,830)
193,473
56
193,529
2012
$’000
6,538
AUSTAL LIMITED
2013
ANNUAL REPORT
43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 12. PROPERTY, PLANT AND EQUIPMENT
Freehold land &
buildings
$’000
Plant &
equipment
$’000
Capital WIP
$’000
Total
$’000
Year ended 30 June 2013
At 1 July 2012 – cost or valuation
Carrying amount net of accumulated depreciation and impairment
273,700
Additions
Transfer (in/(out)
Disposals
Depreciation charge for the year
Impairment
Exchange adjustment
5,573
29,585
(43)
(8,817)
-
23,880
67,630
14,270
(310)
(430)
(14,258)
-
4,992
29,053
1,422
(29,275)
-
(455)
324
3,076
370,383
21,265
-
(473)
(23,530)
324
31,948
At 30 June 2013, carrying amount net of accumulated depreciation and
impairment
323,878
71,895
4,144
399,917
At 1 July 2012
Fair value
Cost
Accumulated depreciation and impairment
Net carrying amount
At 30 June 2013
Fair value
Cost
Accumulated depreciation and impairment
Net carrying amount
273,700
-
-
273,700
332,695
-
(8,817)
323,878
-
110,946
(43,316)
67,630
-
127,250
(55,355)
71,895
-
29,053
-
29,053
-
4,599
(455)
4,144
Interest capitalised to capital work in progress during the year was $0.273 million (2012: $0.975 million).
273,700
139,999
(43,316)
370,383
332,695
131,849
(64,627)
399,917
AUSTAL LIMITED
2013
ANNUAL REPORT
44
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 12. PROPERTY, PLANT AND EQUIPMENT (continued)
Freehold land &
buildings
$’000
Plant &
equipment
$’000
Capital WIP
$’000
Total
$’000
Year ended 30 June 2012
At 1 July 2011 – cost or valuation
Carrying amount net of accumulated depreciation and impairment
143,177
Additions
Transfer in/(out)
Transfer to Held for sale assets ^
Disposals
Depreciation charge for the year
Impairment
Revaluation
Exchange adjustment
83,684
14,484
(1,561)
(2,787)
(5,957)
(45)
42,152
553
42,378
39,892
(6,732)
-
(6)
(8,500)
-
-
598
22,720
7,883
(7,752)
-
-
-
-
-
6,202
208,275
131,459
-
(1,561)
(2,793)
(14,457)
(45)
42,152
7,353
At 30 June 2012, carrying amount net of accumulated depreciation and
impairment
273,700
67,630
29,053
370,383
At 1 July 2011
Cost
Accumulated depreciation and impairment
Net carrying amount
At 30 June 2012
Fair value
Cost
Accumulated depreciation and impairment
Net carrying amount
(i) The useful life of the assets was estimated as follows both for 2013 and 2012:
Building 40 years
Plant and equipment 2 to 10 years
(ii) Assets are encumbered to the extent noted in note 16.
^ The property classified as Held for Sale was subsequently sold in July 2012.
171,855
(28,678)
143,177
273,700
-
-
273,700
77,478
(35,100)
42,378
-
110,946
(43,316)
67,630
22,720
-
22,720
-
29,053
-
29,053
272,053
(63,778)
208,275
273,700
139,999
(43,316)
370,383
Revaluation of Land & Buildings
From 29 June 2012, the Group changed its accounting policy for the measurement of land and buildings to the revaluation model. The Group engaged CB Richard Ellis
and Knight Frank to determine the fair value of its land and buildings for USA and Australia respectively. Both firms are accredited independent valuers.
Fair value is determined by use of the depreciation replacement cost method. The last revaluation was performed on 29 June 2012.
If land and buildings were measured using the cost model, the carrying amount would be as follows:
Cost
Accumulated depreciation and impairment
Net Carrying Amount
2013
$’000
313,594
(38,517)
275,077
2012
$’000
254,599
(29,700)
224,899
AUSTAL LIMITED
2013
ANNUAL REPORT
45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
Computer
Software
$’000
Development
costs
$’000
NOTE 13. INTANGIBLE ASSETS
Year ended 30 June 2013
At 1 July 2012
Carrying amount net of accumulated amortisation
Additions
Business acquisition
Amortisation for the year
Exchange adjustment
At 30 June 2013, carrying amount net of accumulated
amortisation and impairment
At 1 July 2012
Cost
Accumulated amortisation and impairment
Net carrying amount
At 30 June 2013
Cost
Accumulated amortisation and impairment
Net carrying amount
Goodwill
$’000
-
-
6,463
-
-
Total
$’000
5,045
3,478
6,463
(2,798)
338
664
536
-
(68)
-
1,132
6,463
12,526
664
-
664
1,200
(68)
1,132
-
-
-
6,463
-
6,463
11,337
(6,292)
5,045
21,616
(9,090)
12,526
4,381
2,942
-
(2,730)
338
4,931
10,673
(6,292)
4,381
14,291
(9,022)
4,931
During the year the Austal Service Darwin Pty Ltd acquired 100% of the ordinary shares in KM Engineering (NT) Pty Ltd (“KME”) and Hydraulink (NT) Pty Ltd
(“Hydraulink”).
The consolidated Group recognised $6.4 million of Goodwill upon acquisition. Goodwill is not amortised.
Impairment testing of goodwill and intangible assets with indefinite lives
Goodwill acquired through business combinations and licences with indefinite lives has been allocated to the Service & Systems CGU, which are also operating and
reportable segments for impairment testing:
The Group performed its annual impairment test at 30 June 2013 (refer to Note 30). The recoverable amount of the Service and Systems CGU has been determined
based on a value in use calculation using cash flow projections from financial budgets approved by senior management covering a five-year period. Cash flow projections
incorporate a pre-tax discount rate of 15.5% (representing an estimation of the weighted average cost of capital), cash flows beyond the five-year period are extrapolated
using a 3.0% growth rate that is the same as the long-term average growth rate for the ship building industry and incorporate average gross margins of 15-25 per cent
representing historical margins. It was concluded that the recoverable amount is greater than the carrying amount. As a result of this analysis, management has
concluded that no impairment charge is required.
Key assumptions used in value in use calculations
The calculation of value in use for the Service and Systems CGU is most sensitive to the following assumptions:
Gross margins
Discount rates
Growth rates used to extrapolate cash flows beyond the forecast period
Sensitivity to changes in assumptions
For the Service and Systems CGU the estimated recoverable amount is $0.486 million above the carrying value of the assets within the CGU. Consequently, any
adverse change in a key assumption is likely to result in an impairment loss.
AUSTAL LIMITED
2013
ANNUAL REPORT
46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 14. DERIVATIVES
Financial assets
Current
Forward exchange contracts
Forward currency options
Non-current
Forward exchange contracts
Financial liabilities
Current
Forward exchange contracts
Non-current
Forward exchange contracts
For terms and conditions attached to the forward exchange contracts and forward currency options, refer to note 22.
2013
$’000
7,749
-
7,749
2012
$’000
31,830
4,211
36,041
1,651
10,625
12,193
2,186
4,885
5,757
AUSTAL LIMITED
2013
ANNUAL REPORT
47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 15. TRADE AND OTHER PAYABLES
Current
Trade & other payables owed to unrelated entities (i)
(i) Trade payables are unsecured, non-interest bearing and are normally settled on 45 day terms.
NOTE 16. INTEREST BEARING LOANS AND BORROWINGS
2013
$’000
2012
$’000
133,813
128,626
A new syndicated bank facility agreement was executed subsequent to 30 June 2013 (refer Note 25). The new agreement had not been executed at reporting date and
therefore the debt associated with the new facility has been designated as a Current Liability. The debt was reclassified as a Non Current Liability as of the 19th of July
2013.
Current
Multi-Option Facility (i)
Equipment line (ii)
Bank Loan (unsecured) (iii)
Go Zone Bonds (iv)
Overdrafts
Deferred option premium (unsecured) (v)
Non-current
Multi-Option Facility (i)
Equipment line (ii)
Bank Loan (unsecured) (iii)
Go Zone Bonds (iv)
Overdrafts
Deferred option premium (unsecured) (v)
Notes
2013
$’000
8,000
22,283
8,307
204,974
50
-
243,614
-
-
1,163
-
-
-
2012
$’000
-
2,438
13,553
-
-
2,982
18,973
-
17,557
9,470
219,417
-
-
1,163
246,444
Terms and conditions in relation to the above interest bearing liabilities:
(i) Cash advance was provided under the Multi Option facility.
(ii) The Equipment line expires in December 2015.
(iii) The Bank loan is payable by instalments until October 2014, with an average variable interest rate of 5% in FY13.
(iv) The Go Zone Bonds of US$ 190.010 million are variable rate demand bonds and mature on 1 May 2041, payable in US dollars with an average interest rate of
approximately 4% in FY2013.
(v) The deferred option premium was payable in US dollars upon exercising of the options.
The loans and facilities incur interest at various average rates between 4% and 7%.
AUSTAL LIMITED
2013
ANNUAL REPORT
48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 16. INTEREST BEARING LOANS AND BORROWINGS (continued)
Financing facilities available
At reporting date, the following financing facilities had been negotiated and were available:
Total facilities:
- Multi-Option Facility (a)
- Equipment line
- Bank Loan (unsecured) (b)
- Go Zone Bonds (b)
- Overdraft (b)
- Deferred option premium (unsecured)
Total
Facilities used at reporting date
- Multi-Option Facility (a)
- Equipment line
- Bank Loan (unsecured) (b)
- Go Zone Bonds
- Overdraft (b)
- Deferred option premium (unsecured)
Total
Facilities unused at reporting date:
- Multi-Option Facility (a)
- Equipment line
- Bank Loan (unsecured) (b)
- Go Zone Bonds
- Overdraft (b)
- Deferred option premium (unsecured)
Total
(a) Multi-option facility consists of bank and performance guarantees, letters of credit and cash advances.
(b) Bank loan is guaranteed by a third party.
2013
$’000
91,500
22,283
9,470
204,974
50
-
328,277
34,933
22,283
9,470
204,974
50
-
271,710
2013
$’000
56,567
-
-
-
-
-
2012
$’000
193,100
29,251
42,977
221,529
-
2,982
489,839
38,037
19,995
23,023
219,417
-
2,982
303,454
2012
$’000
155,063
9,256
19,954
2,112
-
-
56,567
186,385
AUSTAL LIMITED
2013
ANNUAL REPORT
49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 17. GOVERNMENT GRANTS
Current
Infrastructure development (i)
Non-current
Infrastructure development (i)
2013
$’000
4,221
2012
$’000
3,561
52,794
48,753
The grants were received from various government bodies in Alabama to fund the expansion of the company’s Mobile, USA operations.
(i) The grants are amortised, on a straight line basis, based on the effective life of the funded assets.
NOTE 18. PROVISIONS
At 1 July 2012
Arising during the year
Utilised
Unused amounts reversed
Effects of foreign exchange
At 30 June 2013
Current 2013
Non-current 2013
At 30 June 2013
Current 2012
Non-current 2012
At 30 June 2012
Employee
benefits
Workers’
compensation
$’000
11,161
12,823
(9,899)
(2,892)
11,193
10,088
1,105
11,193
9,806
1,355
11,161
$’000
5,923
538
(206)
-
194
6,449
6,449
-
6,449
5,923
-
5,923
Warranty
$’000
2,521
7,331
(3,342)
-
-
6,510
6,510
-
6,510
2,521
-
2,521
Other
$’000
705
2,727
(307)
-
68
3,193
2,081
1,112
3,193
-
705
705
Total
$’000
20,310
23,419
(13,754)
(2,892)
262
27,345
25,128
2,217
27,345
18,250
2,060
20,310
Workers compensation insurance
A provision for workers compensation insurance is recognised for the expected costs of current claims and claims incurred but not reported.
Warranties
Provision is made for warranty based on the estimated future costs of warranty repairs on vessels.
Other
Other includes a provision for refitting a military vessel to return it to a passenger ferry specification (2012: provision for refitting a military vessel to return it to a
passenger ferry specification).
NOTE 19. OTHER LIABILITIES (CURRENT)
Progress payments received and receivable
Less: construction work in progress
Progress payments received in advance
2013
$’000
71,638
(49,848)
21,790
2012
$’000
73,549
(46,261)
27,288
AUSTAL LIMITED
2013
ANNUAL REPORT
50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 20. CONTRIBUTED EQUITY AND RESERVES
Ordinary shares (i)
Reserved shares (ii)
(i) Ordinary shares
Issued and fully paid
2013
$’000
120,940
(9,611)
111,329
2012
$’000
41,373
(9,611)
31,762
120,940
41,373
Effective 1 July 1998, the Corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly, the Parent does not have
authorised capital nor par value in respect of its issued shares.
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
Movement in ordinary shares on issue
At 1 July
Share issued during the year*
At 30 June
(ii) Reserved shares^
At 1 July
Options exercised
At 30 June
*Movement of 157,980,188 comprises of;
2013
2012
Number of
shares
188,193,007
157,980,188
346,173,195
$’000
41,373
79,567
Number of
shares
188,193,007
-
120,940
188,193,007
(4,390,601)
(9,611)
(4,390,601)
-
-
40,000
(4,350,601)
(9,611)
(4,350,601)
$’000
41,373
-
41,373
(9,900)
289
(9,611)
(a) 155,333,042 ordinary shares issued at a price of $0.50 per share in relation to the 9 for 10 Entitlement Offer contributing $75.842 million net of costs.
(b) 2,481,566 ordinary shares issued at a price of $1.41 per share in exchange for 80% of the share capital in Austal Service Darwin Pty Ltd valued at $3.498 million
(refer to Note 30).
(c) 165,556 shares issued to Mr Andrew Bellamy on 30 November 2012 as part of his contract of employment at a value of $0.223 million.
^Reserved shares are in relation to shares held in the Austal Group Management Share Plan (refer to note 28).
Retained earnings
Movements in retained earnings were as follows:
Balance 1 July
Net profit for the year
Dividends
2013
$’000
222,690
35,870
-
258,560
2012
$’000
222,931
11,043
(11,284)
222,690
AUSTAL LIMITED
2013
ANNUAL REPORT
51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 20. CONTRIBUTED EQUITY AND RESERVES (continued)
Reserves
At 1 July 2011
Currency translation differences, net of tax
Share based payment
Net gains on cash flow hedges, net of tax
Revaluation of land & buildings, net of tax
Transfer to Statements of Financial Position/
Comprehensive income
Foreign currency
translation
reserve
Employee
benefit
reserve
$’000
(8,865)
(1,703)
-
-
-
-
$’000
3,345
-
1,603
-
-
-
At 30 June 2012
(10,568)
4,948
Currency translation differences, net of tax
19,022
Share based payment
Net gains on cash flow hedges, net of tax
Revaluation of land & buildings, net of tax
Transfer to Statements of Financial Position/
Comprehensive income
-
-
-
-
-
1,263
-
-
-
At 30 June 2013
8,454
6,211
The nature and purpose of reserves are:
Foreign currency translation reserve
Cash flow
hedge
reserve
$’000
41,508
-
-
(19,745)
-
(5,114)
16,649
-
-
7,451
-
(13,023)
11,077
Equity
reserve
$’000
(15,925)
-
-
-
-
-
(15,925)
-
-
-
-
-
Asset
revaluation
reserve
$’000
-
-
-
-
27,491
-
27,491
-
-
-
-
-
(15,925)
27,491
Total
$’000
20,063
(1,703)
1,603
(19,745)
27,491
(5,114)
22,595
19,022
1,263
7,451
-
(13,023)
37,308
The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.
Employee equity benefits reserve
This reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration. Refer to note 28 for further details of
these plans.
Cash flow hedge reserve
This reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge.
Equity reserve
This reserve represents the premium paid on the acquisition of the minority interest in a controlled entity.
Asset revaluation reserve
This reserve is used to record increases in the fair value of land and buildings. This reserve can only be used to pay dividends in limited circumstances.
AUSTAL LIMITED
2013
ANNUAL REPORT
52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 21. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group’s principal financial instruments comprise receivables, bank loans, derivatives, cash and short-term deposits.
The main purpose of these financial instruments is to provide finance for the Group’s operations. The Group has various other financial assets and liabilities such as
trade receivables and trade payables, which arise directly from its operations.
The Group manages its exposure to key financial risks, including currency risks in accordance with the Group’s financial risk management policy. The objective of the
policy is to build vessels in order to maximise profit whilst maintaining acceptable financial risk levels.
The Group has entered into derivative transactions, including principally, forward exchange contracts and forward currency options. The purpose is to manage the
currency risks arising from the Group’s operations. It is, and has been throughout the current financial year, the Group’s policy that no trading in financial instruments
shall be undertaken. The main risks arising from the Group’s financial instruments are foreign currency risk, interest rate risk, credit risk and liquidity risk. The Group
uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate and foreign
exchange risk and assessments of market forecasts for interest and foreign exchange rates. Ageing analyses and monitoring of specific credit allowances are undertaken
to manage credit risk. Liquidity risk is monitored through the development of future rolling cash flow forecasts.
Ultimate responsibility for identification and control of financial risks rests with the Audit & Risk Management Committee under the authority of the Board. The Board
reviews and agrees policies for managing each of the risks identified below, including hedging cover of foreign currency, credit allowances, and future cash flow forecast
projections.
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and
expenses are recognised, in respect of each class of financial asset, financial liabilities and equity instrument are disclosed in note 2 to the financial statements.
Capital Management
The Group’s policy is to maintain a strong and flexible capital base to provide investor, creditor and market confidence to sustain future development of the business.
The Group monitors the return on capital, which the Group defines as total shareholders’ equity attributable to members of Austal Limited. The Board determines the
level of dividends to shareholders.
The Group monitors statement of financial position strength and flexibility using cash flow forecast analysis and detailed budgeting processes. The gross gearing ratio is
monitored and maintained at a level that does not limit the Company’s growth opportunities and is in line with peers and industry norms.
There were no changes in the Group’s approach to capital management during the year. Risk management policies and procedures are established with regular
monitoring and reporting.
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements, other than normal banking requirements.
Risk Exposures and Responses
Interest rate risk
The Group’s exposure to market interest rates relates primarily to the Group’s long-term debt obligations and investment in cash funds.
At balance date, the Group had the following mix of financial assets and liabilities exposed to both Australian and US variable interest rate risks that were not designated
as cash flow hedges:
Financial assets
Australian variable interest rate
Cash and cash equivalents
US variable interest rate
Cash and cash equivalents
Financial liabilities
Australian variable interest rate
Interest-bearing loans and borrowings
US variable interest rate
Interest-bearing loans and borrowings
Net exposure
2013
$’000
18,320
19,710
38,030
2012
$’000
22,349
29,462
51,811
(17,520)
(26,005)
(227,257)
(244,777)
(239,412)
(265,417)
(206,747)
(213,606)
AUSTAL LIMITED
2013
ANNUAL REPORT
53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 21. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
The Group constantly analyses its interest rate exposure. Consideration is given to potential renewals of existing positions and alternative financing.
The following sensitivity analysis is based on the variable interest rate risk exposures in existence at the balance date. At 30 June 2013, if interest rates had moved, as
illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows:
Judgement of reasonable possible movements:
Post-tax gain/(loss)
+ 1% (100 Basis points)
– 1% (100 Basis points)
Foreign currency risk
At balance date, the Group had the following exposure to the US Dollar:
Financial liabilities
US Dollar exchange rate
Interest-bearing loans and borrowings
Refer to Note 14 for Derivatives.
Impact on profit/Equity
2013
$’000
(1,447)
1,447
2013
$’000
2012
$’000
(1,495)
1,495
2012
$’000
227,257
239,412
The Group is exposed to currency risk on sales, purchases or components for construction that are denominated in a currency other than the respective functional
currencies of the Group entities, primarily the Australian Dollars (AUD) for the Australian operation and US Dollars (USD) for the US operation. The currencies in which
these transactions primarily are denominated are AUD, USD, GBP and Euro.
The Group’s objective in relation to foreign currency risk is to minimise the risk of a variation in the rate of exchange used to convert foreign currency revenues and
expenses and assets or liabilities to AUD.
The Group attempts to limit the exposure to adverse movement in exchange rates in the following ways:
(i) negotiation of contracts to adjust for adverse exchange rate movements;
(ii) use of natural hedging techniques; and
(iii) using financial instruments (refer Note 22).
Sales contracts are negotiated based at the current market rate on the contract signing date. Where there is a tender involving significant foreign currency exposure, the
Company seeks to cover that exposure by a rise and fall clause for exchange rate movements between the date of price calculation to the date the contract becomes
effective.
Known foreign exchange transaction exposure, which result from normal operational business activities are hedged.
At balance date, had the Australian Dollar moved, as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been
affected as follows:
Judgement of reasonable possible movements:
AUD/USD +5%
AUD/USD –5%
AUD/EUR +5%
AUD/EUR –5%
USD/EUR +5%
USD/EUR –5%
Post tax profit higher/(lower)
Equity higher/(lower)
2013
$’000
3,316
(3,439)
17
(17)
-
-
2012
$’000
1,197
(2,787)
125
(125)
-
-
2013
$’000
3,764
(3,505)
(1,172)
1,172
-
-
2012
$’000
5,279
(5,705)
(1,142)
1,260
(1,243)
(2,052)
AUSTAL LIMITED
2013
ANNUAL REPORT
54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 21. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
Foreign currency risk (continued)
Derivative financial instruments such as forward currency contracts and currency options are purchased to eliminate the currency exposures so as to maintain a properly
hedged position. Timing gaps are mitigated using foreign currency accounts or financial instruments such as swaps.
It is the Group’s policy to negotiate the terms of the hedge derivatives to match the terms of the hedged item to maximise hedge effectiveness.
Trading is specifically prohibited. The financial impact of the derivative instrument is incorporated into the cost of goods acquired or the sales proceeds. General hedges
are not undertaken.
Foreign currency contracts designated as cash flow hedges to mitigate the movements in foreign exchange rates are outlined in note 22.
Credit risk
The Group trades only with recognised, creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit
verification procedures, which are conducted internally. The Group, while exposed to credit related losses in the event of non-performance by counterparties to financial
instruments, does not expect counterparties to fail to meet their obligations given their credit ratings.
The Group minimises concentrations of credit risk and the risk of default of counterparties in relation to cash and cash equivalents and financial instruments by spreading
them amongst a number of financial institutions.
It is the Group’s policy to minimise the risk that the principle amount will not be recovered and the risk that funds will not be available when required whilst at the same
time obtaining the maximum return relative to the risk. To manage this, it is the Group’s policy to restrict its investment of surplus cash funds to financial institutions with
a Standard and Poor credit rating of at least A-2, and for a period not exceeding 180 days. In order to achieve this objective the Group undertakes investments in
11am/24 hour call deposits, term deposits or negotiable certificates of deposit.
In addition, vessel sales contracts are structured to ensure that the company will be paid on delivery of the vessel through the following measures:
(i) obtaining progress payments from the client to cover the cost of the construction; or
(ii) obtaining a letter of credit from a credible bank to cover payment of the contract; or
(iii) obtaining a minimum payment of 20% of the contract price and a letter from the bank or financial institution providing finance to the customer that funding has been
arranged for the balance of the purchase price.
With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents and certain derivative instruments, the Group’s
exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. The maximum exposure to
credit risk at the reporting date is disclosed in note 22.
Cash and term deposits are predominantly held with three Australian financial institutions, which are considered to be low concentrations of credit risk.
At 30 June, the ageing analysis of current trade & other receivables is as follows:
2013
Total
$’000
102,743
2012
96,172
Receivable balances are monitored on an ongoing basis.
Past Due But Not Impaired
Impaired
$’000
(1,387)
(414)
0-30 days
31-60 days
61-90 days
90+days
$’000
94,422
92,216
$’000
3,452
1,917
$’000
677
470
$’000
5,579
1,983
AUSTAL LIMITED
2013
ANNUAL REPORT
55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 21. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)
Liquidity risk
The liquidity position of the Group is managed to ensure sufficient liquid funds are available to meet our financial commitments in a timely and cost-effective manner.
It is the Group’s policy to continually review the Group’s liquidity position including cash flow forecasts to determine the forecast liquidity position and maintain
appropriate liquidity levels. Austal was in the process of finalising a new syndicated banking facility at the reporting date. Execution of the new facility was achieved
subsequent to the year end on the 19 July 2013 which provides credit until 31 December 2015 and the reclassification of a significant portion of current liabilities as non-
current liabilities subsequent to the reporting date.
The following are the contractual maturities of financial liabilities, including interest payments:
Carrying
amount
$’000
Contractual
cash flows
$’000
0-1 year
$’000
1-2 years
2-5 years
Greater than
5 years
$’000
$’000
$’000
Year ended 30 June 2013
Derivative financial liabilities
Forward exchange contracts used for hedging:
Outflow
Inflow
Net derivative financial (assets)/liabilities
Non-derivative financial liabilities
Trade & other payables
Bank loan (unsecured)
Equipment Line (secured)
Go Zone bond facility
Total
Year ended 30 June 2012
Derivative financial liabilities
Forward exchange contracts used for hedging:
Outflow
Inflow
Net derivative financial (assets)/liabilities
(38,723)
Non-derivative financial liabilities
Trade & other payables
Bank loan (unsecured)
Equipment Line (secured)
Go Zone bond facility
Deferred option premium (unsecured)
Total
128,626
23,023
19,995
219,417
2,982
394,043
-
-
7,678
(248,098)
262,632
14,534
(155,105)
162,502
7,397
(133,813)
(133,813)
133,813
9,470
22,283
204,974
370,540
Carrying
amount
$’000
-
-
(9,706)
(23,174)
(377,151)
(543,844)
Contractual
cash flows
$’000
(107,599)
171,721
64,122
(128,626)
(37,449)
(20,793)
(412,505)
(2,982)
(602,355)
(8,529)
(23,174)
(377,151)
(542,667)
0-1 year
$’000
(72,065)
105,932
33,867
(128,626)
(9,845)
(6,931)
(8,777)
(2,982)
(59,776)
62,111
2,335
-
(1,177)
-
-
(1,177)
(33,307)
38,019
4,712
-
-
-
-
-
-
-
-
-
-
-
-
-
1-2 years
2-5 years
Greater than
5 years
$’000
$’000
$’000
(18,088)
30,586
12,498
-
(15,438)
(6,931)
(6,583)
-
(17,446)
35,203
17,757
-
(12,166)
(6,931)
(19,748)
-
-
-
-
-
-
-
(377,397)
-
(157,161)
(28,952)
(38,845)
(377,397)
At balance date, the Group has approximately $56.567 million (2012: $186.385 million) of unused credit facilities available for its immediate use (refer to note 16). The
Group also has a total of $38.030 million (2012: $51.811 million) in cash and cash equivalents, which it is able to use to meet its liquidity needs.
AUSTAL LIMITED
2013
ANNUAL REPORT
56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 22. FINANCIAL INSTRUMENTS
Fair values
Set out below is a comparison by category of the carrying amounts and fair values of all of the Group’s financial instruments recognised in the financial statements.
The fair values of borrowings have been calculated by discounting the expected future cash flows at prevailing market interest rates. The fair values of loan notes and
other financial assets have been calculated using discounted cash flows using market interest rates.
Financial assets
Cash
Trade receivables & other receivables
Derivatives
Other financial assets
Financial liabilities
Trade payables & other payables
Derivatives
Multi-Option facility
Bank loan (unsecured)
Deferred option premium (unsecured)
Equipment line (secured)
Go Zone bonds
Overdraft
Carrying amount
Fair value
2013
$’000
107,703
102,743
9,400
4,141
(133,813)
(17,078)
(8,000)
(9,470)
-
(22,283)
(204,974)
(50)
2012
$’000
104,751
96,172
46,666
944
(128,626)
(7,943)
-
(23,023)
(2,982)
(19,995)
(219,417)
-
2013
$’000
107,703
102,743
9,400
4,141
(133,813)
(17,078)
(8,000)
(9,470)
-
(22,283)
(204,974)
(50)
2012
$’000
104,751
96,172
46,666
944
(128,626)
(7,943)
-
(23,023)
(2,982)
(19,995)
(219,417)
-
The Group’s derivatives are categorised in level 2 of the valuation hierarchy, as their fair value has been calculated using valuation techniques where the inputs that have
a significant effect on the valuation are directly or indirectly based on market observable data.
Contingencies
The Group entities may have potential financial liabilities that could arise from certain contingencies as disclosed in note 23. As explained in that note, no material losses
are anticipated in respect of any of those contingencies. The fair value disclosed (if any) is the directors’ best estimate of amounts that would be payable by the Group to
settle those financial liabilities.
Hedging and derivatives
Instruments used by the Group
The Group enters into cash flow and fair value hedges to eliminate its exposure to the variability in cash inflows and outflows due to foreign exchange rate fluctuation of
the contractual future receipts and payments.
Forward currency contracts – cash flow hedges
The Group is primarily exposed to the risk of adverse movements in the Australian dollar relative to certain foreign currencies, including the US dollar, and Euro arising
from receipts from export sales and the purchase of components for construction. Derivative financial instruments such as forward exchange contracts and forward
currency options are purchased to eliminate the currency exposures so as to maintain a properly hedged position. These contracts are hedging committed and highly
probable receipts and payments and they are timed to mature when the receipts and payments are scheduled to be received and made.
The forward currency contracts are considered to be effective hedges as they are matched against forecast sales receipts and material purchases and any gain or loss
on the contracts attributable to the hedged risk, to the extent considered effective, is taken directly to equity. When the forward currency contracts are delivered, the
amount recognised in equity is adjusted either to the inventories account in the statement of financial position for vessels in progress or to the sales and cost of sales
account in the statement of comprehensive income for completed vessels.
The following table summarises by currency the Australian dollar value of forward foreign exchange agreements and forward currency options. Foreign currency
amounts are translated at rates current at the reporting date. The ‘buy’ amounts represent the Australian dollar equivalent of commitments to purchase foreign
currencies, and the ‘sell’ amount represents the Australian dollar equivalent of commitments to sell foreign currencies. Contracts to buy and sell foreign currency are
entered into from time to time to offset purchase and sale obligations so as to maintain a properly hedged position.
AUSTAL LIMITED
2013
ANNUAL REPORT
57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 22. FINANCIAL INSTRUMENTS (continued)
Forward currency contracts – cash flow hedges (continued)
2013
Buy
Average
Forward/
Strike
Rate
Sell
Average
Buy
Average
Sell
2012
$000
Forward
Rate
$000
Forward
Rate
$000
United States Dollars
Forward exchange contracts
less than 3 months
3 - 12 months
13 months or greater
Forward currency options
3 - 12 months
13 months or greater
Euro
Forward exchange contracts
less than 3 months
3 - 12 months
13 months or greater
US/Euro
Forward exchange contracts
less than 3 months
3 - 12 months
13 months or greater
Forward currency options
3 - 12 months
13 months or greater
Average
Forward/
Strike
Rate
1.0305
1.0139
0.6303
-
-
0.5511
0.5434
0.5311
$000
81
492
1,034
1,607
-
-
-
153
310
476
939
0.9296
34,825
-
-
-
-
-
-
34,825
-
-
-
-
-
698
698
-
-
-
293
449
939
1,681
-
0.7118
0.9060
-
0.6600
-
-
0.8079
-
98,471
53,894
152,365
-
10,831
10,831
-
-
619
619
0.9215
0.9593
0.9190
6,507
95,628
29,231
131,366
-
-
0.6303
-
-
-
-
-
-
-
0.5754
0.5625
0.5385
0.7445
0.7992
0.8019
0.9529
0.9584
0.9813
53
130
2,640
2,823
24,824
17,976
26,146
68,946
1.064
1.065
1.067
4,943
4,943
-
1.0544
30,586
1.1535
40,472
-
22,973
46,905
69,878
-
-
-
-
-
1.031
16,682
-
-
16,682
-
-
-
-
-
AUSTAL LIMITED
2013
ANNUAL REPORT
58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 22. FINANCIAL INSTRUMENTS (continued)
Forward currency contracts – cash flow hedges (continued)
Average
Forward/
Strike
Rate
0.6360
0.6222
0.6047
0.9730
0.9407
0.9275
5.8355
5.6847
-
1.2565
1.2552
1.2512
99.3500
-
-
-
-
1.1721
-
-
-
GBP
Forward exchange contracts
less than 3 months
3-12 months
13 months or greater
US/GBP
Forward exchange contracts
less than 3 months
3-12 months
13 months or greater
NOK
Forward exchange contracts
less than 3 months
3-12 months
13 months or greater
NZD
Forward exchange contracts
less than 3 months
3-12 months
13 months or greater
JPY
Forward exchange contracts
less than 3 months
3-12 months
13 months or greater
SGD
Forward exchange contracts
less than 3 months
3-12 months
13 months or greater
EUR/GBP
Forward exchange contracts
less than 3 months
3-12 months
13 months or greater
* Relates to forward exchange contracts.
2013
Buy
$000
116
154
365
635
Average
Forward/
Strike
Rate
-
0.5897
0.5548
-
1,715
4,902
6,617
836
0.9584
522
12,346
2,584
15,766
-
-
-
5.6106
-
-
-
-
-
-
-
-
-
-
-
-
-
18
681
-
699
15
29
59
103
12
-
-
12
-
-
49
49
-
-
-
-
-
-
522
-
474
-
474
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Sell
Average
Buy
Average
Sell
2012
$000
Forward
Rate
$000
Forward
Rate
$000
-
0.6272
-
0.9975
0.9956
0.9968
-
80
-
80
306
383
2,786
3,475
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.6129
0.6003
0.5580
251
1,537
6,193
7,981
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.6756
0.6767
-
231
177
-
408
AUSTAL LIMITED
2013
ANNUAL REPORT
59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 22. FINANCIAL INSTRUMENTS (continued)
Movement in forward currency contract cash flow hedge reserve
Opening balance
Transferred to inventory
Transferred to profit and loss
Charged to equity
Closing balance
NOTE 23. COMMITMENTS & CONTINGENCIES
Operating lease commitments
Future minimum rentals payable under non-cancellable leases as at 30 June are as follows:
Within one year
After one year but not more than five years
Capital commitments
Buildings – USA
Guarantees
Bank performance guarantees (i)
2013
$’000
16,649
(10,799)
(2,224)
7,451
11,077
2013
$’000
1,125
1,496
2,621
2013
$’000
16
2013
$’000
26,933
2012
$’000
41,508
(645)
(4,469)
(19,745)
16,649
2012
$’000
1,771
2,619
4,390
2012
$’000
6,189
2012
$’000
38,037
(i) The bank performance guarantees and Go Zone Bonds are secured by a mortgage over the land and buildings and floating charges over cash, receivables, work in
progress and plant and equipment (refer Note 16).
Other contingent liabilities excluded from the above include:
The parent company has guaranteed the performance of certain contract obligations of a subsidiary.
Austal has received notice of Arbitration proceedings initiated by a commercial customer in FY2013. The claim is in respect of consequential damages arising from a
warranty defect. The shipbuilding contract between the parties specifically excludes consequential damages in relation to warranty defects. The company intends to
defend the claim.
AUSTAL LIMITED
2013
ANNUAL REPORT
60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 24. RELATED PARTY DISCLOSURE
The consolidated financial statements include the financial statements of Austal Limited and the subsidiaries listed in the following table.
Country of incorporation
2013
2012
% Equity Interest
Austal Ships Pty Ltd
Oceanfast Pty Ltd
Image Marine Pty Ltd
Seastate Pty Ltd
Oceanfast Luxury Yachts Pty Ltd (formerly Oceanfast Properties Pty Ltd)
Austal Service Pty Ltd (formerly Oceanfast Motor Yachts Pty Ltd )
Austal Philippines Pty Ltd (formerly Austal Ships Sales Pty Ltd)
Austal Holdings Inc.
Austal USA LLC
Austal Hull 130 Chartering LLC
Austal Muscat LLC
Austal Systems Pty Ltd (formerly Australian Technology Information Pty Ltd)
Hydraulink (NT) Pty Ltd*
KM Engineering (NT) Pty Ltd*
Austal Service Darwin Pty Ltd
Austal Cyprus Ltd
Austal UK Limited
Australia
Australia
Australia
Australia
Australia
Australia
Australia
USA
USA
USA
Oman
Australia
Australia
Australia
Australia
Cyprus
United Kingdom
Austal Limited is the ultimate parent of the Group and is incorporated in Perth, Western Australia.
*100% owned by Austal Service Darwin Pty Ltd, which itself is 80% owned by Austal Service Pty Ltd.
100
100
100
100
100
100
100
100
100
100
100
100
80
80
80
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
-
-
100
100
Transactions with related parties
There were no transactions with related parties outside the Group during the year. The Group has a policy that all transactions with related parties are conducted on
commercial terms and conditions.
NOTE 25. EVENTS AFTER THE BALANCE DATE
Austal executed a new Syndicated Facility Agreement which provides the following facilities through until 31 December 2015:
US$190 million of Letters of Credit to support the Go Zone Bonds in the USA
US$20.7 million of Equipment Asset Financing in the USA
A$100 million of Performance Bonding and other Letters of Credit
A$50 million of Revolving Credit Facility
The Board of Directors approved the redemption of US$54.960 million of Go Zone Bonds utilising restricted cash from the capital raising that was conducted in FY2013.
NOTE 26. AUDITOR’S REMUNERATION
The auditor of the Austal Limited Group is Ernst & Young.
Amounts received or due and receivable by Ernst & Young for:
- an audit or review of the financial report of the entity and any other entity in the Group
- other services in relation to the entity and any other entity in the Group:
- Tax compliance
Total
2013
$’000
560
33
593
2012
$’000
493
35
528
AUSTAL LIMITED
2013
ANNUAL REPORT
61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 27. KEY MANAGEMENT PERSONNEL COMPENSATION
(a) Compensation of Key Management Personnel
Short-term employee benefits
Post-employment benefits
Termination benefits
Share-based payment
Total compensation
(b) Key Management Personnel Option Holdings
2012
3,304,903
-
-
366,821
3,671,724
2013
2,969,391
-
332,647
234,463
3,536,501
Vested
Granted as
Remuneration
Options
Exercised
Net Change
Other **
Balance at
end of year
Total
Exercisable
Not
Exercisable
Balance at
beginning of
year
420,000
280,000
250,000
-
-
437,500
420,000
70,000
239,000
30 June 2013
Directors
M Atkinson
A Bellamy
Executives
C Perciavalle
J Turano
G Backhouse
G Jason
R Simons^
C McGill^
B Leathers
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
420,000
280,000
140,000
140,000
-
-
250,000
110,000
110,000
-
-
-
-
-
-
437,500
157,500
157,500
(420,000)
(70,000)
-
-
-
-
-
-
-
239,000
(490,000)
1,626,500
99,000
506,500
99,000
506,500
-
-
-
-
-
-
-
-
-
-
Total
2,116,500
^ Key management personnel for part of the year of 2013; No longer a KMP.
** Includes forfeitures.
-
Balance at
beginning of
year
Granted as
Remuneration
Options
Exercised
Net Change
Other **
Balance at
end of year
Total
Exercisable
Not
Exercisable
Vested
280,000
280,000
140,000
-
375,000
280,000
-
297,500
169,000
1,681,500
140,000
140,000
70,000
140,000
70,000
700,000
-
-
-
-
-
-
-
-
-
-
420,000
280,000
140,000
140,000
-
-
(420,000)
-
-
-
-
95,000
420,000
70,000
437,500
239,000
95,000
95,000
-
-
-
-
-
-
-
-
(420,000)
1,961,500
235,000
235,000
-
-
-
-
-
-
-
-
30 June 2012
Directors
M Atkinson
A Bellamy
Executives
J Rella*
R Simons
C McGill*
G Jason*
B Leathers*
Total
* Key management personnel for part of the year of 2012.
** Includes forfeitures.
AUSTAL LIMITED
2013
ANNUAL REPORT
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 27. KEY MANAGEMENT PERSONNEL COMPENSATION (continued)
(c) Key Management Personnel Shareholdings
30 June 2013
Non-Executive Directors
J Rothwell
J Poynton2,3
D Amara
D Singleton7
Executives
M Atkinson
A Bellamy4,5
R Simons6
C McGill1
G Jason
B Leathers
Total
1 Key management personnel for part of the year of 2013.
2 Mr John Poynton acquired 9,000 shares via a pro-rata offer to shareholders.
3 On the 28th June 2013 Mr John Poynton resigned.
4 Mr Andrew Bellamy acquired 511,033 shares via an accelerated rights issue to shareholders.
5 Mr Andrew Bellamy acquired 165,556 shares in accordance with his employment contract.
6 On the 2nd October 2012 Mr Richard Simons resigned.
7 Mr David Singleton acquired 28,600 shares via an arm’s length on-market transaction.
30 June 2012
Non-Executive Directors
J Rothwell
C Norman*
J Poynton
D Amara
D Singleton*
I Campbell
Executives
M Atkinson
A Bellamy
J Rella*
R Simons
C McGill*
G Jason*
B Leathers*
Total
Balance
1 July 2012
Net change other
Balance
30 June 2013
32,200,745
10,000
50,000
-
1,415,737
123,369
-
-
-
-
-
9,000
-
28,600
-
676,589
-
-
-
-
32,200,745
19,000
50,000
28,600
1,415,737
799,958
-
-
-
-
33,799,851
714,189
34,514,040
Balance
1 July 2011
Net change other
Balance
30 June 2012
33,974,685
26,602,221
10,000
50,000
-
-
1,415,737
-
-
-
-
-
-
(1,773,940)
-
-
-
-
-
-
123,369
-
-
-
-
-
32,200,745
26,602,221
10,000
50,000
-
-
1,415,737
123,369
-
-
-
-
-
62,052,643
(1,650,571)
60,402,072
* Key management personnel for part of the year of 2012.
All equity transactions with key management personnel have been entered into under terms and conditions no more favourable than those the Group would have
adopted if dealing at arm’s length.
AUSTAL LIMITED
2013
ANNUAL REPORT
63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 27. KEY MANAGEMENT PERSONNEL COMPENSATION (continued)
(d) Participation by specified Directors and Key Management Personnel in the Austal Group Management Share Plan (in substance options)
Balance at
beginning of
year
285,062
285,062
285,062
285,062
30 June 2013
Directors
M Atkinson
Total
30 June 2012
Directors
M Atkinson
Total
Granted as
Remuneration
Options
Exercised
Net Change
Other ***
Balance at
end of year
Total
Exercisable
Not
Exercisable
Vested
-
-
-
-
-
-
-
-
-
-
-
-
285,062
285,062
285,062
285,062
285,062
285,062
285,062
285,062
285,062
285,062
285,062
285,062
-
-
-
-
*** Includes forfeitures
(e) Other transactions and balances with Key Management Personnel
Other than directors’ remuneration and the matters disclosed in note 24 of this report, no related party transactions occurred with the consolidated entity.
AUSTAL LIMITED
2013
ANNUAL REPORT
64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 28. SHARE BASED PAYMENT PLANS
(a) Recognised share-based payment expenses
The expense recognised for employee services received during the year is shown in the table below:
Expense arising from equity-settled share-based payment transactions
2013
$’000
1,263
2012
$’000
1,603
The share-based payment plans are described below. In November 2012 the Employee Share Option Plan was replaced by the Long Incentive Plan (LTI Plan). No
options were granted in the 2013 period under the employee share option plan, and no performance rights were issued under the LTI Plan.
(b) Types of share-based payment plans
1. Long Term Incentive Plan
The Long Term Incentive Plan (LTIP) which replaces Austal’s previous executive share option plan aims to reward KMP with the issue of performance rights
commensurate with their position and responsibilities within the Company so as to:
attract and retain exceptional employees (‘key employees’) that have the capacity to significantly impact the growth and profitability of the Company;
align key employees’ behaviour towards the growth and profitability objectives of the Company; and reward key employees for sustained contributions to business
success.
The LTIP was developed with the assistance of Mercer, an independent employee share plan consultant. There are separate LTIP for Australian and US executives to
take into account relevant US regulations.
Suspension of the LTIP in 2013
In light of the concerns raised by shareholders through the vote at the 2012 AGM regarding the Remuneration Report and remuneration of KMP, the Company elected to
suspend the LTIP for 2013, and no performance rights were issued during the year. This was despite the LTIP being approved by shareholders at the AGM.
Given the positive outlook for the Company, the Board expects certain KMP will be eligible for performance rights under the LTIP in the years ahead. However the
number of KMP eligible for performance rights under the new LTIP will be significantly lower than those entitled to options under the previous share option plan. Eligibility
for performance rights under the LTIP is dependent on the achievement of specific performance hurdles, being Return On Invested Capital (ROIC) and Total
Shareholder Return (TSR). The approach to these performance hurdles is detailed below.
Structure
The performance rights may be granted to KMP and executives in accordance with the LTIP rules and set by the Remuneration Committee.
The terms of each offer to participate in the LTIP may differ depending on the relevant KMP role. Shares issued following the vesting of any performance rights will
generally be subject to a restriction on trading for at least 12 months, although the holder will be entitled to any dividends paid during that restricted period.
The Board believes that following the suspension and subsequent re-shaping of the LTIP, including the reduction in the number of KMP entitled to participate, is in the
best interests of shareholders. Entitlement to performance rights under the LTIP is based solely on measures which deliver improved results to shareholders, thereby
ensuring that the objectives of KMP and shareholders are necessarily aligned.
Performance hurdles
The granting of performance rights is tied exclusively to overall company performance, measured against ROIC and TSR targets set periodically by the Board. The
targets will be based on company-wide performance, rather than business unit performance, in order to maximise alignment with shareholder interests – Performance
rights will not vest unless these hurdles, are met. Performance hurdles will be measured over a prescribed period determined by the board.
ROIC measure
70% of the performance rights that vest under the LTIP will be tied to the achievement of an average ROIC target over the prescribed period. The ROIC target will be
based on company-wide performance, rather than business unit performance, in order to maximise alignment with shareholder interest. Performance rights will vest
based on actual ROIC versus target ROIC over the measurement period. The threshold ROIC level will be set by the Board and will normally be at or above current
ROIC when rights are issued..
TSR measure
30% of any LTI award will depend on the achievement of TSR levels prescribed by the Board. To be eligible for the full entitlement of performance rights under this
aspect of the LTI Plan, TSR must exceed 25% over a prescribed period. The LTI entitlement reduces progressively as TSR figures step down below 25%, such that if
TSR over the prescribed period is less than 25% then performance rights based on TSR will not vest. Maintenance of existing TSR performance in itself is not enough to
meet the hurdle required for performance rights under this measure. The Board considers this to be consistent with its objective of improving returns to shareholders.
AUSTAL LIMITED
2013
ANNUAL REPORT
65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 28. SHARE BASED PAYMENT PLANS (continued)
(b) Types of share-based payment plans (continued)
2. Employee Share Option Plan, ‘ESOP’
Objective
The Share Option Plan, replaced by the LTIP, aims to reward executives and senior managers with the issue of share options commensurate with their position and
responsibilities within the Company so as to:
attract and retain exceptional employees (‘key employees’) that have the capacity to significantly impact the growth and profitability of the Company; and
align key employees’ behaviour toward the growth and profitability objectives of the Company; and reward key employees for sustained contributions to business
success.
Structure
The Share Option Plan aims to reward executives and senior managers with the issue of share options commensurate with their position and responsibilities within the
Company and had the same objectives as the LTI Plan discussed above. The grant of options under the ESOP was also based on a relative TSR measure to determine
the grant of options.
No options were granted under the ESOP during the year.
Performance hurdle
The Company uses a relative Total Shareholder Return (TSR) as the performance hurdle for the share option plan. Relative TSR was selected as the share option plan
performance hurdle as it ensures an alignment between comparative shareholder return and reward for executives.
The Company’s performance against the hurdle is determined by comparing the TSR against the return of the Small Industrials Accumulation Index (or another
appropriate index) for the three year period commencing on the 1 July prior to the grant date. If the TSR does not exceed the return of the Small Industrials
Accumulation Index for a particular three year period, the series of options issued at that grant date would lapse.
Summaries of options granted under ESOP
The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of, and movements in share options issued during the year:
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Outstanding at the end of the year
Exercisable at the end of the year
Option pricing model: ESOP
Equity-settled transactions
2013
No.
8,273,611
-
(1,083,125)
7,190,486
2,826,736
WAEP
2.46
-
2.25
2.49
2012
No.
6,664,402
3,430,000
(1,820,791)
8,273,611
420,611
WAEP
2.63
2.15
2.55
2.46
The following table lists the inputs to the models used, applicable for both the years ended 30 June 2013 and 30 June 2012:
Grant date
Spot price ($)*
Option exercise price ($)
Fair value of option $/option
Expected volatility (%)
Annual risk free interest rate (%)
Dividend yield (%)
Expected life of option (years)
*
closing share price at valuation date
Tranche 4
Tranche 5
Tranche 6
Tranche 7
Tranche 8
Tranche 9
Tranche 10
2009
2010
2010
2010
2011
2012
2012
10 Sept 2008
3 Nov 2009
16 Feb 2010
25 Feb 2010
27 Sept 2010
21 Oct 2011
20 Dec 2011
2.35
2.40
0.36
40.0
5.54
5.67
5.00
2.41
2.95
0.52
44.0
5.35
4.5
5.00
2.44
1.81
0.69
44.0
5.28
4.5
4.00
2.43
2.45
0.561
44.0
5.37
4.5
4.00
2.38
2.34
0.840
44.0
5.00
2.0
4.00
2.25
2.15
0.667
43.0
4.10
2.0
4.00
2.24
2.15
0.618
43.0
3.20
2.0
4.00
The Group uses the Monte Carlo model to value the share options. The effects of early exercise have been incorporated into the calculations by using an expected life
for the option that is shorter than the contractual life based on certain factors including the period of time between the valuation date and the expiry date, the vesting
period, the expected volatility of the underlying shares and the dividend yield. The expected volatility was determined based on the Company’s annual historical share
AUSTAL LIMITED
2013
ANNUAL REPORT
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 28. SHARE BASED PAYMENT PLANS (continued)
(b) Types of share-based payment plans (continued)
price volatility over the five year period prior to the valuation dates. The resulting expected volatility therefore reflects the assumption that the historical volatility is
indicative of future trends, which may also not necessarily be the actual outcome.
Austal Group Management Share Plan
The Company established the first Austal Group Management Share Plan by which directors and certain managers can participate in owning shares in the Company.
The key features of the Plan are:
(a) The initial 7.700 million shares under the plan were acquired at market value from a former director prior to the listing of the Company on 10 November 1998. An
independent valuation was undertaken by Messrs Gorey Sinclair to determine this price.
(b) Austal offers to loan participants up to 100% of the purchase consideration for their shares on a limited recourse basis. However, this amount may be varied at the
discretion of the Board.
(c) The shares are made available to the participants at market value.
(d) The Board at its discretion determines the number of shares that will be made available to each participant.
(e) The shares are required to be held by a trustee on behalf of the participant. Shares may not be transferred to a participant for at least 12 months. After this period,
20% of a participant’s shares will become eligible to be transferred provided any loan in respect of these shares has been repaid. An additional 20% will become
eligible to be transferred to the participant at the end of each 12-month period thereafter on the same terms, so that a participant may hold 100% of his shares at the
end of 5 years.
(f) Dividends on shares held under the Plan must be applied to pay interest on the loans. Participants with an interest in shares under the Plan have full voting rights.
(g) Interest on the loans will be charged at a fixed rate of 6%, or such other rate as determined by the Board.
(h) Upon termination of employment or contract arrangements the shares must be sold and the loan (if any) repaid.
The Company established the second Austal Group Management Share Plan by which managers can participate in owning shares in the Company. The key features of
the Plan are:
(a) The initial 5.675 million shares under the plan were acquired at market value on the Australian Stock Exchange as follows:
Date
25 September 2000
28 September 2000
29 September 2000
9 October 2000
13 October 2000
11 December 2000
9 March 2001
4 July 2001
20 June 2002
25 July 2002
12 July 2002
Total
Number of shares
1,710,000
570,000
285,000
285,000
830,000
285,000
285,000
285,000
570,000
285,000
285,000
5,675,000
(b) Austal will offer to loan eligible managers up to 90% of the purchase consideration for their shares on a limited recourse basis. However, this amount may be varied
at the discretion of the Board.
(c) The shares are made available to the managers at market value.
(d) The Board at its discretion will determine the number of shares that will be made available to each eligible manager.
(e) The shares are required to be held by a trustee on behalf of the manager. Shares may not be transferred to a manager for at least 12 months. After this period,
20% of a manager’s shares will become eligible to be transferred provided any loan in respect of these shares has been repaid. An additional 20% will become
eligible to be transferred to the manager at the end of each 12-month period thereafter on the same terms, so that a manager may hold 100% of his shares at the
end of 5 years.
(f) Dividends on shares held under the Plan must be applied to pay interest on the loans. Managers with an interest in shares under the Plan have full voting rights.
(g) Interest on the loans will be charged at a fixed rate of 60% of any dividends paid, or such other rate as determined by the Board.
(h) Upon termination of employment or contract arrangements the shares must be sold and the loan (if any) repaid. The trustee may arrange a sale of shares to eligible
managers.
The Company established the third Austal Group Management Share Plan by which executives can participate in owning shares in the Company. The key features of
the Plan are:
AUSTAL LIMITED
2013
ANNUAL REPORT
67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 28. SHARE BASED PAYMENT PLANS (continued)
(b) Types of share-based payment plans (continued)
Austal Group Management Share Plan (continued)
(a) The initial 3 million shares under the plan were acquired at market value on the Australian Stock Exchange on 22 October 2007. These were issued to Mr Robert
Browning and forfeited in 2011.
(b) Austal will offer to loan eligible executives up to 100% of the purchase consideration for their shares on a limited recourse basis. However, this amount may be
varied at the discretion of the Board.
(c) The shares are made available to the executives at market value.
(d) The Board at its discretion will determine the number of shares that will be made available to each eligible executive.
(e) The shares are required to be held by a trustee on behalf of the executives. Shares may not be transferred to a manager for at least 12 months. After this period,
20% of the executive’s shares will become eligible to be transferred provided any loan in respect of these shares has been repaid. An additional 20% will become
eligible to be transferred to the executive at the end of each 12-month period thereafter on the same terms, so that the executive may hold 100% of his shares at the
end of 5 years.
(f) Dividends on shares held under the Plan are paid to the eligible executive. Eligible executives with an interest in shares under the Plan have full voting rights.
(g) No interest will be charged on the loans.
(h) Upon termination of employment or contract arrangements the shares must be sold and the loan (if any) repaid.
The fair value of the benefit provided that is applicable to these 3 million shares (in substance options) granted is estimated using the Binomial option pricing model as
follows:
Grant date
Share price at grant date $
Exercise price
Fair value of option $/option
Expected volatility %
Risk free interest rate %
Expected life (years)
At balance date the trustee on behalf of the plans holds a total of 1,350,601 shares.
Details of the Austal Group Management Share Plan are shown below:
Total shares (in substance options) held by trustee on behalf of plan at balance date (000’s)
Total shares (in substance options) forfeited during the year (000’s)
Total shares (in substance options) sold during the year (000’s)
Total shares (in substance options) granted to employees during the year (000’s)
Total shares (in substance options) exercised during the year (000’s)
Total shares (in substance options) granted to employees at balance date (000’s)
Total shares (in substance options) held by trustee on behalf of plan at balance date (000’s)
Total fair value of shares (in substance options) exercised during the year ($’000)
Total number of employees eligible to participate in the plan
22 Oct 2007
3.12
3.51
0.96
38.79
6.25
7.0
2012
1,391
-
(40)
-
-
-
1,351
-
10
2013
1,351
-
-
-
-
-
1,351
-
10
The balance of shares (in substance options) as at 30 June 2013 is represented by:
1,350,601 shares (in substance options) under Plan #1 and Plan #2 with a weighted average exercise price of $1.28 each, with no contractual life.
AUSTAL LIMITED
2013
ANNUAL REPORT
68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
For the year ended 30 June 2013
NOTE 29. PARENT ENTITY
Information relating to the Parent Entity Austal Limited is detailed below:
Current Assets
Total Assets
Current Liabilities
Total Liabilities
Equity
Contributed equity
Employee benefit reserve
Asset revaluation reserve
Cash flow hedge reserve
Retained earnings
Total equity
Profit/(loss) after tax
Total comprehensive income
2013
$’000
290,917
402,971
46,052
73,793
110,652
3,887
14,161
11,340
189,138
329,178
840
840
2012
$’000
208,754
311,584
42,469
71,587
31,087
2,623
14,161
-
192,126
239,997
11,063
11,063
For details of guarantees and contingent liabilities relating to Austal Limited refer to note 23.
NOTE 30. BUSINESS COMBINATION
On 4 October 2012, Austal Service Darwin Pty Ltd acquired 100% of the ordinary shares in KM Engineering (NT) Pty Ltd (“KME”) and Hydraulink (NT) Pty Ltd
(“Hydraulink”) and the sellers of KME and Hydraulink obtained a 20% share of Austal Service Darwin Pty Ltd.
KME & Hydraulink are private companies operating in the Northern Territory and provide engineering and hydraulic services to the Royal Australian Navy (RAN) and
Australian Customs and Border Protection Service.
The Group has recognised the fair values of the identifiable assets and liabilities of KME & Hydraulink based on the best information available as of the reporting date.
The transaction is not considered material.
AUSTAL LIMITED
2013
ANNUAL REPORT
69
DIRECTORS’ DECLARATION
In accordance with a resolution of the directors of Austal Limited, I state that:
1.
In the opinion of the directors:
(a) The financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including:
(i) Giving a true and fair view of the consolidated entity’s financial position as at 30 June 2013 and of its performance for the year ended on that date; and
(ii) Complying with Accounting Standards (including the Australian Accounting Interpretations) and Corporations Regulations 2001.
2. The financial Statements and notes also comply with International Financial Reporting Standards as disclosed in note 2
3. In the opinion of the directors, as at the date of this declaration, there are reasonable grounds to believe that the consolidated entity will be able to pay its debts as
and when they become due and payable.
4. This declaration has been made after receiving the declarations required to be made to the directors in accordance with sections 295A of the Corporations Act 2001
for the financial period ending 30 June 2013.
On behalf of the Board.
J ROTHWELL AO
Chairman
Dated at Henderson this 30th day of August 2013
AUSTAL LIMITED
2013
ANNUAL REPORT
70
CORPORATE GOVERNANCE STATEMENT
Austal Limited, its Board of Directors and senior management are committed to
the best practices of corporate governance, ethical standards and risk
management and have adopted the following corporate governance policy. The
Corporate Governance Statement should be read in conjunction with the
Directors’ Report on page 5-12.
The Board of Directors of Austal Limited is responsible for guiding and monitoring
of the consolidated entity on behalf of shareholders.
The Austal Limited Corporate Governance Statement is now structured with
reference
and
Recommendations, which are as follows:
the Corporate Governance Council’s Principles
to
Principle 1.
Principle 2.
Principle 3.
Principle 4.
Principle 5.
Principle 6.
Principle 7.
Principle 8.
Lay solid foundations for management and oversight
Structure the board to add value
Promote ethical and responsible decision making
Safeguard integrity in financial reporting
Make timely and balanced disclosure
Respect the rights of shareholders
Recognise and manage risk
Remunerate fairly and responsibly
Management and Oversight
The Board gives direction and exercises judgment in setting the Company’s
objectives and overseeing their implementation. The responsibility for the
operation and administration of the Company is delegated by the Board to the
CEO and the executive management team. The Board ensures that this team is
appropriately qualified and experienced to discharge their responsibilities and has
in place procedures to assess the performance of the CEO and the executive
management team.
The Board’s functions include:
a. adopting a Strategic Plan for the Company, including general and specific
goals and comparing actual results with the Plan, designed to meet
stakeholders’ needs and manage business risk;
b. appointing, performance assessment and, if necessary, removal of members
of the executive management team;
c. adopting clearly defined delegations of authority from the Board to the
management;
d. agreeing key performance indicators (both financial and non-financial) with
management and monitoring progress against these indicators;
e.
taking steps designed to protect the Company’s financial position and its
ability to meet its debts and other obligations as they fall due;
f. establishing and monitoring policies directed to ensuring that the Company
complies with the law and conforms to the highest standards of financial and
ethical behaviour;
g. determining that the Company has instituted adequate reporting systems and
internal controls (both operational and financial) together with appropriate
monitoring of compliance activities;
h. determining that the Company accounts are true and fair and are in
conformity with reporting requirements;
i.
ensuring that any significant risks that arise are identified, assessed,
appropriately managed and monitored; and
j.
reporting to shareholders
The performance of key executives is reviewed regularly against both measurable
and qualitative indicators. Each year the Nomination and Remuneration
Committee conducts a performance assessment for each key executive. The
performance criteria against which they are assessed are aligned with the
financial and non-financial objectives of Austal Limited. The performance of
senior executives was assessed during the year and was in accordance with the
above process.
Structure the Board to Add Value
The Board shall comprise of Directors with a range of qualifications, expertise and
experience. The selection of the Board members shall always be for the purpose
of their ability to add value to the Company.
For the purpose of efficient working, the preferred number of Directors in office at
any one time is between 3 and 10.
To ensure that the board is well equipped to discharge its responsibilities it has
established guidelines for the nomination and selection of directors and for the
operation of the Board. Any proposed new Director is nominated by the
Nomination and Remuneration Committee and approved by the Board prior to
being appointed. The appointment is until the next General Meeting of
shareholders at which time the shareholders are required to approve the
appointment.
The Council’s Recommendation 2.1 requires a majority of the Board to be
independent Directors. In addition, Recommendation 2.2 requires the Chair to be
independent.
Since the resignation of Mr John Poynton on 28 June 2013 and retirement of Mr
Michael Atkinson on 30 June 2013, the Board consists of a Non-Executive Chair,
one Executive Director and two independent Non-Executive Directors.
The Board believes that its main role is to add value for all shareholders and that
this is best served by having a balanced Board. The Executive Director and Non-
Executive Chairman have expertise in the Company's business. The Non-
Executive Directors provide an external perspective to review and challenge the
performance of management.
Independent directors therefore make up half the current Board, and given the
relatively low number of directors, the Board considers those independent
directors have a material impact on Board matters and the Company’s direction
and are therefore able to ensure that management acts in the best interests of the
Company.
The Board will consider appointing another independent deputy Chair to replace
Mr Poynton to chair meetings involving any potential conflicts of interest and as an
alternate point of contact for shareholders recognising that there might be
situations where there might be a conflict of interest.
The performance of the Board is reviewed regularly against both measurable and
qualitative indicators. Each year the Nomination and Remuneration Committee
conducts a performance assessment for each Board member. The performance
criteria against which Directors are assessed are aligned with the financial and
non-financial objectives of Austal Limited. Directors whose performance is
consistently unsatisfactory may be asked to retire. The performance of the
Directors was assessed during the year and was in accordance with the above
process.
AUSTAL LIMITED
2013
ANNUAL REPORT
71
CORPORATE GOVERNANCE STATEMENT
Continued
Independence
Directors of Austal Limited are considered to be independent when they are
independent of management and free from any business or other relationship that
could materially interfere with – or could reasonably be perceived to materially
interfere with – the exercise of their unfettered and independent judgement.
encourage
the reporting and
investigating of unlawful and unethical
behaviour; and
comply with the share trading rules outlined in their respective Codes of
Conduct.
In the context of director independence, ‘materiality’ is considered from both the
Company’s and individual Director’s perspective. The determination of materiality
requires consideration of both quantitative and qualitative elements. An item or
factor is presumed to be material (unless there is qualitative evidence to the
contrary) if its value is equal to, or greater than, $250,000 in aggregate in any one
year. Qualitative factors considered include whether a relationship is strategically
important, the competitive landscape, the nature of the relationship and the
contractual or other arrangements governing it and other factors which point to the
actual ability of the Director to have an influence in shaping the direction of loyalty
to the Company.
In accordance with the definition of independence, and the materiality thresholds
set, the following Directors are considered to be independent:
Name
D. Amara
D.Singleton
Position
Non-Executive Director
Non-Executive Director
There are procedures in place, agreed by the Board, to enable Directors in
furtherance of their duties, to seek independent professional advice at the
Company’s expense.
Outside Directorships
Specific guidelines apply for acceptance of outside directorships by Executive and
Non-Executive Directors.
Nomination and Remuneration Committee
The Nomination and Remuneration Committee must comprise at least two
independent Directors. The Committee ensures that the Board operates within its
guidelines, reviews the remuneration of all Directors and makes recommendations
to the Board, and selects candidates for the position of Director, when necessary.
PROMOTE ETHICAL AND RESPONSIBLE DECISION-MAKING
Ethical Standards and Performance
The Board acknowledges the need for continued maintenance of the highest
standards of Corporate Governance Practice and ethical conduct by all Directors
and employees of the Austal Group. A Code of Conduct has been adopted under
which the Directors and senior management employees are expected to:
act honestly and in good faith;
exercise due care and diligence in fulfilling the functions of office;
use their powers to act in the best interests of the Company as a whole;
avoid conflicts and make full disclosure of any possible conflict of interest;
comply with the law;
directors are obliged to be independent in judgement and ensure all
reasonable steps are taken to be satisfied as to the soundness of Board
decisions;
A Director shall comply with the Company’s share trading rules and like rules,
which may from time to time be added thereto or substituted therefore by the
Directors. The current rules are:
a. notwithstanding the requirements of the legislation concerning insider trading,
Directors were obliged to restrict their trading in securities of Austal Limited
shares to a period of four months following the release by Austal Limited of
half yearly and preliminary final reports. Directors are also restricted from
trading in Austal Limited shares for 24 hours following any announcement by
the Company to the Australian Stock Exchange;
b. any Director intending to buy or sell shares in the Company or any company
in which the Company has an interest, is required to notify the Chairman or
the Company Secretary of his/her intentions before proceeding with the
transaction; and
c. directors, managers and staff are not permitted to deal in the Company's
securities if they are in possession of material information which is not
available to the share market, but if it were, may impact the value at which the
securities are traded. In April 2004 procedures were put in place to monitor
trading of the Company's securities by Directors, managers and staff.
Diversity at Austal
The Company recognises that developing a diverse workforce is critical in building
its organisational capability and maintaining a high level of performance, and
values the distinctive skills, experiences and perspectives each individual brings to
the workplace. The Company is committed to ensuring all employees are treated
with respect and given equal opportunities for employment and development, and
has a diversity policy which can be found on its website. Among other things, the
Company’s diversity policy:
articulates how the Company considers diversity within the workforce will
the Company’s continuous
make a valuable contribution
improvement and the achievement of goals; and
towards
sets out the Board’s commitment to promoting a corporate culture which
embraces diversity.
Diversity within the workforce is limited by the manufacturing sector in which the
Company operates, and as there is a limited number of women who hold the
particular fabrication, welding and production skills required by the bulk of the
Company’s workforce, the ability to meet targets for gender diversity is necessarily
restricted. In accordance with the Company’s Code of Conduct, employment and
remuneration are based on merit, qualifications, skills and experience so that
equally qualified personnel can be confident of their standing in the Company, and
value to the Company, regardless of their gender, racial background, age,
religious beliefs or other values.
The Board therefore does not set specific targets for diversity requirements, but
focuses on improving diversity through workplace practices such as:
the employment of international workers through 457 visas, and assistance in
domiciling those workers in Australia upon visa expiry;
employment of personnel with particular needs (for example, persons with
hearing impairments), both through the Commonwealth Rehabilitation Service
and through direct recruitment ;
offering flexible working hours; and
employment of part time workers:
The Company emphasises equal opportunity for employment. While there are
currently no female Board members, in light of the sector in which the Company
AUSTAL LIMITED
2013
ANNUAL REPORT
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CORPORATE GOVERNANCE STATEMENT
Continued
operates, women are relatively well represented in other roles. Women currently
hold:
5% of Senior Management positions;
15% of Management positions; and
59% of professional roles,
within the Company.
Price sensitive information is publicly released through the stock exchange from
disclosing it to analysts or others outside the company. Further dissemination to
investors is also managed through the Australian Stock Exchange.
RESPECT THE RIGHTS OF SHAREHOLDERS
Shareholder Communication Policy
The Board of Directors aims to ensure that the shareholders are informed of all
major developments affecting the company’s state of affairs.
The Board aims to continue to embrace diversity within the Company’s workforce
as the Company and its activities grow and appropriately skilled candidates are
available.
Information is communicated to shareholders through:
SAFEGUARD INTEGRITY OF FINANCIAL REPORTING
Audit and Risk Management Committee
the Concise Annual Report;
the Interim Report;
The Audit and Risk Management Committee must comprise at least two
Independent Directors. The Board shall elect the Members and the Chair of the
Audit and Risk Management Committee.
The Council’s Recommendation 4.2 is that an audit committee consists only of
Non-Executive Directors.
The function of the Audit and Risk Management Committee is to:
a. ensure compliance with statutory reporting responsibilities;
b.
liaise with, assess the quality and review the scope of work of the external
auditors;
disclosures made to the Australian Stock Exchange;
notices and explanatory memoranda of the Annual General Meeting (AGM)
the AGM; and
newsletters to inform shareholders of key matters of interest.
It is Company policy for the auditor’s lead engagement partner to be present at the
AGM and to answer questions about the conduct of the audit, the preparation and
content of the auditors’ report, accounting policies adopted by the company, and
auditor independence.
c. enable the auditors to communicate any concerns to the Board;
RECOGNISE AND MANAGE RISK
d. advise the Board on the appointment of the external auditors and the results
of their work;
e. assess the adequacy of accounting, financial and operating controls; and
f. assess the effectiveness of the management of business risk and reliability of
management reporting.
g.
report to the Board any significant deficiencies identified above.
The Board, through the Audit and Risk Management Committee (in accordance
with its Charter) annually reviews the performance of the external auditor
focussing particularly on:
quality of the audit;
quality of the service provided; and
independence.
Should a change in auditor be considered necessary, the Board will recommend a
change in auditor to be approved by shareholders in a General Meeting.
MAKE TIMELY AND BALANCED DISCLOSURE
Continuous Disclosure
Austal Limited has established written policies and procedures on information
disclosure. The focus of these procedures is on continuous disclosure and
improving access to information for all investors.
The Chief Executive Officer has responsibility for:
making sure
requirements;
that
the company complies with Continuous Disclosure
overseeing and co-ordinating disclosure of information to the stock exchange,
analysts, brokers, shareholders, the media and the public; and
educating Directors and staff on the Company’s disclosure policies and
procedures and raising awareness of the principles underlying continuous
disclosure.
Risk Management and Internal Compliance and Control
The Board determines the Company’s ‘risk profile’ and is responsible for
overseeing and approving risk management strategy and policies, internal
compliance and internal control. The Company’s process of risk management and
internal compliance and control includes:
continuously identifying and measuring risks that might impact upon the
achievement of the Company’s goals and objectives, and monitoring the
environment for emerging factors and trends that affect these risks;
formulating risk management strategies to manage identified risks, and
designing and implementing appropriate risk management policies and
internal controls; and
monitoring the performance, and continuously improving the effectiveness, or
risk management systems and internal compliance and controls.
The risk management programme addresses risks under the following categories:
business risks inherent to the shipbuilding industry
operating risks associated with sales, design and production
financial risks
specific vessel risks
The Board oversees an annual assessment of the effectiveness of risk
management and internal compliance and control.
The responsibility for undertaking and assessing risk management and internal
control effectiveness is delegated to management. Management is required by
the Board to assess risk management and associated internal compliance and
control procedures and report back on the efficiency and effectiveness of risk
management.
REMUNERATE FAIRLY AND RESPONSIBLY
It is the Company’s objective to provide maximum stakeholder benefit from the
retention of a high quality Board and executive team by remunerating Directors
AUSTAL LIMITED
2013
ANNUAL REPORT
73
CORPORATE GOVERNANCE STATEMENT
Continued
and key executives fairly and appropriately with reference to relevant employment
market conditions. The expected outcomes of the remuneration structure are:
retention and motivation of key executives
attraction of quality management to the company
Participation in the LTIP provides an incentive to the Directors and executives
which are aligned with increased returns to shareholders.
There is no scheme to provide retirement benefits to any director, other than
statutory superannuation contributions.
The company’s website www.austal.com has a dedicated investor relations
section for the purpose of publishing all important company information and
relevant announcements made to the market.
AUSTAL LIMITED
2013
ANNUAL REPORT
74
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF AUSTAL LIMITED
AUSTAL LIMITED
2013
ANNUAL REPORT
75
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF AUSTAL LIMITED
AUSTAL LIMITED
2013
ANNUAL REPORT
76
SHAREHOLDER INFORMATION
The following information was extracted from the Company’s register as at 23 August 2013.
DISTRIBUTION OF SHARES
Number of Holders
Number of Units
% of Total Issued
Capital
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
TOTAL
TWENTY LARGEST SHAREHOLDERS
Rank
Shareholder
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC Custody Nominees
J P Morgan Nominees Australia Limited
National Nominees Limited
Austro Pty Ltd
Longreach (WA) Pty Ltd
Citicorp Nominees Pty Ltd
Mr Vincent Michael O’Sullivan
Onyx (WA) Pty Ltd
Austal Group Management Share Plan Pty Ltd
RBC Investor Services Australia Nominees Pty Limited
Garry Heys & Dorothy Heys
QIC Limited
Mr William Robert Chambers
Lavinia Shipping Ltd
BNP Paribas Noms Pty Ltd
UBS Nominees Pty Ltd
Mossisberg Pty Ltd
Mirrabooka Investments Limited
Pepperwood Holdings Pty Ltd
Lujeta Pty Ltd
SUBSTANTIAL SHAREHOLDERS
Rank
Shareholder
1
2
3
4
5
6
HSBC Custody Nominees
J P Morgan Nominees Australia Limited
National Nominees Limited
Austro Pty Ltd (J Rothwell)
Longreach (WA) Pty Ltd (C Norman)
Citicorp Nominees Pty Ltd
Voting Rights
All ordinary shares issued by Austal Limited carry one vote per share without restriction
1,439
2,082
805
883
76
5,285
727,707
5,817,657
6,234,028
24,101,628
309,292,175
346,173,195
Total Units
63,903,464
50,322,109
43,992,038
32,200,745
26,595,621
24,582,926
12,758,872
9,817,570
4,351,113
2,874,887
2,844,670
2,727,487
2,645,650
2,355,000
2,325,415
2,010,088
1,883,945
1,500,000
1,415,737
1,295,812
0.21
1.68
1.80
6.96
89.35
100.00
% Issued Capital
18.46
14.54
12.71
9.30
7.68
7.10
3.69
2.84
1.26
0.83
0.82
0.79
0.76
0.68
0.67
0.58
0.54
0.43
0.41
0.37
292,403,149
84.46
No. of Ordinary Shares
63,903,464
50,322,109
43,992,038
32,200,745
26,595,621
24,582,926
AUSTAL LIMITED
2013
ANNUAL REPORT
77
CORPORATE DIRECTORY
DIRECTORS
Executive Directors
Andrew Bellamy
Non-Executive Directors
John Rothwell
Dario Amara
David Singleton
AUDITORS
Ernst & Young
The Ernst & Young Building
11 Mounts Bay Road
Perth 6000
Western Australia
COMPANY SECRETARY
Adrian Strang
REGISTERED OFFICE
100 Clarence Beach Rd
Henderson 6166
Western Australia
Telephone: +61 8 9410 1111
Facsimile: +61 8 9410 2564
SHARE REGISTRY
Advanced Share Registry Services
110 Stirling Highway
Nedlands 6009
Western Australia
Telephone: +61 8 9389 8033
Facsimile: +61 8 9389 7871
AUSTAL LIMITED
2013
ANNUAL REPORT
78