Austal Limite
A
ed
Appe
endix 4E for
the year end
ded 30 June
2014
30 June 2014. T
The previous cor
rresponding perio
od is 1 July 2012
3.
2 to 30 June 2013
1. The report
ting period is from
m 1 July 2013 to
2. Results fo
r announcement
t to the market.
2.5
2.6
2.1
2.2
2.3
2.4
inary activities
Re
evenue from ord
ordinary activities
rofit (loss) from o
Pr
period attributable
et profit for the p
Ne
ons
ividend distributio
D
ayable with respe
o dividends is pa
No
etermining entitle
ecord date for de
Re
ures in 2.1 to 2.4
xplanation of figu
Ex
ive income with n
t of comprehensi
3. Statement
ition with notes
t of financial pos
4. Statement
nd notes
t of cash flows an
5. Statement
equity
t of changes in e
6. Statement
ibution reinvestm
dividend or distri
7. Details of
tributions
dividends or dist
8. Details of
dinary security
ble assets per ord
9. Net tangib
/ share)
urrent period ($ /
Cu
onding period ($ /
revious correspo
Pr
r entities during t
ained or lost over
10. Control ga
associates and j
11. Details of
oint venture enti
on
nificant informatio
12. Other sign
d by foreign entit
g standards used
13. Accounting
ements of subsid
he financial state
Th
ting policies for t
onsistent accoun
co
The foreign entiti
arent company. T
pa
der accounting st
eir accounts und
th
ncial Reporting S
ternational Finan
In
9.1
9.2
14.2
ary on the result
14. Commenta
e
arnings per share
Ea
14.1
basic
urrent period – b
Cu
onding period – b
revious correspo
Pr
diluted
urrent period – d
Cu
onding period – d
revious correspo
Pr
olders including
eturns to shareh
Re
e declared with re
o dividends were
No
es of operating pe
ignificant feature
Si
14.3
egment results
Se
14.4
rends in perform
Tr
14.5
O
ther factors affec
14.6
15. Audit / rev
view of accounts
not audited or su
16. Accounts
ons of audit/revie
17. Qualificatio
ance
cting the results i
upon which this
ubject to review
ew
s after tax
e to members
ect to the year en
ements to the div
that may be req
notes
14.
nded 30 June 20
vidends
quired
ment plans
/ share)
he period
ties
ties
iaries are prepar
the same reportin
ies including Aus
tandards that are
Standards.
red using
ng period as the
e
stal USA prepare
e equivalent to
basic
diluted
distributions and
espect to the yea
erformance
d buy backs
ar ended 30 June
e 2014.
in period or futur
is based
re
up 24.8
down 1
down 1
8% to
1% to
2% to
$'000
$
$
$
1,122,863
31,859
31,548
rations within the
e Annual Report
o Review of Ope
o Annual Report
o Annual Report
o Annual Report
o Annual Report
N/A
Refer to
Refer to
Refer to
Refer to
Refer to
N/A
N/A
$
$
1.24
1.15
-
N/A
Refer to
o Annual Report
$
$
$
$
0.09
0.12
0.09
0.12
o Annual Report
o Annual Report
o Annual Report
o Annual Report
d accounts
Refer to
Refer to
Refer to
Refer to
Audited
N/A
No qua
lifications
AU
USTAL L
IMITED
2014
ANNUUAL REPPORT
HIEF EXECUTIVE OFFICER’S REPORT
Contents
Contents ..................................................................................................................................................................... 1
Index to the notes to the financial statements ............................................................................................................ 2
Chairman’s report ...................................................................................................................................................... 3
Chief Executive Officer’s report ................................................................................................................................. 5
Review of operations ................................................................................................................................................. 7
Directors’ report ......................................................................................................................................................... 9
Message from the Nomination and Remuneration Committee ................................................................................ 15
Remuneration report (audited) ................................................................................................................................. 16
Auditor independence and non-audit services ......................................................................................................... 28
Consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2014 ....... 29
Consolidated statement of financial position as at 30 June 2014 ............................................................................ 30
Consolidated statement of changes in equity for the year ended 30 June 2014 ..................................................... 31
Consolidated statement of cash flows for the year ended 30 June 2014 ................................................................ 32
Notes to the financial statements ............................................................................................................................. 33
Directors’ declaration ............................................................................................................................................... 90
Corporate governance statement ............................................................................................................................ 91
Independent audit report to the members of Austal Limited .................................................................................... 98
Shareholder information ......................................................................................................................................... 100
Corporate directory ................................................................................................................................................ 101
1 | AUSTAL LIMITED ANNUAL REPORT 2014
HIEF EXECU
UTIVE OFFICE
ER’S REPOR
RT
Index to
the notes
s to the f
financial s
statemen
nts
Basis of prep
paration .......
.....................
.....................
....................
.....................
.....................
....................
Note 1.
Note 2.
Corporate In
Basis of pre
nformation .....
paration ........
......................
......................
......................
......................
.....................
.....................
......................
......................
......................
......................
Current year
r performance
e ...................
.....................
....................
.....................
.....................
....................
Note 3.
Note 4.
Note 5.
Note 6.
Note 7.
Note 8.
Note 9.
Operating se
Revenue ....
Other incom
Earnings pe
Reconciliatio
Dividends pa
Income and
egments .......
.....................
me and expens
r share .........
on of net profit
aid and propo
other taxes ..
......................
......................
ses .................
......................
t after tax to n
sed ...............
......................
......................
......................
......................
......................
net cash flows
......................
......................
.....................
.....................
.....................
.....................
from operatio
.....................
.....................
......................
......................
......................
......................
ns .................
......................
......................
......................
......................
......................
......................
......................
......................
......................
Capital struc
cture .............
.....................
.....................
....................
.....................
.....................
....................
Note 10.
Note 11.
Note 12.
Note 13.
Cash and ca
Interest bea
Contributed
Government
ash equivalent
ring loans and
equity and res
t grants relatin
ts ...................
d borrowings ..
serves ...........
ng to assets ...
......................
......................
......................
......................
.....................
.....................
.....................
.....................
......................
......................
......................
......................
......................
......................
......................
......................
Working cap
pital ..............
.....................
.....................
....................
.....................
.....................
....................
Note 14.
Note 15.
Note 16.
Note 17.
Trade and o
Construction
Inventories a
Trade and o
other receivabl
n contracts in
and work in pr
other payables
les .................
progress .......
rogress ..........
s .....................
......................
......................
......................
......................
.....................
.....................
.....................
.....................
......................
......................
......................
......................
......................
......................
......................
......................
Infrastructur
re & other ass
sets ...............
.....................
....................
.....................
.....................
....................
Note 18.
Note 19.
Property, pla
Intangible as
ant and equipm
ssets .............
ment ..............
......................
......................
......................
.....................
.....................
......................
......................
......................
......................
Other liabiliti
ies ...............
.....................
.....................
....................
.....................
.....................
....................
Note 20.
Provisions ..
.....................
......................
......................
.....................
......................
......................
k manageme
ent .................
.....................
....................
.....................
.....................
....................
Fair value m
Financial ris
Derivative fin
measurements
k managemen
nancial instrum
.....................
nt ...................
ments and hed
......................
......................
dging ............
.....................
.....................
.....................
......................
......................
......................
......................
......................
......................
Unrecognise
ed items .......
.....................
.....................
....................
.....................
.....................
....................
Commitmen
Events after
nts and conting
r the balance d
gencies ..........
date ...............
......................
......................
.....................
.....................
......................
......................
......................
......................
management
t and related
parties .........
....................
.....................
.....................
....................
Parent intere
Related part
Key manage
Share based
Parent entity
Business co
ests in subsidi
ty disclosure .
ement personn
d payments ...
y ...................
ombinations ...
iaries .............
......................
nel compensa
......................
......................
......................
......................
......................
ation ...............
......................
......................
......................
.....................
.....................
.....................
.....................
.....................
.....................
......................
......................
......................
......................
......................
......................
......................
......................
......................
......................
......................
......................
Financial ris
Note 21.
Note 22.
Note 23.
Note 24.
Note 25.
The Group,
Note 26.
Note 27.
Note 28.
Note 29.
Note 30.
Note 31.
3
................ 33
3
................. 33
3
................. 33
9
................ 39
9
................. 39
3
................. 43
5
................. 45
7
................. 47
8
................. 48
8
................. 48
9
................. 49
3
................ 53
3
................. 53
4
................. 54
6
................. 56
7
................. 57
8
................ 58
8
................. 58
0
................. 60
0
................. 60
................. 61
2
................ 62
2
................. 62
5
................. 65
8
................ 68
8
................. 68
0
................ 70
0
................. 70
4
................. 74
9
................. 79
2
................ 82
2
................. 82
2
................. 82
3
................ 83
3
................. 83
3
................. 83
3
................. 83
4
................. 84
8
................. 88
9
................. 89
2 | AUSTAL
L LIMITED ANN
UAL REPORT 2
2014
HIEF EXECUTIVE OFFICER’S REPORT
Chairman’s report
It is my pleasure to present the 2014 Annual Report
to you on behalf of the Board of Austal Limited.
The past 12 months represented a year of solid
operational improvement and strengthening of the
balance sheet by generation of cash and repaying
of debt. In that time our Group:
Exceeded revenue guidance of $1 billion.
Concluded the sale of surplus assets in
Henderson and used proceeds to repay debt.
Maintained a strong focus on cash generation
also used to repay debt.
Made operational improvements at our US
shipyard, which translated into improved
shipbuilding margins and profit growth.
Confirmed funding for two more Littoral
Combat Ships under our existing contract with
the US Navy.
Secured new shipbuilding contracts with the
Royal Navy of Oman and the Abu Dhabi
National Oil Company.
Matured delivery of the US Navy and
Australian Customs contracts such that the
outlook is one of lower risk and more
predictable earnings.
Successfully delivered an 80 m high speed
ferry from the Philippines Shipyard Operation
and grew local capability.
Profitability grew Support activities following
the restructure and consolidation in FY2013.
The Chief Executive Officer, Andrew Bellamy, will
provide more detail in his report on the operational
achievements for the year, and the strategic
direction and outlook for Austal.
Financial results
Austal reported a net profit after tax of $31.859
million in FY2014, compared to $35.742 million
in FY2013. FY2014 earnings before interest,
tax, depreciation and amortisation were
$79.338 million for the year compared to
$62.575 million in FY2013. The improvement
in earnings was driven by stronger shipbuilding
margins in our US and Australian shipyards as
existing programs matured.
Revenue for the year grew by 24.8 per cent
from $899.491 million in FY2013 to
$1,122.863 million.
3 | AUSTAL LIMITED ANNUAL REPORT 2014
US operations was the largest contributor to
revenue, delivering $933.615 million
(FY2013: $747.739 million) and $61.682
million in earnings before interest and tax
(EBIT) (FY2013: $50.100 million) as Austal
continued to perform work on its major Littoral
Combat Ships (LCS) and Joint High Speed
Vessels (JHSV) contracts for the US Navy.
Australian operations delivered an improved
result as the Cape Class program matured
with $241.912 million in revenue (FY2013:
$144.058) and $16.684 million EBIT (FY2013:
$0.041 million).
Philippines Operation reported a $2.703 million
EBIT (FY2013: $5.020 million).
Group net debt was reduced to $68.579 million
(FY2013: $137.074 million) with proceeds from the
sale of surplus assets and cash generated from
operations being used to repay long term debt.
Reconciliation of EBITDA:
2014
$’000
2013
$’000
Profit before income tax
$
47,144
$
26,726
Finance costs
Finance income
EBIT
Depreciation
Amortisation
EBITDA
$
8,742
(321)
$
13,571
(2,231)
$
55,565
$
38,066
$
21,593
2,180
$
21,914
2,595
$
79,338
$
62,575
EBITDA is a non-IFRS measure. The information is
unaudited but is extracted from the audited financial
statements.
EBITDA is used by management to understand
cashflows within the group.
Board and senior management
Giles Everist joined the Board as an Independent
Director in November 2013 and brings extensive
financial experience to the team.
The senior management team has remained stable
during the year and the focus has been on
increasing the sustainability of the organisation.
Strategy and governance
The Board has been actively engaged in the
strategy development risk assessment process.
This has provided clear direction to senior
management about growth objectives. These
objectives are now incorporated into both short term
and long term incentive programs for executives.
The Group’s risk management framework has been
HIEF EXECUTIVE OFFICER’S REPORT
refreshed during the year at both a strategic and
corporate level. Both the Audit and Risk committee
and Remuneration committee have been involved in
that process to ensure that the necessary controls
and governance are in place.
Austal has the opportunity to leverage its intellectual
property in new markets and new opportunities to
expand the engineering services business.
Outlook
The significant steps we took to transform Austal in
the year have placed the Group in a stronger
position to deliver on our significant order book and
progress the operational improvements we have
made. The US Navy funded an additional
US$680 million of work in the 12 months, taking the
Group order book to $2.8 billion as at 30 June 2014.
This secures revenue through CY2018. With a
record amount of work in hand, our focus is to
deliver prudent cash management and continue to
drive operational improvements across our
businesses, with a near-term view to return
dividends to shareholders.
I would like to acknowledge our employees for their
loyalty and hard work during the year. The
achievements we made would not have been
possible without their professionalism and
dedication, and to shareholders, thank you for your
ongoing support of Austal during the year. I am
pleased that we have delivered on the operational
and financial performance to drive shareholder
value, and your Board will focus on continuing to
achieve this objective.
John Rothwell AO
Chairman
4 | AUSTAL LIMITED ANNUAL REPORT 2014
Chief Executive Officer’s report
Austal was able to sustain and build upon the
prior year’s significant operational improvements.
This translated into improved operating profit
before tax for the Group.
Financial summary
Year ended 30 June
2014
$’000
2013
$’000
Revenue*
$
1,122,863
$
899,491
EBIT
Net Interest (Expense) / Income
$
55,565
(8,421)
$
38,066
(11,340)
Operating Profit Before Tax
$
47,144
$
26,726
Tax (Expense)/Benefit
$
(15,285)
$
9,016
Operating Profit After Tax
$
31,859
$
35,742
% EBIT/Revenue
Basic Earnings Per Share ($ per share)
Net Assets
Return on Invested Capital (%)
$
$
4.9%
0.09
433,232
7.8%
$
$
4.2%
0.12
407,187
5.5%
*Excludes other income
Operational improvements
Management’s focus was to implement further
operational improvements to sustain and
enhance the turn-around in operating profit which
began in the prior year. Improving margins at our
state of the art shipyard in the US, where Austal
is contracted to construct Littoral Combat Ships
(LCS) and Joint High Speed Vessels (JHSV) for
the US Navy was the primary driver in improved
profitability for the Group. Both programs are
maturing well with the number of design changes
reducing and the workforce stabilising. Austal
delivered JHSV 3 to the US Navy and JHSV 4
was launched. LCS 4 was delivered and LCS 6
was launched. Construction of LCS 6, 8,10 and
12 progressed well. The award of two service
and support contracts for the US Navy is an
indicator of the future potential for service work.
Operational improvements at our Australian
shipyard delivered a profitable result after a
difficult few years, as production of the Cape
Class Patrol Boats (CCPB) matured. The $330
million contract progressed well with two vessels
delivered and a further six CCPB in production.
The design of two High Speed Support Vessels
(HSSV) for the Royal Navy of Oman is underway
following the contract award in March.
The Philippines shipyard delivered an 80m high
speed ferry to Tahiti and a further three wind
farm support vessels to the UK. A positive
financial result is pleasing as we continue to
invest in the development of capability in the
yard.
5 | AUSTAL LIMITED ANNUAL REPORT 2014
This year saw the establishment of a production
design team as well as small component
manufacture for Australian operations. The two
ferries contracted to the Abu Dhabi National Oil
Company (ADNOC) in April are being
constructed in the Philippines shipyard.
Consolidation of the Henderson Service base
into the Henderson shipyard yielded an improved
financial performance in the year. All three
business units are now generating income from
both shipbuilding contracts and from Service and
Systems activities.
Strategy
We made significant progress in implementing
the strategic plan, which included further
reducing gearing through a reduction in net debt
to strengthen the balance sheet. This was
achieved from the proceeds of the sale of the
surplus Henderson Service Base and from cash
generated by operations.
The order book grew to $2.8 billion following
appropriation of funds in line with US Navy
contracts. This secures work through 2018 with
two additional LCS funded in the year. The new
contract for two HSSV for the Royal Navy of
Oman is strategically significant because it is the
first example of the JHSV concept being adopted
in a new and important region. The ADNOC ferry
contract underlines our competitiveness with the
establishment of the Philippines shipyard.
Our strategy is clear for the year ahead. Austal
will strive to improve margins in the US through
operational efficiency. Australian Operations will
expand to deliver the Cape Class Patrol Boat and
HSSV contracts and continue to 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. The
Philippines shipyard will increase the supply of
small components within the Group to increase
the competitiveness of the Group as a whole.
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.
Future succ
improving o
production
manageme
sales, mark
spend to en
work. Thes
well positio
to generate
cess will be b
operating mar
efficiencies, a
ent. We will in
keting and res
nsure we mai
e measures w
ned to delive
e returns for s
built upon furt
rgins, implem
and prudent c
ncrementally
search and d
intain a stron
will ensure th
er its strategic
shareholders.
ther
menting
cash
increase our
evelopment
g pipeline of
hat Austal is
c objectives
Andrew Be
Executive D
llamy
Director and C
Chief Executi
ive Officer
Aremiti Ferry
2 – built in the Ph
hilippines
People
Our Values o
and Teamwo
tangible and
throughout t
of Excellence
ork have bee
d sustainable
he year.
e, Customer,
n the basis fo
business suc
Integrity
or many
ccesses
I’d like to tha
stakeholders
and loyalty.
ank all of our
s for their har
employees a
rd work, comm
nd other
mitment
We have con
developed g
presented op
grow and we
important ex
and experien
and more su
ntinued to inv
greater depth
pportunities f
e have augme
xternal recruit
nce. The org
ustainable as
vest in our pe
of talent. This
for many emp
ented this wit
ts to increase
ganisation is s
eople and
s has
ployees to
th some
our skills
stronger
a result.
Outlook
Austal is bet
book as a re
strengthenin
FY2014.
tter positioned
esult of improv
ng the Group’
d to deliver o
ved margins
s balance she
n the order
and
eet in
We will susta
and shipbuil
major contra
JHSV. We e
FY2015 as p
demonstrate
performance
sequestratio
new US Nav
contracts.
ain the opera
ding margins
acts for the US
expect furthe
per the contra
ed strong ong
e, low-cost LC
on. Austal is w
vy constructio
ational improv
s, delivering o
S Navy, the L
r LCS to be fu
act. The US N
going support
CS despite
well positione
on and vessel
vements
n our two
LCS and
unded in
Navy has
to the high
ed to win
l support
The translati
are directly i
exchange ra
translation w
the AUD. A
international
business.
operations
ion of profits
mpacted by t
ate. We could
with markets f
weaker AUD
l competitiven
from our US
the USD / AU
d see a benef
forecasting w
D also improve
ness of our A
UD
fit in profit
eakening of
es the
ustralian
We will cont
Australian op
remaining C
are well prep
the two HSS
opportunities
both domest
inue to impro
perations as
Cape Class Pa
pared for the
SV for Oman.
s exist to con
tic and export
ove productivi
production of
atrol Boats m
start of const
A good num
struct similar
t defence ma
ty in our
f the
atures. We
truction for
ber of
vessels for
arkets.
We will inves
Philippines O
commercial
established
Philippines.
successful s
Philippines a
st in developi
Operations w
contracts. Fo
a production
We will conti
supply of sma
across the Gr
ing capabilitie
hilst we pursu
or the first tim
design team
nue to build u
all component
roup.
es in the
ue new
me we have
in the
upon the
ts from the
Our Service
developed in
and Australia
grew in FY2
expected tha
of our busine
and Systems
n preparation
an defence v
014 and will c
at these prod
ess in the me
s products ha
for deployme
essels. This
continue to do
ucts become
edium term.
ave been
ent to US
activity
o so. It is
a core part
6 | AUSTAL
L LIMITED ANN
UAL REPORT 2
2014
program are being effectively incorporated into
subsequent vessels.
USNS Coronado (LCS 4), the US Navy’s fourth LCS
and second built by Austal USA and General
Dynamics, completed acceptance trials and was
delivered to the US Navy during FY2014.
USNS Jackson (LCS 6) – the first LCS being built by
Austal as the prime contractor under the 10-vessel
contract – was launched in January 2014 with
delivery scheduled to occur in FY2015. Construction
of LCS 8 and LCS 10 continued with the keel laying
for LCS 10 performed in April 2014.
Australian operations
Year ended 30 June
Revenue
EBIT
EBIT Margin
2014
$'M
2013
$'M
$
241.912
$
144.058
16.684
6.9%
0.041
0.0%
Austal’s Australian operations delivered a significant
increase in EBIT and EBIT margin in FY2014.
This result was driven by productivity gains and cost
optimisation achieved 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. The second Cape
Class Patrol Boat Cape Byron was delivered in May
2014 and there was a further increase in construction
activity on subsequent patrol boats, with all eight due
to be completed by August 2015.
The margin uplift was also driven by the consolidation
of Henderson based service and construction
activities into one shipyard which yielded a reduction
in overhead cost, increased asset utilisation and
increased labour efficiency. Service revenue was
underpinned by the docking of two Royal Australian
Navy Armidale Class Patrol Boats.
The transition of the Australian business into a
Defence organisation has necessitated and
supported a build-up of systems integration and
sustainment skills and capabilities.
The award of two 72 m HSSV for the Royal Navy of
Oman in March 2014 increased the order book for
Australia by $142M and extends contracted work until
the end of FY2016.
Review of 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
Year ended 30 June
Revenue
EBIT
EBIT Margin
2014
$'M
2013
$'M
$
933.615
$
747.739
61.682
6.6%
50.100
6.7%
Austal’s US operations continued to be the biggest
contributor to earnings.
Austal USA enhanced its contract management skills
as prime contractor and has delivered improved EBIT
margins from shipbuilding activities.
FY2014 was Austal USA’s first full year as a prime
contractor to the US Navy for both the LCS and JHSV
programs. The pass through revenue related to
systems integration which is undertaken by major
sub-contractors had a dilutive effect on EBIT margin
compared to the prior year.
Continued focus on skills development and
stabilisation of the workforce within the target range
of 4,100 – 4,200 has produced a tangible
improvement in labour productivity which transitions
Austal down the learning curve as the programs
progress.
Supply chain activities were focussed on
improvements to material planning and logistics,
reduced inventory levels, optimisation of economic
order quantities, and greater alignment with supplier
production schedules to realise material cost
reductions.
Management maintained a stringent focus on cash
management. Capital expenditure was restricted to
sustaining activities having completed a major period
of investment in FY2013.
Two more vessels were added to the order book after
funds for LCS 18 & 20 - the seventh and eighth LCS
under the US$3.5 billion contract – were appropriated
by Congress in March 2014. These projects added a
further US$680 million to the order book and secured
funding for the LCS program through until 2018.
There was significant progress in both the JHSV and
LCS programs during the year.
JHSV 3, USNS Millinocket was delivered in March
2014 after successfully completing acceptance trials
in January, JHSV 4, USNS Fall River was launched in
January and the keel of JHSV 5, USNS Trenton was
laid in March 2014. Productivity improvement
opportunities identified in the early stages of the
7 | AUSTAL LIMITED ANNUAL REPORT 2014
Philippines operations
107.0
65.8
60.1
38.9
17.8
14.3
16.0
19.7
21.7
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Medical Treatment Injury Frequency Rate
(per million hours worked)
6.35
6.05
5.90
5.38
3.92
3.90
2.20
2.30
2.30
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Lost Time Injury Frequency Rate
(per million hours worked)
Occupational health and safety policy
Austal’s perpetual focus and leadership on safe
people, safe practices and safe work environments is
effective in promoting a culture that raises awareness
of individual responsibility for safety and health and it
instils safety as an accepted workplace practice and
the way we do business.
Year ended 30 June
Revenue
EBIT
EBIT Margin
2014
$'M
2013
$'M
$
33.767
$
39.986
2.703
8.0%
5.020
12.6%
The Philippines Operations successfully completed
the construction of an 80 metre commercial vehicle /
passenger ferry which was delivered to Tahiti in the
second quarter of FY2014 and also completed the
construction of three wind farm vessels for operation
in Europe.
The year on year fall in revenue and EBIT was
caused by the reduction in activities following the
completion of the 80 metre ferry. Throughput is
expected to pick up again in FY2015 after the award
of two 48 m crew transfer vessels for delivery to
ADNOC.
The award of the two vessels added US$27.8M to the
Philippines Order book and provides contracted work
through FY2015.
The Philippines Operations entered the Service
market in FY2014 by supporting the docking of Austal
vessels in Europe and Asia.
The Philippines Operations are playing a pivotal role
in cost optimisation of manufacturing activities within
the Group by supplying sub-assemblies and
components to Australia.
The capital investment program to establish the
footprint for infrastructure required to construct larger
vessels (80 – 130 m in length) was completed on
schedule.
The Group continues to focus on capability
development with the objective of the Philippines
becoming self-sustaining. The two key areas of focus
are on production / project management and the
establishment of a Philippines based design team.
Safety performance
Our goal of ZERO Harm means no injuries to anyone,
ever and whilst the target is aspirational, it remains a
target to strive for.
Safety performance in Austal’s Australian Operations
was particularly pleasing in FY2014 with zero lost
time injuries (LTIs) incurred whilst labour hours
exceeded 1 million hours. Australia received 13
Industrial Foundation for Accident Prevention awards
and attained a Gold level Safe Way achiever award
for the 4th consecutive year.
Austal reports safety performance in accordance with
AS1885.1.
8 | AUSTAL LIMITED ANNUAL REPORT 2014
Directors’ report
The Board of Directors of Austal Limited submit their report for the year ended 30 June 2014.
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.
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. He is the
architect responsible for the establishment of Austal and was the Founding
Managing Director. John identified markets for high speed ferries throughout Asia
which resulted in Austal’s rapid growth. In 1998 he saw the potential for US
Defence contracts for high speed aluminium naval ships and he led the formation of
a new shipyard in Mobile, Alabama.
John was appointed an Officer of the Order of Australia (AO) in January 2004 for
services to the Australian shipbuilding industry, and for significant contributions to
vocational education and training. He was named “Australian Entrepreneur of the
Year” by Ernst and Young in 2002 and he was awarded the WA Citizen of the Year
in the category of Industry and Commerce in 1999.
John stepped down as Executive Chairman and Chief Executive Officer on 22 August 2008 to continue as
Non-Executive Chairman after managing the Company for 20 years.
Dario Amara – Independent Director
Dario is a construction and engineering executive with extensive industry experience
and networks gained over 33 plus years in the Australian and international markets,
spanning the infrastructure, industrial and property sectors.
He has successfully operated as a CEO for over 16 years with John Holland Asia
Limited, GRDMINPROC Limited (now of part AMEC plc), Emerson Stewart Group
Limited which he founded and listed on the ASX within 30 months of launching and
more recently as CEO of the POSCO-BGC E&C Joint Venture, an initiative to capture
billion dollar plus resources projects.
Concurrent with his executive leadership roles he has successfully served as a Project
Director or as Project Board Chairman on large and complex projects delivered by a
variety of commercial models.
In addition Dario has served on several arts and cultural boards as Chairman on a pro bono basis for over 22
years and currently serves on the Murdoch University Art Collection Board.
He is a Civil Engineer with a Bachelor of Engineering (Distinction), a Fellow of the Institution of Engineers
Australia, a Chartered Professional Engineer, on the National Professional Engineers Register and a Registered
Building Practitioner and Contractor (Western Australia.)
9 | AUSTAL LIMITED ANNUAL REPORT 2014
David Singleton – Independent Director
David brings a wealth of highly relevant business expertise and experience to Austal
in both the defence and manufacturing and product support 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, naval command and control training systems and long term 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.
David was appointed to the Board of Directors of Austal Limited on 21 December 2011.
Giles Everist – Independent Director
Giles has a breadth of experience with project and service based businesses gained
over more than 25 years, working internationally in Australia, UK and Africa, largely in
the resources, engineering and construction industries.
Giles was appointed as Non-Executive Director in November 2013. Giles is a
qualified chartered accountant and was formerly the Chief Financial Officer and
Company Secretary of Monadelphous Group Limited between 2003 and 2009. He has
held senior financial executive roles with Rio Tinto in the United Kingdom and
Australia, as well as major US design engineering Group Fluor Corp during his career.
Giles is currently a Non-Executive Director of Decmil Group Limited, LogiCamms Ltd
and Macmahon Holdings Limited.
10 | AUSTAL LIMITED ANNUAL REPORT 2014
Andrew Bellamy BSc (Hons) Material Science, MA (Marketing) – Chief Executive
Officer
Mr Bellamy commenced as CEO in February 2011 and has been instrumental in
Austal’s emergence as a global defence prime contractor. Mr Bellamy is responsible
for the Group’s worldwide operations and is a member of the Board of Austal Limited
and the Board of Austal USA.
As CEO, Mr Bellamy has overseen the successful expansion of Austal’s largest
shipyard in Mobile, Alabama, and developed and implemented strategies to ensure the
efficient delivery of the Group’s multi-billion defence contracts for the US Navy – the
Littoral Combat Ship and Joint High Speed Vessels.
Under Mr Bellamy’s leadership, Austal has successfully transitioned its Henderson,
Western Australia shipyard away from commercial vessels to defence vessels, which
has included the award of contracts such as the Cape Class Patrol Boat program for the Australian Government
and high speed defence vessels for a naval customer in the Middle-East. He has also overseen the growth of
Austal’s commercial vessel shipyard in the Philippines into a profitable operation and the positioning of Austal’s
global service footprint.
Separately, Mr Bellamy has taken steps to strengthen Austal’s balance sheet, including a reduction in the Group’s
debt and a focus on capital management across the business. This has provided Austal with the capacity to
successfully and profitably deliver on its existing vessel programs and the ability to win additional work.
Mr Bellamy joined Austal in September 2008 as Head of Global Sales and Marketing. In this role, Mr Bellamy had
responsibility for the Sales and Marketing function across all Austal’s international businesses, including the
strategically significant US operations. In 2010, Mr Bellamy 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.
Previously, Mr Bellamy held senior positions within the Oil and Gas industry with Honeywell and ICI in North
America, Europe, Middle East and Asia.
Mr Bellamy holds a BSc (Hons) in Materials Science from the University of Sunderland and an MA (Marketing)
from the University of Lincoln and Humberside.
JHSV 4
11 | AUSTAL LIMITED ANNUAL REPORT 2014
Interests in the shares and options of the company and related bodies corporate
The interests of the directors in the shares of Austal Limited at the date of this report were as follows:
Director
Ordinary Shares
John Rothwell
Dario Amara
David Singleton
Andrew Bellamy
Giles Everist
32,200,745
50,000
28,600
566,928
50,000
Number
Options^
Performance
Rights^^
-
-
-
280,000
-
-
-
-
287,313
-
^This represents options granted from the Employee Option Share Plan (ESOP) (refer to Note 29 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.
^^This represents performance rights granted from the Long Term Incentive Plan (LTIP). (Refer to Note 29 of the
financial statements)
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 net profit after tax of the consolidated entity for the financial year was $31.859 million after income tax
(FY2013: $35.742 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 7.
Dividends
No dividend has been declared for FY2014 (FY2013: Nil).
Significant events after the balance date
The Group announced the completion of the sale of Hull 270 (102 m stock vessel) on 20 August 2014 for $61.500
million.
Likely developments and future results
A general discussion of the Group outlook is included in the Chairman’s Report on page 3 and the Review of
Operations on page 7.
Significant changes in the state of the affairs
There were no significant changes to structure or operations of the Group during the financial year.
12 | AUSTAL LIMITED ANNUAL REPORT 2014
Environmental regulation and performance
The Group 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 2014.
Share options and performance rights
There were 9,392,329 un-issued ordinary shares under options and 1,049,022 un-vested performance rights at the
date of this report. Refer to Note 29 for further details of the options outstanding. There were no options
exercised or performance rights that had vested during the year.
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.
The parent entity has paid premiums during the financial year in respect of a contract insuring the Directors and
officers of the Group in respect of liability resulting from these indemnities. The terms of the insurance
arrangements and premiums payable are subject to a confidentiality clause.
Indemnification of auditors
To the extent permitted by law, the parent entity has agreed to indemnify its auditors, Ernst & Young, as part of the
terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified
amount). No payment has been made to indemnify Ernst & Young during or since the financial year.
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:
Meeting
Nomination &
Austal Limted
Audit & Risk
Remuneration
Board
Committee
Committee
Number of meetings held
8
4
2
Number of meetings attended:
John Rothwell
Dario Amara
David Singleton
Giles Everist *
8
-
2
8
4
-
6
3
2
3
2
2
Andrew Bellamy **
8
4
2
* Giles Everist joined the board in November 2013 and both subcommittees in January 2014. Three Board meetings, two Audit & Risk Committee
meetings and two Nomination & Remuneration Committee meetings were held after that date.
** Andrew Bellamy attended all Audit & Risk and Nomination & Remuneration committee meetings as a guest of each committee.
13 | AUSTAL LIMITED ANNUAL REPORT 2014
Committee membership
The Company has an Audit and Risk 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 and Risk
Dario Amara^
Giles Everist
David Singleton
Nomination and Remuneration
David Singleton^
Giles Everist
John 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.
14 | AUSTAL LIMITED ANNUAL REPORT 2014
Message
e from the
e Nomina
ation and
Remune
eration Co
e
ommittee
Dear Shareh
holders,
The achieve
people throu
this success
ements over t
ughout the Gr
s.
he past year
roup. The lea
would not ha
adership show
ave been poss
wn by our CE
sible without
EO and his ex
the hard work
xecutive team
k and dedicat
m has been ins
tion of our
strumental to
Fundamenta
entire busine
an important
and provide
al to our on-go
ess through t
t part. Our re
long term su
oing success
he implemen
emuneration p
stainable retu
is our ability
tation of a co
policy and pra
urns to share
to attract, rew
omprehensive
actices need
holders.
ward and reta
e human capit
to be sensitiv
ain talented in
tal strategy, o
ve to the need
ndividuals ac
of which remu
d to preserve
ross our
uneration is
e our capital
We seek to t
groups, our
As a global G
the major jur
however it is
of our busine
take a leader
executives an
Group, we ha
risdictions in
s the ultimate
ess.
rship position
nd other stak
ave also cons
which we ope
responsibility
in this import
eholders to e
sidered remun
erate, includin
y of the Board
tant area of g
ensure that we
neration guide
ng the USA, w
d to ensure th
governance.
e get the bala
elines, regula
where a num
hat the remun
We have eng
ance right in a
ations, laws a
ber of our key
neration arran
gaged with sh
arriving at ou
and market pr
y personnel a
ngements me
hareholder
r approach.
ractices in all
are located,
eet the needs
We recognis
shareholder
se that there i
communicat
is always roo
ion in genera
m for improve
al and our disc
ement and on
closures in ou
ne of our area
ur Annual Re
as of focus th
port in particu
his year has b
ular.
been on
It is with plea
concise. I lo
future.
asure that we
ook forward t
e set out belo
to engaging w
w our FY201
with you at ou
4 Remunerat
ur Annual Gen
tion Report. W
neral Meeting
We hope that
g or other suc
you find it bo
ch opportunity
oth clear and
y in the
Yours sincer
rely
David Single
Chairman, N
eton
Nomination an
nd Remunera
ation Committ
tee
JHSV 3 & LCS
4
15 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
Remuneration report (audited)
This Remuneration Report for the year ended 30 June 2014 outlines the remuneration arrangements of the
Company and the Group in accordance with the requirements of the Corporations Act 2001 (the Act) and its
regulations. This information has been audited as required by section 308(3C) of the Act.
The remuneration report is presented under the following sections:
1. Key Management Personnel (KMP)
2. Relationship between remuneration and Austal Limited’s performance
3. Remuneration governance
4. Executive remuneration
5. Remuneration Structure
6. Board composition
7. Non-executive Director remuneration
8. Remuneration of key management personnel
9. Details of contractual provisions for KMP
10. Options granted or vested during the period
11. Performance rights granted or vested during the period
12. Shares granted or vested during the period
13. Equity instruments held by KMP
14. Loans to KMP
15. Other transactions with KMP
1. Key Management Personnel (KMP)
This report covers all KMP as defined in Accounting Standards, including all Directors, as well as those Executives
who have specific responsibility for planning, directing, and controlling material activities of the Group.
KMP for the year ended 30 June 2014 were as follows:
Executives
Non-executive Directors
Executive directors
Mr Andrew Bellamy
Chief Executive Officer
Executives with no Director duties
Mr Graham Backhouse President Australia
Mr Greg Jason
Mr Brian Leathers
Mr Craig Perciavalle
Mr Joselito Turano
Group Chief Financial Officer
Chief Financial Officer USA
President USA
President Philippines
Mr John Rothwell
Mr Dario Amara
Mr Giles Everist (1)
Mr David Singleton
Non-Executive Chairman
Independent Director
Independent Director
Independent Director
(1) Mr Giles Everist joined the Board of Directors in November 2013.
2. Relationship between remuneration and Austal Limited’s performance
Our long-term remuneration framework is linked to a number of internal and external performance measures which
when achieved provide direct benefits to the shareholders through increased returns.
Two key performance measures we use are:
Total Shareholder Return (TSR) (the capital growth in the value of our share plus dividend paid). We use
absolute return as opposed to a relative return due to the lack of a comparable peer group; and
Return on Capital Invested (ROIC) (Net operating profit after tax exclusive of abnormal items / Net Assets
(excluding Cash, Debt, Derivatives and Tax Accounts). Actual ROIC results are compared against internal
targets).
The current Austal Long Term Incentive Plan was established in CY2013. (Refer to Note 29)
16 | AUSTAL LIMITED ANNUAL REPORT 2014
A summary of the TSR and ROIC metrics over the past three years is set out below as an indication of
performance, noting that the actual metrics will be calculated in line with the rules of the plan at vesting date.
Total Shareholder Returns
Return on Invested Capital
71.8%
7.8%
5.5%
3.0%
FY12
FY13
FY14
FY12
FY13
FY14
(39.8%)
(38.2%)
Group Performance
The graph below shows share price performance compared to the earnings per share (EPS) over time.
EPS (cents per
share)
18
16
14
12
10
8
6
4
2
0
Annual Average
Share Price
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
FY10
FY11
FY12
FY13
FY14
Basic EPS
Annual Average Share Price
3. Remuneration governance
Independence of the Nomination and Remuneration Committee
The foundation of the Group’s remuneration governance structure is the independence and competence of the
Nomination and Remuneration Committee (NRC).
The NRC Charter provides that a majority of members of the NRC are independent. For the year ended
30 June 2014 the members of the NRC were David Singleton (Independent Chairman) and Giles Everist
(Independent Director) and John Rothwell.
As representatives of shareholders, the independence of the NRC is important as it underscores the impartiality in
making its recommendations to the Board on remuneration matters. The remuneration report for 30 June 2013
was approved at the 2013 Annual General Meeting.
Use of Independent Remuneration Consultants
The NRC has the ability to engage the services of an Independent Remuneration Consultant. They also have the
ability to engage legal counsel, where needed.
The NRC engaged a Remuneration Consultant for the year ended 30 June 2014 to assist with the improvements
in remuneration reporting. The Remuneration Consultant was not engaged to provide recommendations in relation
to KMP remuneration.
17 | AUSTAL LIMITED ANNUAL REPORT 2014
Share Trading Policy
All equity based remuneration awards granted pursuant to the Group’s policy are subject to the Group’s Share
Trading Policy, details of which can be found on our website.
In particular, there is a prohibition on employees entering into contracts to hedge their exposure to the share price
movement of the Group.
4. Executive remuneration
Remuneration Framework
The Group is committed to responsible remuneration practices. The need to reward the Group’s employees fairly
and competitively based on performance needs to be balanced with the requirement to do so within the context of
principled behaviour and action, particular in the area of safety, risk, compliance and control.
Remuneration should contribute to the Group’s achievements in a way that supports the Group’s culture and
goals. The Remuneration Policy Framework set out below summarises the key features of the Group’s
remuneration approach.
Our Vision:
Maintain a responsible, performance-based Remuneration Policy that is aligned with the long-term interests of our shareholders.
Our Goal:
Strike the right balance between meeting shareholders expectations, paying our employees competitively, and responding appropriately to the regulatory environment.
Our Approach:
Governance
Performance Alignment
Individual Remuneration
Determination
Remuneration Structure
and Instruments
Principles:
Principles:
Principles:
Principles:
• Clearly defined and documented
governance procedure
• Independent Remuneration Committee
• Independent Remuneration Consultant
• Annual assessment of Remuneration
Policy
• Reward Group annual performance
measured relative to its planned key
performance indicators
• Business performance aligned
• Recognize and reward teamwork and
development of the culture of the
organisation
• Total Remuneration based approach
• Facilitate competitiveness by paying
competitive remuneration levels for
comparable roles and experience, subject
to performance
• Promote meritocracy by recognizing
individual performance, with a particular
emphasis on contribution, ethics and safety
• Award and differentiate based on
individual performance and contributions.
• Equal remuneration opportunity
• Provide the appropriate balance of fixed
and variable remuneration consistent with
the position and role in the Group
• Significant portion of variable
remuneration deferred and aligned with the
long-term performance of the Group
• Promote ethical behaviour and do not
create incentives to expose the Group to
inappropriate risk
5. Remuneration structure
The mix of Fixed and Variable Remuneration (short term and long term) is designed to ensure the retention of
individuals over the longer term and to ensure that there is adequate consideration of risk in the remuneration
decisions.
Fixed remuneration
The level of fixed remuneration, which is most commonly paid in the form of base salary, is set based on the role
and experience of the individual, his or her individual sustained long-term performance, and market positioning.
Variable remuneration
The level of variable remuneration (which includes short term and long term incentives) granted is entirely at the
discretion of the Board and in the case of substandard performance can be zero.
In addition, a portion of variable remuneration (usually in the form of Long Term Incentive (LTI)) is deferred and is
typically subject to forfeiture in the event of certain specific performance targets not being met, or in the case of
resignation or detrimental activities by employees.
18 | AUSTAL LIMITED ANNUAL REPORT 2014
Remuneration peer group
From time to time the Group will undertake a detailed review of its remuneration structures and amounts and as
part of that review will benchmark against comparable companies. The criteria for selecting the peer Group
include: market capitalization, industry segment and location of operations.
Remuneration structure
The target mix of remuneration for KMP is set out below:
LTI 13%
STI 17%
Fixed 70%
It is important to note that these remuneration structures are targets only. They do not set out any entitlements to
employees or commitments by the Group. The mix of percentages will change in cases where targeted variable
remuneration amounts are not paid in full.
Fixed remuneration
The fixed remuneration of the CEO is made up of two components:
Cash – 77%
Shares – 23%
The 77% cash element is paid through payroll in the usual manner and 23% of the CEO’s remuneration is made in
shares which are subject to an 18 month holding period from the date at which the shares are released to the CEO
and no performance condition exists as it is considered part of his base remuneration. Only the cash component is
considered for the purpose of calculating variable compensation potential. The variable compensation does
include a performance condition.
The Board is recommending that the issue of shares, which form part of the CEO’s base salary, will be made in 2
equal instalments through the year immediately after the publication of the interim and full year accounts. The
number of shares to be issued will be calculated based on the 6 month volume weighted average price (VWAP) of
the shares immediately preceding the issue. The Board considers that this best reflects the intention of paying a
proportion of the CEO’s salary as shares but avoids the administrative issues of issuing monthly as is the case for
the cash component. This arrangement is subject to shareholder approval at the 2014 Annual General Meeting.
The CEO’s salary was reviewed in line with a peer group of listed ‘industrial’ companies some of which are
included within the ASX 300.
The Board considered the complexity of Austal’s business, given its geographic diversity having major
opportunities in Australia, USA and Philippines, and the complexity of defence contracting across the globe
when determining the peer Group comparison data.
19 | AUSTAL LIMITED ANNUAL REPORT 2014
The peer group was selectively compiled from companies within or just below the ASX 300. The peer Group
excludes ASX 100 companies which are deemed to be considerably larger in scale for comparison purposes.
The focus was on companies that are manufacturing industrial goods, and / or industrial businesses with a
contract delivery model for their products/services or selling into international markets (like Austal).
Exclusions have primarily extended to resources, oil & gas, financial services, property, investment funds,
consumer goods, technology, healthcare or energy/infrastructure companies for comparison purposes.
Some Perth companies that sit outside the definitions above were included where the market capitalisation
was close to that of Austal at the time of compilation for local market comparison purposes.
Perth listed companies of comparable scale are heavily weighted toward mining services or construction
based business which has historically attracted a salary premium.
The data was extracted from FY2013 and is therefore dated 12 months. There has been a significant
slowdown for many of these businesses over the past 12 months and it is expected that the bonus
components awarded to executives will reflect this.
The average and median remuneration data from the peer group is summarised below. The Board is satisfied that
the CEO’s remuneration is market competitive having completed the review.
Peer group data:
Metric
Salary including
Superannuation
Short Term
Incentive
Long Term
Incentive
Total
Remuneration
Average
$
1,004,480
$
352,520
$
329,560
$
1,686,560
Median
$
933,000
$
210,000
$
273,000
$
1,416,000
Fixed remuneration for KMPs being cash and shares for the CEO and cash for other KMPs is targeted at the 50th
percentile of peer group base salaries for comparable positions. In cases where an individual has critical
proprietary knowledge or specific and relevant industry experience, base salary may exceed the 50th percentile of
peer group, this is particularly the case with regard to high performers.
Variable remuneration - Short Term Incentive program (STI)
All KMPs are eligible to participate in the Group’s Short Term Incentive program.
STI is designed to support the Group’s overall strategy by:
focusing participants on achieving financial year performance goals which contribute to sustainable
shareholder value;
providing a significant incentive based on individual performance measured against challenging targets to
motivate key employees; and
providing clear correlation between key performance measures that influence business outcomes and the
employee’s ability to influence those measures.
The Group uses a range of qualitative and quantitative performance measures to set goals and assess the
performance of individuals. These performance measures are specific to each individual’s area of responsibility
and include both financial and non-financial measures, such as ethics, health and safety.
The Board reviews and approves performance targets and objectives annually for the CEO and executive
management team. Performance targets relate to key business objectives that must be delivered during the
current financial year.
Each performance objective may contain multiple targets and initiatives to provide specific milestones for
measurement.
The performance objective/s as a part of the STI program are designed to focus employees on adding shareholder
value and may be a mixture of financial and non-financial objectives. The objectives will be relative to the most
desirable outcomes identified by the CEO.
Financial objectives are to account for a minimum of 50% of the STI objectives and will relate to Board approved
budget targets.
20 | AUSTAL LIMITED ANNUAL REPORT 2014
When non‐financial performance objectives are used, they will relate to strategic performance such as safety,
customer satisfaction, operational improvement, business growth and employee relations. When used, the
weighting allocated to each of the non‐financial objectives will likely be dependent upon the employee’s job size
and role focus.
Performance relative to financial and individual targets set during the annual budget process provides the basis for
determining payments made for at‐risk remuneration.
STI awards for KMP are generally between 20% and 50% of total fixed cash remuneration and are paid in cash as
soon as possible after the performance criteria has been measured and validated and after the Board has
approved the recommended amounts.
The FY2014 STI for the CEO was solely focussed on EBIT and the Board has elected to adopt a balanced
scorecard approach for assessing the CEO’s performance with respect to the STI plan for FY2015.
Details of STI awards accrued for KMP for the year ended 30 June 2014 are set out below.
Name
Position
Andrew Bellamy
CEO
Graham Backhouse
President - Australia
Greg Jason
Brian Leathers
Craig Perciavalle
Joey Turano
Group CFO
CFO - USA
President - USA
President - Philippines
* Maximum
STI Award
50%
30%
30%
30%
40%
30%
* Accrued
* Unawarded
STI
33%
28%
20%
10%
13%
20%
STI
17%
2%
10%
20%
27%
10%
*Represents percentage of total fixed cash remuneration.
Vested benefits will be paid in the following financial year.
The Board has the discretion not to grant STI performance awards in the event of substandard Group
performance, notwithstanding that individuals may have achieved their agreed performance targets.
Variable remuneration - Long Term Incentive plan
The Group’s Long Term Incentive (LTI) plan is a key element of the Group’s remuneration strategy which is
designed to retain and rewards executives over the long term. LTI awards are granted purely at the discretion of
the Board, based on the performance of the CEO and other KMP.
The objectives of the LTI plan are to:
align key employee behaviour toward the growth and profitability objectives of the Group and reward key
employees for sustained contributions to business success; and
attract and retain exceptional employees that have the capacity to significantly impact the growth and
profitability of the Group
LTI awards amounts are typically up to 50% of fixed cash remuneration (effective from the start of the financial
year) and are in the form of Performance Rights, which convert at zero cost to the employee, on a one for one
basis to actual shares in the Company subject to meeting the vesting conditions.
The LTI awards are based on 3-year performance period. Performance periods typically start at 1 July and end at
the completion of the third fiscal year other than for a transition period of two years which bridges a gap between
the old scheme and the new scheme.
The Performance Rights vest at the end of the performance period, subject to meeting the performance hurdles
and continued service with the Group at the time of vesting.
The Board decided to suspend the LTI plan for FY2012, and no awards were granted during the year in light of the
concerns raised by shareholders through the vote at the 2012 Annual General Meeting regarding the
Remuneration Report and remuneration of KMP. This was despite the LTI plan being approved by shareholders at
the 2012 Annual General Meeting.
21 | AUSTAL LIMITED ANNUAL REPORT 2014
The diagram below illustrates the granting, performance period and holding period of LTI awards through the
transition period to the new scheme.
First transition year
Grant
30 June 2014
30 June 2015
30 June 2016
30 June 2017
2 Year Performance Period
50% Vesting
Holding Period
Minimum One Year
3 Year Performance Period
50% Vesting
Holding Period
Minimum One Year
Second transition year
Grant
30 June 2015
30 June 2016
30 June 2017
30 June 2018
2 Year Performance Period
25% Vesting
Holding Period
Minimum One Year
3 Year Performance Period
75% Vesting
Holding Period
Minimum One Year
Third transition year
Grant
30 June 2016
30 June 2017
30 June 2018
30 June 2019
3 Year Performance Period
100% Vesting
Holding Period
Minimum One Year
The vesting criteria for awards is linked to the tenure of the individual and Group level quantitative absolute
performance measures.
The Group has selected absolute Total Shareholder Return (TSR) and Return on Invested Capital (ROIC) as the
most appropriate performance measures to assess executive performance because the Board believes that these
performance measures perfectly align the incentives with the objectives of shareholders.
The Performance Rights vest subject to the terms of the plan. An example of performance targets is set out below.
Performance Measure
Percentage of award
Thresholds
Percentage vesting
Total Shareholder Return
30%
Return on Invested Capital
70%
<= 15%
15% - 25%
>=25%
Zero
Pro-rated on linear basis
30%
<= 6%
6% - 10%
>=10%
Zero
Pro-rated on linear basis
70%
6. Board composition
The Nomination and Remuneration sub-committee has undertaken a review of the structure, size and composition
of the Board through an investor survey and other inputs from independent advisors during the year. As a result,
the sub-committee has recommended that the current practice of maintaining 3 independent non-executive
directors should remain. The process to ensure that the skills at Board level are appropriate to the business needs
has continued with the appointment of Giles Everist. The sub-committee also undertook an annual review of the
position of Chairman at Austal in part because he is now aged over 70 years. The Board (excluding the
Chairman) unanimously agreed that the Chairman’s intimate knowledge of the shipbuilding industry, of Austal and
its major customers, together with his demonstrated high level of commitment, meant that he remains a significant
asset to the Group and he was requested to remain as Chairman, to which he has agreed.
22 | AUSTAL LIMITED ANNUAL REPORT 2014
7. Non-Executive Director remuneration
The remuneration of Non-Executive Directors is determined by other executive members of the Board in
accordance with the Group’s Nomination and Remuneration Committee Charter, which also provides that no
Director or Manager shall be involved in any decisions as to his or her own remuneration.
Non-Executive Directors receive only fixed remuneration, typically in the form of cash, non-cash benefits and
superannuation contributions. Fees may also be paid in the form of equity in the Group.
The remuneration pool limit for Non-Executive Directors is set at $3 million.
The Directors agreed that the Chairman would reduce his time commitment to the Group from 1 January 2014 with
a corresponding pro rata reduction to his remuneration.
The Group proposes a review of Non-Executive Director remuneration for the year ending 30 June 2015.
23 | AUSTAL LIMITED ANNUAL REPORT 2014
8. Remuneration of key management personnel
Year ended 30 June 2014
Short-Term Benefits
Salary &
Fees
Cash
Bonus*
Other
Monetary
Benefits
Non
Monetary
Benefits
Post
Employment
Benefits
Super-
annuation /
Social
Security
Long-Term
Benefits
Share
Based
Payments
%
Employee
Leave
Termination
Benefits
Equity
Settled
Total
Performance
Related
% Options
Non-executive directors
John Rothwell
Dario Amara
David Singleton
Giles Everist (1)
Executive directors
$ 318,182 $ - $ - $ -
$ -
$ -
$ -
$ -
$ 318,182
-
-
93,000 - - -
-
-
-
-
93,000
-
-
95,000 - - -
-
-
-
-
95,000
-
-
55,833 - - -
-
-
-
-
55,833
-
-
Andrew Bellamy
782,753 263,040 - -
17,774
13,297
-
328,027
1,404,891
18.7
-
Other key management personnel
Joey Turano
226,151 27,421 7,877 -
853
-
-
5,388
267,690
10.2
-
Graham Backhouse
268,373 86,427 - -
25,460
7,059
-
6,288
393,607
22.0
-
Craig Perciavalle
430,591 54,972 14,021 -
28,764
-
-
30,250
558,598
9.8
-
Greg Jason
Brian Leathers
308,822 75,840 - -
17,774
7,332
-
45,819
455,587
16.6
-
298,379 44,454 3,370 -
24,421
-
-
26,714
397,338
11.2
-
$ 2,877,084 $ 552,154 $ 25,268 $ -
$ 115,046 $ 27,688 $ -
$ 442,486
$ 4,039,726
(*) Represents the amount accrued for but not paid by the group for services performed in FY14.
(1) Giles Everist joined the Board of Directors in November 2013
Year ended 30 June 2013
Non-executive directors
Short-Term Benefits
Other
Monetary
Benefits
Cash
Bonus**
Non
Monetary
Benefits
Salary &
Fees
Post
Employment
Benefits
Long-Term
Benefits
Share
Based
Payments
Super-
annuation
Employee
Leave
Termination
Benefits
Equity
Settled
Total
%
Performance
Related
% Options
John Rothwell (1)
$ 363,636 $ - $ - $ -
$ -
$ -
$ -
$ -
$ 363,636
-
-
John Poynton (1)(2)
90,000 - - -
-
-
-
-
90,000
-
-
Dario Amara
David Singleton
Executive directors
93,000 - - -
-
-
-
-
93,000
-
-
85,000 - - -
-
-
-
-
85,000
-
-
Andrew Bellamy
750,405 76,690 175,342 -
19,595
-
-
150,590
1,172,622
14.0
14.0
Michael Atkinson (3)
327,750 - - -
-
-
-
60,337
388,087
15.5
15.5
Other key management personnel
Joey Turano (4)
108,251 - 2,027 10,246
-
-
-
-
120,524
-
-
Graham Backhouse (5)
130,264 9,663 - -
11,724
-
-
-
151,651
-
-
Craig Perciavalle (6)
332,024 - 17,296 -
-
-
-
40,444
389,764
10.4
10.4
Greg Jason(7)
Brian Leathers
295,263 12,485 - 1,119
18,330
-
74,594
401,791
19.2
19.2
330,331 - 6,084 -
-
-
-
39,336
375,751
10.5
10.5
Richard Simons (8)
124,949 - - -
16,424
-
332,647
(123,048)
350,972
(35.1)
(35.1)
Charles McGill (9)
258,981 - - -
19,807
-
-
(7,790)
270,998
(2.9)
(2.9)
$ 3,289,854 $ 98,838 $ 200,749 $ 11,365
$ 85,880 $ -
$ 332,647
$ 234,463
$ 4,253,796
** Represents cash bonus paid for services performed in FY2013 and paid in FY2014.
(1) Mr John Rothwell's and Mr John Poynton's fees were exclusive of GST
(2) Mr John Poynton resigned on the 28 June 2013
(3) Mr Michael Atkinson retired on the 30 June 2013
(4) Mr Joey Turano was appointed to President Philippines on the 5 November 2012
(5) Mr Graham Backhouse was appointed to President Australia on the 3 December 2012
(6) Mr Craig Perciavalle was appointed to President USA on the 13 December 2012
(7) Mr Greg Jason was appointed to the position of Chief Financial Officer on the 15 January 2013
(8) Mr Richard Simons' remuneration for 2013 includes a termination payment following his resignation on the 2 October 2012
(9) Mr Charles McGill's employment ceased on the 28 March 2013
24 | AUSTAL LIMITED ANNUAL REPORT 2014
9. Details of contractual provisions for KMP
Name
Employing Company
Andrew Bellamy
Greg Jason
Austal Limited
Austal Limited
Graham Backhouse
Austal Ships Pty Ltd
Joey Turano
Craig Perciavalle
Brian Leathers
Austal Philippines Pty Ltd
Austal USA LLC
Austal USA LLC
Contract
Duration
Unlimited
Unlimited
Unlimited
Unlimited
Unlimited
Unlimited
Termination Notice Period
Company
Executive
3 months
12 weeks
12 weeks
2 months (3)
0 months
3 months
3 months
12 weeks
12 weeks
3 months
0 months
0 months
1.
2.
Termination provisions – Austal may choose to terminate the contract immediately by making a payment equal to the Group 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.
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.
10. Options granted or vested during the period
Details of options over ordinary shares in the Group provided as remuneration to key management personnel
under the Employee Share Option Plan (ESOP) are shown below. Further information on the options is set out in
Note 29.
Name
Award
year
Options
granted
Grant
date
Fair value
per option
at award date
Vesting
date
No. vested
during year
No. forfeited
during year
Andrew Bellamy
Greg Jason
Craig Perciavalle
Brian Leathers
2011
2011
2011
2011
140,000
140,000
70,000
70,000
28 Sep 2010
28 Sep 2010
28 Sep 2010
28 Sep 2010
$ 0.840
$ 0.840
$ 0.840
$ 0.840
28 Sep 2013
28 Sep 2013
28 Sep 2013
28 Sep 2013
140,000
140,000
70,000
70,000
-
-
-
-
11. Performance rights granted or vested during the period
Details of performance rights for shares in the Group provided as remuneration to key management personnel
under the Long Term Incentive Plan (LTIP) are shown below. Further information on performance rights is set out
in Note 29.
Name
Andrew Bellamy
Greg Jason
Craig Perciavalle
Brian Leathers
Graham Backhouse
Joey Turano
Performance
Fair value per
Value of
Award
year
rights
granted
Grant
date
performance
right
awards at
grant date
Vesting
date
No. vested
during year
No. forfeited
during year
2014
2014
2014
2014
2014
2014
287,313
18 Nov 2013
$ 0.59
$ 168,193
18 Nov 2016
125,345
18 Nov 2013
$ 0.59
$ 73,377
18 Nov 2016
168,675
13 Dec 2013
$ 0.73
$ 123,065
13 Dec 2016
114,235
13 Dec 2013
$ 0.73
$ 83,346
13 Dec 2016
108,130
18 Nov 2013
$ 0.59
$ 63,299
18 Nov 2016
93,517
18 Nov 2013
$ 0.59
$ 54,745
18 Nov 2016
-
-
-
-
-
-
-
-
-
-
-
-
12. Shares granted or vested during the period
Details of shares in the Group provided as remuneration to key management personnel under fixed remuneration
are shown below. Further information is set out in Note 29.
Name
Grant
date
Number
issued
Number
vested
Fair value per
share
Andrew Bellamy
27 Nov 2013
371,738
371,738
$ 0.73
25 | AUSTAL LIMITED ANNUAL REPORT 2014
13. Equity instruments held by key management personnel
The tables included in this section of the report show the number of:
options over ordinary shares in the Group
performance rights to shares granted under the LTIP, and
shares in the Company
that were held during the financial year by key management personnel of the Group, including their close family
members and entities related to them.
Options and performance rights
Options and rights holdings
Balance
at beginning
Granted as
Exercised
(options)/
Net Change
of year
Remuneration
Vested (rights)
Other
Balance
at end
of year
Vested and
Exercisable
Unvested
30 June 2014
Directors
Andrew Bellamy
Options
Performance Rights
Executives
Graham Backhouse
Options
Performance Rights
Greg Jason
Options
Performance Rights
Brian Leathers
Options
Performance Rights
Craig Perciavalle
Options
Performance Rights
Joey Turano
Options
Performance Rights
280,000
-
-
-
437,500
-
239,000
-
250,000
-
-
-
-
287,313
-
108,130
-
125,345
-
114,235
-
168,675
-
93,517
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
280,000
287,313
-
108,130
437,500
125,345
239,000
114,235
250,000
168,675
-
93,517
280,000
-
-
-
297,500
-
169,000
-
180,000
-
-
-
-
287,313
-
108,130
140,000
125,345
70,000
114,235
70,000
168,675
-
93,517
All vested options are exercisable at the end of the year.
Shareholdings
30 June 2014
Non - Executive Directors
John Rothwell
Dario Amara
Giles Everist
David Singleton
Executives
Andrew Bellamy
Graham Backhouse
Greg Jason
Brian Leathers
Craig Perciavalle
Joey Turano
Balance at
Granted as
Options
30 June 2013
remuneration
exercised
rights
vested
Net Change
Balance at
Other
30 June 2014
Shareholdings
Performance
32,200,745
50,000
-
28,600
-
-
-
-
799,958
371,738
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50,000
-
32,200,745
50,000
50,000
28,600
(604,768)
566,928
-
-
-
-
-
-
-
-
-
-
(554,768)
32,896,273
Total
33,079,303
371,738
None of the shares held by key management personnel are held nominally.
26 | AUSTAL LIMITED ANNUAL REPORT 2014
14. Loans to key management personnel
There were no loans to Directors or other key management personnel at any time during year ended
30 June 2014.
15. Other transactions with key management personnel
There were no transactions involving key management personnel other than compensation and transactions
concerning shares, performance rights and options as discussed in other sections of the remuneration report.
27 | AUSTAL LIMITED ANNUAL REPORT 2014
Auditor i
independ
dence and
d non-aud
dit servic
ces
e following de
eclaration fro
om the auditor
r of Austal Lim
mited.
The director
rs received th
Non-audit s
services
Non-audit se
directors are
independenc
service prov
ervices provid
e satisfied tha
ce for auditor
vided means t
ded by the en
at the provisio
rs imposed by
that auditor in
ntity’s auditor,
on of non-aud
y the Corpora
ndependence
, Ernst & You
dit services is
ations Act 200
e was not com
ng, during the
compatible w
01. The natur
mpromised.
e year, are di
with the gener
re and scope
isclosed in No
ote 5. The
of
ral standard o
of non-audit
of each type
Signed in ac
ccordance wit
th a resolution
n of directors
s.
___
And
Exe
__________
__________
y
drew Bellamy
tor and Chief
ecutive Direct
__________
___
Executive Of
fficer
_________
John Rothwe
Chairman
__________
ell
__________
_________
26 August 2
014
28 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
Consolidated statement of profit or loss and other comprehensive income for
the year ended 30 June 2014
Continuing operations
Revenue
Cost of sales – construction contracts
Cost of sales – services
Chartering expenses
Gross Profit
Other Income and expenses
Administration expenses
Marketing expenses
Finance costs
Profit before income tax
Income tax benefit / (expense)
Profit after tax
Profit attributable to:
Owners of the parent
Non-controlling interests
Total
Other comprehensive income
Amounts that may subsequently be reclassified to profit and loss:
Cash flow hedges:
- Gain / (loss) on cash flow hedges taken to equity
- Gain / (loss) recycled out of equity
- Income tax benefit / (expense)
- Net
Foreign currency translations
- Gain / (loss) taken to equity
- Income tax benefit / (expense)
- Net
Other comprehensive income for the period, net of tax
Notes
2014
’000
2013
’000
4
5
5
9
$ 1,122,863
$ 899,491
(990,413)
(767,858)
(24,119)
(30,970)
(14,067)
(8,502)
$ 94,264
$ 92,161
$ 21,913
$ 29,337
(51,895)
(71,212)
(8,396)
(9,989)
(8,742)
(13,571)
$ 47,144
$ 26,726
$ (15,285)
$ 9,016
$ 31,859
$ 35,742
$ 31,548
$ 35,870
311
(128)
$ 31,859
$ 35,742
$ 17,231
$ 10,644
(20,689)
(18,604)
849
2,388
$ (2,609)
$ (5,572)
(4,075)
$ 11,516
217
7,506
$ (3,858)
$ 19,022
$ (6,467)
$ 13,450
Total comprehensive income for the year
$ 25,392
$ 49,192
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
Total
Earnings per share ($ per share)
$ 25,081
$ 49,320
311
(128)
$ 25,392
$ 49,192
- 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
$ 0.09
$ 0.12
0.09
0.12
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.
29 | AUSTAL LIMITED ANNUAL REPORT 2014
Consolidated statement of financial position as at 30 June 2014
Notes
2014
’000
2013
’000
Assets
Current Assets
Cash and cash equivalents
Restricted cash
Trade and other receivables
Inventories
Prepayments
Derivatives
Total
Non - Current Assets
Other financial assets
Trade and other receivables
Prepayments
Derivatives
Property, plant and equipment
Intangible assets and goodwill
Deferred tax assets
Total
Total Assets
Liabilities
Current Liabilities
Trade and other payables
Derivatives
Interest-bearing loans and borrowings
Provisions
Government grants
Income tax payable
Progress payments received in advance
Total
Non - Current Liabilities
Derivatives
Interest-bearing loans and borrowings
Provisions
Government grants
Deferred tax liabilities
Total
Total Liabilities
Net Assets
Equity
Contributed equity
Reserves
Retained earnings
10
10
14
16
23
14
23
18
19
9
17
23
11
20
13
9
15
23
11
20
13
9
12
12
12
$ 77,345
$ 38,030
9,532
69,673
95,753
102,743
328,142
277,888
4,054
7,653
2,701
7,749
$ 517,527
$ 503,736
$ -
$ 4,141
1,020
-
1,968
-
5,787
1,651
366,500
399,917
9,473
12,526
9,022
22,647
$ 393,770
$ 440,882
$ 911,297
$ 944,618
$ (183,570)
$ (133,813)
(1,972)
(12,193)
(13,192)
(243,614)
(33,704)
(25,128)
(3,550)
(4,221)
(10,980)
(24,537)
(29,062)
(21,790)
$ (276,030)
$ (465,296)
$ (2,229)
$ (4,885)
(142,264)
(1,163)
(1,023)
(2,217)
(49,892)
(52,794)
(6,627)
(11,076)
$ (202,035)
$ (72,135)
$ (478,065)
$ (537,431)
$ 433,232
$ 407,187
$ 111,598
$ 111,328
27,292
37,309
294,041
258,560
Equity attributable to owners of the parent
$ 432,931
$ 407,197
Non - Controlling Interests
$ 301
$ (10)
Total Equity
$ 433,232
$ 407,187
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
30 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
Consolidated statement of changes in equity for the year ended 30 June 2014
Issued
* Reserved
Retained
Benefits
Hedge
Control
Reval'n
Capital
Shares
Earnings
’000
’000
’000
FCTR
’000
Reserve
Reserve
Reserve
Reserve
’000
’000
’000
’000
Total
’000
Employee
Cash flow
Common
Asset
Non
Controlling
Interest
’000
Total
Equity
’000
Equity at 1 July 2012
$
41,373
$
(9,612)
$
222,690
$
(10,568)
$
4,948
$
16,649
$
(15,925)
$
27,491
$
277,046
$
-
$
277,046
Comprehensive Income
Profit for the year
$
-
$
-
$
35,870
$
-
$
-
$
-
$
-
$
-
$
35,870
$
(128)
$
35,742
Other Comprehensive Income
-
-
-
19,023
-
(5,572)
-
-
13,451
-
13,451
Total
$
-
$
-
$
35,870
$
19,023
$
-
$
(5,572)
$
-
$
-
$
49,321
$
(128)
$
49,193
Other equity transactions
Shares issued
Transaction costs
Cost of share-based payments
Acquisition of Subsidiary
$
77,891
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
77,891
$
-
$
77,891
(1,823)
-
3,499
-
-
-
-
-
-
-
-
-
-
1,263
-
-
-
-
-
-
-
-
-
-
(1,823)
1,263
3,499
-
-
118
(1,823)
1,263
3,617
Total
$
79,567
$
-
$
-
$
-
$
1,263
$
-
$
-
$
-
$
80,830
$
118
$
80,948
Equity at 1 July 2013
$
120,940
$
(9,612)
$
258,560
$
8,455
$
6,211
$
11,077
$
(15,925)
$
27,491
$
407,197
$
(10)
$
407,187
Comprehensive Income
Profit for the year
$
-
$
-
$
31,548
$
-
$
-
$
-
$
-
$
-
$
31,548
$
311
$
31,859
Other Comprehensive Income
-
-
-
(3,858)
-
(2,609)
-
-
(6,467)
-
(6,467)
Total
$
-
$
-
$
31,548
$
(3,858)
$
-
$
(2,609)
$
-
$
-
$
25,081
$
311
$
25,392
Transfers between reserves
$
-
$
-
$
3,933
$
3,008
$
(1,508)
$
301
$
-
$
(5,734)
$
-
$
-
$
-
Other equity transactions
Shares issued
$
270
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
270
$
-
$
270
Cost of share-based payments
-
-
-
-
383
-
-
-
383
-
383
Total
$
270
$
-
$
-
$
-
$
383
$
-
$
-
$
-
$
653
$
-
$
653
Equity at 30 June 2014
$
121,210
$
(9,612)
$
294,041
$
7,605
$
5,086
$
8,769
$
(15,925)
$
21,757
$
432,931
$
301
$
433,232
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
*Reserved shares are in relation to the Austal Group Management Share Plan.
31 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
Consolidated statement of cash flows for the year ended 30 June 2014
Cash flows from operating activities
Notes
2014
’000
2013
’000
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Income tax received / (paid)
GST refunds / (payments)
Net cash from / (used in) operating activities
$ 1,112,844
$ 894,029
(1,043,939)
(930,149)
321
2,231
(8,742)
(13,571)
(15,927)
(10,580)
-
2,172
$ 44,557
$ (55,868)
4
5
7
Cash flows from investing activities
Receipts of government grants
$ 4,506
$ 4,763
Proceeds from sale of property, plant and equipment
24,611
9,351
Proceeds from the sale of assets held for sale
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from sale of intangible assets
Acquisition of subsidiary / investment
-
6,898
(11,884)
(21,265)
(1,263)
(3,478)
3,002
-
-
(2,914)
Net cash from / (used in) investing activities
$ 18,972
$ (6,645)
Cash flows from financing activities
Proceeds from issue of shares net of transaction costs
$ -
$ 75,065
Repayment of borrowings
Loans received
Equity dividends paid
Settlement of derivatives
(114,238)
(93,368)
24,917
50,244
-
-
(12)
32,227
Net cash from / (used in) financing activities
$ (89,333)
$ 64,168
Net increase / (decrease) in cash and cash equivalents
$ (25,804)
$ 1,655
Cash and cash equivalents
Cash and cash equivalents at beginning of year
Net foreign exchange differences
$ 107,703
$ 104,751
4,978
1,297
Net increase / (decrease) in cash and cash equivalents
(25,804)
1,655
Cash and cash equivalents at end of year
10
$ 86,877
$ 107,703
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
32 | AUSTAL LIMITED ANNUAL REPORT 2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Notes to
o the finan
ncial stat
ements
Basis of
f preparat
tion
Note 1.
Corporate
Information
The financia
authorised fo
al report of the
or issue in ac
e Austal Limit
ccordance wit
ted Group of
th a resolution
Companies (
n of the direc
the Group) fo
tors on 26 Au
or the year en
ugust 2014.
nded 30 June
e 2014 was
Austal Limite
traded on th
ed is a limited
e Australian s
d liability com
stock exchan
pany incorpo
ge.
orated and do
omiciled in Au
stralia whose
e shares are p
publicly
The principa
performance
al activities of
e aluminium v
the Group du
vessels. Thes
uring the yea
se activities a
r were the de
re unchanged
esign, manufa
d from the pre
acture and su
evious year.
upport of high
Note 2.
Basis of pr
reparation
i.
Introd
duction
The fi
requir
inancial repor
rements of th
rt is a genera
e Corporation
al-purpose fina
ns Act 2001 a
ancial report,
and Australia
which has b
n Accounting
een prepared
Standards.
d in accordan
ce with the
The fi
instru
inancial repor
uments and la
rt has also be
and and build
een prepared
ings that have
on a historic
e been meas
cal cost basis,
sured at fair v
, except for de
alue.
erivative fina
ncial
The fi
dollar
98/01
inancial repor
rs ($’000) unle
00. The Gro
rt is presente
ess otherwise
oup is an entit
d in Australia
e stated unde
ty to which th
an dollars and
er the option a
e class order
d all values ar
available to th
r applies.
re rounded to
he Group und
o the nearest
der ASIC Clas
thousand
ss Order
The fi
Limite
inancial repor
ed is a for pro
rt presents th
ofit entity.
he figures of th
he consolidat
ted entity only
y, unless othe
erwise stated
d. Austal
ii.
Repo
orting structu
ure
The n
summ
notes to the c
marised as fol
onsolidated f
llows:
financial state
ements have
been divided
into 8 main s
sections whic
ch is
Curre
ent year perf
formance
This s
return
via div
section focus
n to sharehold
vidends.
es on the res
ders via earn
sults and perfo
ings per shar
formance of th
re and cash g
he Group, inc
generation, an
cluding profita
nd the return
ability and the
of cash to sh
e resultant
areholders
Capit
tal structure
This s
borrow
section focus
wings, contrib
es on the lon
buted equity a
g term fundin
and reserves
ng of the Grou
s and governm
up including c
ment grants.
cash, interest
t bearing loan
ns and
Work
king capital
This s
payab
section focus
bles, construc
es on shorter
ction contract
r term working
ts in progress
g capital conc
s, inventories
cepts such as
including wo
s trade and o
rk in progress
other receivab
s.
bles and
Infras
structure & o
other assets
This s
section focus
es on propert
ty, plant & eq
quipment as w
well as intang
ible assets of
f the Group.
Other
r liabilities
This s
section focus
es on provisio
ons such as e
employee be
nefits, warran
nty costs etc.
33 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
Financial risk management
This section focuses on the Groups’ approach to financial risk management, fair value measurements and
foreign exchange hedging and the associated derivative financial instruments.
Unrecognised items
This section focuses on commitments and contingencies that are not recognised in the financial statements
and events occurring after the balance date.
The Group, management and related parties
This section focuses on the corporate structure of the Group, parent entity data, key management
personnel compensation and related party transactions.
iii.
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 power over the investee, exposure or rights to
variable returns from its involvement with its investee and the ability to use its power over the investee to
affect its returns. 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.
iv.
Foreign currency transactions and 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 the USA and the Philippines Operations 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. The deferred
cumulative amount recognised in equity relating to that particular foreign operation is recognised in the
statement of comprehensive income on disposal of a foreign entity.
v.
Statement of compliance
The financial report complies with Australian Accounting Standards and International Financial Reporting
Standards (IFRS), as issued by the International Accounting Standards Board.
34 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
vi.
New and amended standards adopted by the Group
The accounting policies adopted are consistent with those of the previous financial year except for changes
in accounting policies due to implementation of new and amended standards adopted by the Group as
discussed below.
The adoption of these standards has impacted the Group’s accounting policies and required disclosures in
the notes to the financial statements but did not have any effect on the financial position or performance of
the Group.
The Group has applied all new and amended accounting standards and interpretations effective from
1 July 2013:
AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of
Interests in Other Entities, AASB 128 Investments in Associates and Joint Ventures, AASB 127
Separate Financial Statements and AASB 2011-7 Amendments to Australian Accounting Standards
arising from the Consolidation and Joint Arrangements Standards
AASB 2013-3 Amendments to Australian Accounting Standards – Transition Guidance and other
amendments which provides an exemption from the requirement to disclose the impact of the change
in accounting policy on the current period
AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting
Standards arising from AASB 13
AASB 119 Employee Benefits (revised 2011) and AASB 2011-10 Amendments to Australian
Accounting Standards arising from AASB 119 (September 2011)
AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements
2009-2011 Cycle, and
AASB 2012-2 Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial
Assets and Financial Liabilities
vii. Pronouncements issued and not effective
A number of Australian Accounting Standards and Interpretations have been issued or amended but are not
yet effective. 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.
The pronouncements relevant to the Group which have not been adopted by the Group are as follows:
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. The effective date for the Group will be from 1 July 2014.
Interpretation 21: Accounting for Levies
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
effective date for the Group will be from 1 July 2014.
AASB 9: Financial Instruments:
On 24 July 2014 The IASB issued the final version of IFRS 9 which replaces IAS 39 and includes a logical
model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a
substantially-reformed approach to hedge accounting.
IFRS 9 is effective for annual periods beginning on or after 1 January 2018, however, the Standard is
available for early application. The own credit changes can be early applied in isolation without otherwise
changing the accounting for financial instruments.
35 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
The final version of IFRS 9 introduces a new expected-loss impairment model that will require more timely
recognition of expected credit losses. Specifically, the new Standard requires entities to account for
expected credit losses from when financial instruments are first recognised and to recognise full lifetime
expected losses on a more timely basis.
The AASB is yet to issue the final version of AASB 9. A revised version of AASB 9 (AASB 2013-9) was
issued in December 2013 which included the new hedge accounting requirements, including changes to
hedge effectiveness testing, treatment of hedging costs, risk components that can be hedged and
disclosures.
AASB 9 includes requirements for a simplified approach for classification and measurement of financial
assets compared with the requirements of AASB 139.
The main changes are described below.
a. 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.
b. 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 or loss and there is
no impairment or recycling on disposal of the instrument.
c. Financial assets can be designated and measured at fair value through profit or 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 or loss
AASB 9 also removes the volatility in profit or loss that was caused by changes in the credit risk of liabilities
elected to be measured at fair value. This change in accounting means that gains caused by the
deterioration of an entity’s own credit risk on such liabilities are no longer recognised in profit or loss.
AASB 2013-3: Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial
Assets
AASB 2013-3 amends the disclosure requirements in AASB 136 Impairment of Assets. The amendments
include the requirement to disclose additional information about the fair value measurement when the
recoverable amount of impaired assets is based on fair value less costs of disposal. The effective date for
the Group will be from 1 July 2014.
AASB 2013-4: Amendments to Australian Accounting Standards – Novation of Derivatives and
Continuation of Hedge Accounting (AASB 139)
AASB 2013-4 amends AASB 139 to permit the continuation of hedge accounting in specified circumstances
where a derivative, which has been designated as a hedging instrument, is novated from one counterparty
to a central counterparty as a consequence of laws or regulations. The effective date for the Group will be
from 1 July 2014.
AASB 2014-1 Part A - Annual Improvements 2010–2012 Cycle: Amendments to Australian
Accounting Standards - Part A - Annual Improvements to IFRSs 2010–2012 Cycle
Annual Improvements to IFRSs 2010–2012 Cycle addresses the following items:
AASB 2 - Clarifies the definition of 'vesting conditions' and 'market condition' and introduces the
definition of 'performance condition' and 'service condition'.
36 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
AASB 3 - Clarifies the classification requirements for contingent consideration in a business
combination by removing all references to AASB 137.
AASB 8 - Requires entities to disclose factors used to identify the entity's reportable segments when
operating segments have been aggregated. An entity is also required to provide a reconciliation of
total reportable segments' asset to the entity's total assets.
AASB 116 & AASB 138 - Clarifies that the determination of accumulated depreciation does not depend
on the selection of the valuation technique and that it is calculated as the difference between the gross
and net carrying amounts.
AASB 124 - Defines a management entity providing KMP services as a related party of the reporting
entity. The amendments added an exemption from the detailed disclosure requirements in paragraph
17 of AASB 124 for KMP services provided by a management entity. Payments made to a
management entity in respect of KMP services should be separately disclosed.
The effective date for the Group will be from 1 July 2014.
AASB 2014-1 Part A - Annual Improvements 2011–2013 Cycle: Amendments to Australian
Accounting Standards - Part A - Annual Improvements to IFRSs 2011–2013 Cycle
Annual Improvements to IFRSs 2011–2013 Cycle addresses the following items:
AASB13 - Clarifies that the portfolio exception in paragraph 52 of AASB 13 applies to all contracts
within the scope of AASB 139 or AASB 9, regardless of whether they meet the definitions of financial
assets or financial liabilities as defined in AASB 132.
AASB40 - Clarifies that judgment is needed to determine whether an acquisition of investment property
is solely the acquisition of an investment property or whether it is the acquisition of a group of assets or
a business combination in the scope of AASB 3 that includes an investment property. That judgment is
based on guidance in AASB 3.
The effective date for the Group will be from 1 July 2014.
AASB 1031: Materiality
The revised AASB 1031 is an interim standard that cross-references to other Standards and the Framework
(issued December 2013) that contain guidance on materiality. AASB 1031 will be withdrawn when
references to AASB 1031 in all Standards and Interpretations have been removed.
AASB 2014-1 Part C issued in June 2014 makes amendments to eight Australian Accounting Standards to
delete their references to AASB 1031. The amendments are effective from 1 July 2014.
AASB 2013-9: Amendments to Australian Accounting Standards – Conceptual Framework,
Materiality and Financial Instruments
The Standard contains three main parts and makes amendments to a number Standards and
Interpretations.
Part A of AASB 2013-9 makes consequential amendments arising from the issuance of AASB CF 2013-1.
Part A of the amendments was effective for the Group from 1 July 2013 and did not have any effect on the
financial position or performance of the Group.
Part B makes amendments to particular Australian Accounting Standards to delete references to AASB
1031 and also makes minor editorial amendments to various other standards. The effective date for the
Group of Part B of the amendments will be from 1 July 2014.
Part C makes amendments to a number of Australian Accounting Standards, including incorporating
Chapter 6 Hedge Accounting into AASB 9 Financial Instruments. The effective date for the Group of Part C
of the amendments will be from 1 July 2015.
37 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and
Amortisation (Amendments to IAS 16 and IAS 38)
IAS 16 and IAS 38 both establish the principle for the basis of depreciation and amortisation as being the
expected pattern of consumption of the future economic benefits of an asset.
The IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is
not appropriate because revenue generated by an activity that includes the use of an asset generally
reflects factors other than the consumption of the economic benefits embodied in the asset.
The IASB also clarified that revenue is generally presumed to be an inappropriate basis for measuring the
consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be
rebutted in certain limited circumstances.
The effective date for the Group will be from 1 July 2016.
IFRS 15
In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which replaces IAS 11
Construction Contracts, IAS 18 Revenue and related Interpretations (IFRIC 13 Customer Loyalty
Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from
Customers and SIC-31 Revenue—Barter Transactions Involving Advertising Services)
The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core
principle by applying the following steps:
(a) Step 1: Identify the contract(s) with a customer
(b) Step 2: Identify the performance obligations in the contract
(c) Step 3: Determine the transaction price
(d) Step 4: Allocate the transaction price to the performance obligations in the contract
(e) Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
The effective date for the Group will be from 1 July 2017. Early application of this standard is permitted.
38 | AUSTAL LIMITED ANNUAL REPORT 2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Current y
year perf
e
formance
Note 3.
Operating s
segments
Australia
’000
USA
U
000
’0
Philippine
s
Unallocated Ad
djustments
’000
’000
’000
Total
T
’000
El
imination /
Year ended 30 June
e 2014
Revenues
External custo
omers
$
153,886
$
933,615
$
32,75
58
$
2,609
$
(326)
$
1
,122,542
t
Inter-segment
Finance incom
me
Total
Segment result
EBIT
Finance incom
me
Finance expe
nses
88,026
-
-
-
1,00
09
-
-
4,682
(89,035)
(4,361)
-
321
$
241,912
$
933,615
$
16,684
$
61,682
$
33,76
67
$
2,70
03
$
7,291
$
(93,722)
$
1
,122,863
$
(27,211)
$
1,707
$
55,565
-
-
-
-
-
-
4,682
(13,271)
(4,361)
4,529
321
(8,742)
Total
$
16,684
$
61,682
Depreciation a
and amortisation
$
(1,606)
$
(17,937)
$
2,70
03
$
(97
72)
$
(35,800)
$
1,875
$
47,144
$
(3,258)
$
-
$
(23,773)
$
577,205
$
(543,236)
$
911,297
$
192,119
$
662,948
$
22,26
61
(174,198)
(
456,424)
(15,26
63)
(142,867)
310,687
(478,065)
Australia
’000
USA
U
000
’0
Philippine
s
Unallocated Ad
djustments
’000
’000
’000
Total
T
’000
El
imination /
Balance sheet
Segment asse
ets
Segment liabi
lities
Year ended 30 June
e 2013
Revenues
External custo
omers
$
105,294
$
747,739
$
33,05
57
$
11,160
$
10
$
897,260
t
Inter-segment
Finance incom
me
38,764
-
-
-
6,92
29
-
2,333
2,231
(48,026)
-
-
2,231
Total
$
144,058
$
747,739
$
39,98
86
$
15,724
$
(48,016)
$
899,491
$
(25,894)
$
8,799
$
38,066
$
41
$
50,100
$
5,02
20
-
-
-
-
-
-
2,231
(13,571)
-
-
2,231
(13,571)
Total
$
41
$
50,100
Depreciation a
and amortisation
$
(1,030)
$
(18,708)
$
5,02
20
$
(70
08)
$
(37,234)
$
8,799
$
26,726
$
(4,063)
$
-
$
(24,509)
$
421,830
$
(269,870)
$
944,618
$
146,387
$
604,650
$
41,62
21
(91,355)
(
517,244)
(36,96
60)
(72,492)
180,620
(537,431)
Segment result
EBIT
Finance incom
me
Finance expe
nses
Balance sheet
Segment asse
ets
Segment liabi
lities
Inter-segment rev
venues, investments, re
eceivables and payabl
es are eliminated on c
onsolidation.
39 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
Analysis of Unallocated
Revenue
Sale of stock yacht
Rental revenue
Charter vessel revenue
Finance income
Other
Total
Segment result
Profit / (loss) on foreign exchange
Net profit / (loss) on sale of shipyard
Net profit / (loss) on sale of stock yacht
Write down of inventory
Corporate overheads
Sales & marketing costs
Rental profit
Charter vessel profit
Finance income
Finance expenses
Total
Segment assets
$ -
$ 9,302
-
2,333
2,419
1,858
4,682
2,231
190
-
$ 7,291
$ 15,724
$ (1,888)
$ (10,024)
3,582
4,839
-
(4,327)
(13,361)
-
(8,618)
(11,163)
(7,312)
(8,007)
-
2,333
386
455
4,682
2,231
(13,271)
(13,571)
$ (35,800)
$ (37,234)
Intercompany receivables
$ 193,148
$ 150,883
Other financial assets (investment in subsidiaries)
232,860
91,306
Cash and restricted cash
Property, plant and equipment
Inventories
Derivatives
Deferred tax assets
Other
Total
Segment liabilities
26,777
70,698
45,914
48,904
59,159
46,297
8,388
13,742
9,023
-
1,936
-
$ 577,205
$ 421,830
Deferred tax liabilities and income tax payable
$ (17,293)
$ (34,525)
Interest bearing loans
Derivatives
Intercompany payables
Deferred Income
Other
Total
(12,062)
(17,470)
(4,201)
(12,194)
(99,044)
-
(6,490)
-
(3,777)
(8,303)
$ (142,867)
$ (72,492)
One customer in the USA segment generated revenue of $938.618 million during FY2014 (FY2013: $736.084
million) and one customer in the Australia segment generated revenue of $100.814 million during FY2014
(FY2013: $59.233 million).
Revenue from external customers by geographical location of customers
North America
Europe
Asia
Australia
Other
Total
2014
$’000
2013
$’000
$ 938,618
$ 746,560
20,150
14,887
15,034
35,478
125,163
86,806
23,898
15,760
$ 1,122,863
$ 899,491
40 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
Non-current assets, other than financial instruments, prepayments and deferred tax assets
Geographical location
North America
Asia
Europe
Australia
Total
Composition
Property, plant and equipment
Intangible assets
Total
$ 300,842
$ 317,799
17,744
13,495
15,187
16,977
42,200
64,172
$ 375,973
$ 412,443
$ 366,500
$ 399,917
9,473
12,526
$ 375,973
$ 412,443
i.
Identification of reportable segments:
For management purposes the Group is organised into three 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.
ii.
Reportable segments:
The reportable segments were USA, Philippines, Ships, Service and Systems in FY2013. Service and
Systems and Ships have been included under Australian Operation for FY2014 because the two business
units were integrated into one operation. Prior year comparative information has been restated to reflect the
change of segment structure.
The Group’s reportable segments are as follows:
Australia
The Australia business manufactures high performance aluminium defence vessels for markets worldwide,
excluding the USA and provides training and on-going support and maintenance for high performance
vessels and includes the chartering of a vessel to the US Navy’s Military Sealift Command.
USA
The USA manufactures high performance aluminium defence vessels for the US Navy and provides training
and on-going support and maintenance of these performance vessels for the US Navy.
Philippines
The Philippines business manufactures high performance aluminium commercial vessels for global markets
excluding the USA.
iii.
Accounting policies and inter-segment transactions
The accounting policies used for reporting segments internally are the same as those utilised for reporting
the accounts of the Group.
Inter-entity sales are recognised based on an arm’s length pricing structure.
41 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
iv.
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
42 | AUSTAL LIMITED ANNUAL REPORT 2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Note 4.
Revenue
201
14
’00
0
20
013
000
’0
Revenue
Construction co
ontract revenue
$ 1,0
69,190
$
849,514
e
Charter revenue
Service revenu
e
Interest from ot
ther unrelated parties
Total
i.
Reco
ognition and
measureme
nt
17,453
35,899
321
15,459
32,287
2,231
$ 1,12
22,863
$
899,491
Reve
that it
reliab
nue is recogn
t is probable t
bly. The follow
nised and me
that the econ
wing specific
easured at fair
omic benefits
recognition c
r value of the
s will flow to t
criteria must a
e consideratio
he Group and
also be met b
on received or
d that the rev
efore revenue
r receivable t
venue can be
e is recognise
o the extent
measured
ed:
Cons
struction con
ntract revenu
ue
Const
costs
truction contr
incurred as a
ract revenue
a proportion o
is brought to
of estimated t
account on a
total contract
costs.
a percentage
of completion
n basis, base
d on actual
The e
estimated tota
after. In the e
therea
contra
act revenue is
.
value
al contract co
event of a cha
s adjusted ac
sts are determ
ange to the co
ccordingly and
mined prior to
ost of comple
d the remaini
o commencem
etion during th
ng life of the
ment and eva
he life of the c
contract is ca
aluated every
contract, the c
alculated on t
y month
construction
the adjusted
Wher
incurr
of the
re the contrac
red and wher
e costs incurre
ct outcome ca
e it is probab
ed.
annot be mea
le that the co
asured reliably
osts will be re
y, contract co
covered, reve
osts are recog
enue is recog
gnised as an
gnised only to
expense as
o the extent
Chart
ter revenue
Chart
the rig
ter revenue is
ght to revenu
s operating re
e is achieved
entals receive
d.
ed on charter
of vessels an
nd is recognis
sed when the
control over
Servi
ice revenue
Servic
as a p
contra
recov
ce revenue is
proportion of
act costs are
vered, revenu
s brought to a
estimated tot
recognised a
e is recognis
account on a p
tal contract co
as an expense
ed only to the
percentage o
osts. Where t
e as incurred
e extent of the
of completion
the contract o
d and where it
e costs incurr
basis, based
outcome cann
t is probable t
red.
d on actual co
not be measu
that the cost
osts incurred
ured reliably,
will be
Sale
of goods an
d scrap
Reve
the bu
goods
nue is recogn
uyer. Risk an
s to the custo
nised when th
nd rewards of
omer.
he significant
f ownership a
risks and rew
are considere
wards of owne
d passed to t
ership of the
the buyer at t
goods have p
the time of de
passed to
elivery of the
Intere
est income
Reve
calcu
using
throug
nue is recogn
lating the am
the effective
gh the expec
nised as inter
ortised cost o
e interest rate
ted life of the
rest accrues u
of a financial
, which is the
financial ass
using the effe
asset and all
e rate that exa
set to the net
ective interest
ocating the in
actly discount
carrying amo
t method. Th
nterest incom
ts estimated f
ount of the fin
his is a metho
me over the re
future cash re
ancial asset.
d of
levant period
eceipts
43 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
ii.
Significant accounting judgements and estimates
Construction contract revenue and expected construction profits at completion.
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.
Contract revenue and contract costs are recognised as revenue and expenses respectively by reference to
the stage of completion of the contract activity at the balance sheet date (“percentage-of-completion
method”) when the outcome of a construction contact can be estimated reliably. Contract revenue is
recognised to the extent of contract costs incurred that are likely to be recoverable when the outcome of a
construction contract cannot be estimated reliably.
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 FY2014 and beyond.
The percentage of completion 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.
44 | AUSTAL LIMITED ANNUAL REPORT 2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
2014
’000
2013
’000
$
3,643
$
4,763
8,079
6,754
3,582
115
903
-
(495)
9,381
3,802
500
198
2,822
2,201
5,002
$
21,913
$
29,337
$
(8,742)
$
(13,571)
$
(8,742)
$
(13,571)
$
(21,593)
$
(21,914)
(2,180)
(2,595)
$
(23,773)
$
(24,509)
$
(284,218)
$
(218,106)
(3,840)
(4,534)
(383)
(1,733)
(7,640)
(6,246)
(8,294)
(7,254)
(239)
232
$
(304,614)
$
(237,641)
2014
$
2013
$
$
(317,270)
$
(262,881)
-
-
$
(317,270)
$
(320,220)
(1,302)
-
$
$
-
(33,000)
(295,881)
(297,118)
-
-
$
(321,522)
$
(297,118)
Note 5.
Other inco
me and expe
enses
Other income and
expenses
Government gra
ants
Training reimbu
ursement
Gain on dispos
al of property, plant an
nd equipment
Gain on dispos
s
al of intangible assets
Net foreign exc
change gains
Sale of scrap
Rental income
Other income
Total
Finance costs
Interest paid to
unrelated parties
Total
Depreciation and a
amortisation
Depreciation ex
xcluding impairment
Amortisation
Total
Employee benefits
expense
Wages and sal
aries
Superannuation
n
Share based pa
ayments
Workers’ comp
ensation costs
Annual leave ex
xpense
Long service le
eave expense
Total
Auditor's remunera
ation
Amounts receiv
ved or due and receiva
able by Ernst & Young
g for:
An audit or revi
ew of the financial rep
port of the entity and a
any other entity in the
Group
Other services
in relation to the entity
y and any other entity
in the Group
Tax advice
Total
Amounts receiv
vable or due and recei
ivable by related pract
tices of Ernst & Young
g for:
An audit or revi
ew of the financial rep
port of the entity and a
any other entity in the
Group
Other services
in relation to the entity
y and any other entity
in the Group
Tax advice
Total
45 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
i.
Recognition & measurement
The following recognition and measurement criteria must be met before the following specific items are
recognised in profit or loss:
Government grants relating to expense items
Government grants are recognised when there is reasonable assurance that the grant will be received and
all attaching conditions will be complied with.
A grant is recognised as income when it relates to an expense item. The grant income is recognised over
the periods necessary to match the grant to the costs that it is intended to compensate.
Impairment of assets
No impairment charge was recognised by the Group during the period. Refer to Note 19 for details
regarding Impairment testing of goodwill and intangible assets with indefinite useful lives.
Finance costs
Finance 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 finance costs are expensed in the period they occur.
Finance costs include interest payments, amortisation of capitalised loan origination costs and other costs
that an entity incurs in connection with the borrowing of funds.
Depreciation and amortisation
Refer to accounting policies for depreciation disclosed in note 18, and to note 19 for accounting policies
related to amortisation of intangible assets.
Employee benefits
Refer to accounting policies for employee benefits in note 20.
Leases
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.
ii.
Foreign exchange gains & losses included in profit and loss
Foreign exchange gains and losses included in profit and loss includes:
Mark to market adjustments on non-derivative financial assets such as foreign currency denominated
loans.
Mark to market adjustments on foreign currency hedge instruments designated as fair value hedges.
Foreign currency gains and losses on cash flow hedges that were deemed to be ineffective during the
accounting period.
46 | AUSTAL LIMITED ANNUAL REPORT 2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Note 6.
Earnings p
per share
Net profit after tax
Net profit attribut
table to ordinary equity
y holders of the paren
nt from continuing oper
rations
Weighted average
number of ordinary s
shares
Weighted averag
ge number of ordinary
y shares (excluding res
served shares) for bas
sic earnings per share
Effect of dilution
Options
Performanc
ce Rights
Weighted averag
ge number of ordinary
y shares (excluding res
served shares) adjuste
ed for the effect of dilu
ution
e
Earnings per share
Basic earnings p
per share
Diluted earnings
per share
i.
Meas
surement
2014
2013
$’00
00
$
31,548
$
35,870
Num
mber
3
342,042,581
2
97,166,499
Num
mber
Num
mber
Num
mber
294,589
399,105
522,537
-
3
342,736,275
2
97,689,036
$ / s
share
$ / s
share
$
$
0.09
0.09
$
$
0.12
0.12
c earnings per
y holders of th
r share amou
he parent by
unts are calcu
the weighted
ulated by divid
d average num
ding net profit
mber of ordina
t for the year
ary shares ou
attributable t
utstanding du
o ordinary
uring the
Basic
equity
year.
Dilute
holde
the w
poten
ed earnings p
ers of the pare
weighted avera
ntial ordinary s
per share amo
ent by the we
age number o
shares into o
ounts are calc
ighted averag
of ordinary sh
rdinary share
culated by div
ge number of
hares that wo
es.
viding the net
f ordinary sha
uld be issued
profit attribut
ares outstand
d on the conv
table to ordin
ding during th
version of all t
ary equity
e year plus
the dilutive
ii.
Inform
mation conc
cerning the c
classification
n of securitie
es
Optio
ons
Optio
Optio
dilute
determ
ns granted to
n Plan are co
d earnings pe
mination of b
o employees
onsidered to b
er share to th
asic earnings
under the Au
be potential o
he extent that
s per share. D
stal Group M
ordinary share
they are dilu
Details relatin
Management S
es and have b
tive. The opti
g to the optio
Share Plan an
been included
ons have not
ons are set ou
nd Employee
d in the deter
t been include
ut in Note 29
Share
rmination of
ed in the
9,097
earnin
could
7,740 options
ngs per share
potentially d
granted unde
e because the
ilute basic ea
er the aforem
ey are not con
arnings per sh
mentioned pla
nsidered to b
hare in the fut
ns are not inc
be dilutive. (FY
ture.
cluded in the
Y2013: 9,139
calculation o
9,165). These
f diluted
e options
Perfo
ormance righ
hts
Perfo
calcu
includ
is pro
rmance rights
lation of dilute
ded in the det
ovided in Note
s granted to e
ed earnings p
termination of
e 29
executives un
per share ass
f basic earnin
nder the Grou
suming all out
ngs per share
up’s Long Ter
tstanding righ
e. Further info
rm Incentive P
hts will vest. T
ormation abou
Plan are inclu
The rights are
ut the perform
uded in the
e not
mance rights
There
report
e have been n
ting date and
no other trans
d the date of c
sactions invol
completion of
lving ordinary
f these financ
y shares or po
cial statement
otential ordina
s.
ary shares be
etween the
47 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Reconciliat
tion of net p
rofit after tax
x to net cash
h flows from
operations
2014
’000
2013
’000
$
31,859
$
35,742
Note 7.
Net profit
Adjustments for:
Depreciation and
d amortisation
$
23,776
$
24,509
(3,582)
(903)
383
12
254
114
-
1,263
-
-
$
19,940
$
25,886
$
(7,905)
(33,697)
1,695
65
2,530
3,092
5,970
(58,646)
-
2,703
4,141
49,757
7,272
(17,916)
-
526
3,989
32
2,488
(6,553)
(84,359)
(4,312)
-
-
5,187
(5,498)
-
4,701
$
(7,242)
$
(117,496)
$
44,557
$
(55,868)
2014
’000
2013
’000
Net (gain) / loss
on disposal of proper
rty, plant and equipme
ent
Net (gain) / loss
on disposal of intangi
ble assets
Share based pay
yments
Ineffective hedge
e gains/losses
Net exchange di
fferences
Total
Changes in assets
and liabilities:
(Decrease) / incr
r:
rease in provisions for
Income tax (cu
urrent and deferred)
Workers’ comp
pensation insurance
Warranty
Employee ben
efits
Other provision
ns
(Increase) / decr
rease in trade & other
receivables
(Increase) / decr
rease in inventories
(Increase) / decr
rease in other assets
(Increase) / decr
rease in prepayments
(Increase) / decr
rease in other financia
al assets
(Decrease) / incr
rease in trade and oth
her payables
(Decrease) / incr
rease in progress pay
yments in advance
(Decrease) / incr
rease in derivative ass
sets & liabilities
(Decrease) / incr
rease in government g
grants
Total
Net cash (outflow)/
/inflow from operatin
ng activities
Note 8.
Dividends
paid and pro
oposed
Divid
dends on ord
s
dinary shares
Dividend
ds on Ordinary Share
es
i.
ii.
Final
franked dividend (cen
nts per share)
-
-
Final
franked dividend
$
-
$
-
Frank
king credit b
balance
Opening
g Balance
Frank
king credits that arose
e from the payment of
income tax instalmen
ts during the year
2014
’000
2013
’000
$
58
83
$
35
50
$
-
$
3
583
Frank
d
king credits distributed
-
-
Move
ement
Closing
Balance
48 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
$
35
50
$
93
33
$
3
583
$
3
583
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Note 9.
Income and
s
d other taxes
i.
Incom
me tax expen
nse
Major co
omponents of tax exp
pense for the year s
ended 30 June 2014
and 2013 are:
Consolid
dated Profit & Loss
Curre
ent Income Tax
Current income tax cha
C
arge
Adjustments in respect
A
of current income tax
x of the previous year
Defe
rred Income Tax
Relating to origination a
R
and reversal of tempor
rary differences
Adjustments in respect
A
of deferred income ta
r
ax of the previous year
Total
l income tax (expens
se) / benefit
Other Co
omprehensive Incom
me (OCI)
Curre
ent and deferred inco
ome tax related item
s charged or credite
d directly to OCI
Current and deferred ga
C
ains and losses on for
reign currency contrac
cts and consolidation a
adjustments
Total
l (expense) / benefit c
charged to OCI
Other eq
quity items
Curre
ent and deferred inco
ome tax related item
s charged or credite
d directly to other eq
quity items
Capital raising costs
C
Deferred gains on reva
D
luation of property, pla
ant and equipment
Total
l (expense) / benefit c
charged to other equ
uity
2014
’000
2013
’000
$
$
(13,224)
$
(13,334)
7,863
8,686
$
$
(1,549)
$
(8,375)
5,128
8,536
$
$
(15,285)
$
9,016
$
$
1,082
$
$
1,082
$
$
-
-
$
$
-
$
$
$
$
(9,894)
(9,894)
784
-
784
A reconc
ciliation between tax
x expense and the pr
oduct of accounting
profit before income
e tax multiplied by th
e Group’s applicable
e income tax rate is a
as follows:
$
$
47,144
$
$
(14,142)
$
$
(2,289)
1,145
(865)
1,313
543
306
(513)
(783)
$
$
(1,143)
$
$
(15,285)
$
$
$
$
$
26,726
(8,018)
(809)
(960)
1,714
1,077
-
2,730
17,222
(3,940)
17,034
9,016
Acco
ounting profit / (loss)
before income tax fr
rom continuing oper
rations
Incom
me Tax at the Group
’s statutory income t
tax rate of 30% (2013
3: 30%)
Adjustment for Austal U
A
USA statutory income
tax rate of 36.9% (201
12: 36.9%)
Other foreign tax rate d
O
differences
B
ranch (profit) / loss
US section 199 domest
U
tic manufacturing dedu
uction
Research and developm
R
ment and other tax off
fsets and credits
Unrealised foreign exch
U
hange losses on interc
company loans
Adjustments in respect
A
of current and deferre
ed income tax of the p
previous year
Other non-assessable o
O
ms
or non-deductible item
T
otal Adjustments
Incom
me tax expense / (be
enefit) reported in the
e statement of compr
rehensive income
49 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
ii.
Analysis of temporary differences
Statement of Financial Position
Statement of Comprehensive Income
2014
’000
2013
’000
2014
’000
2013
’000
Deferred income tax - USA
Deferred tax assets
Payables
Provisions
Losses available for offset against future taxable income
Research and development tax credits
Work Opportunity Tax Credits
Charitable donations
$
17,680
$
27,631
$
9,768
$
21,175
5,014
5,092
19
-
34
2,919
8,713
3,641
456
34
(2,051)
3,577
3,662
413
-
906
2,398
(308)
67
2
Total
$
27,839
$
43,394
$
15,369
$
24,240
Deferred tax liabilities
Property, plant and equipment
Inventories
Total
$
(18,541)
$
(18,900)
$
(65)
$
(124)
(276)
(1,847)
(1,571)
(1,847)
$
(18,817)
$
(20,747)
$
(1,636)
$
(1,971)
Deferred tax assets - Net
$
9,022
$
22,647
$
13,733
$
22,269
Deferred income tax - Australia
Deferred tax assets
Trade & other receivables
Payables
Provisions
Deferred gains and losses on foreign currency contracts
Undeducted s.40-880 costs
Undeducted borrowing costs
Losses available for offset against future taxable income
Research and development and other tax offsets
$
3,827
$
3,247
$
(581)
$
-
284
4,859
-
539
-
218
-
108
3,927
2,304
625
-
-
202
(176)
(932)
2,304
(84)
-
(218)
202
(3,153)
(213)
13,921
627
(62)
(1,053)
202
Total
$
9,727
$
10,413
$
515
$
10,269
Deferred tax liabilities
Property, plant and equipment
Inventories
Deferred gains and losses on foreign currency contracts
$
(3,404)
$
(6,189)
$
(319)
$
(129)
(11,655)
(1,295)
(15,300)
-
(3,645)
1,295
(1,570)
-
Total
$
(16,354)
$
(21,489)
$
(2,669)
$
(1,699)
Deferred tax assets - Net
$
(6,627)
$
(11,076)
$
(2,154)
$
8,570
Deferred tax (expense) / income booked to Statement of Comprehensive Income
$
11,579
$
30,839
iii.
Recognition and measurement
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.
50 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
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.
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.
iv.
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.
v.
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 Group 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.
No amounts have been recognised as tax consolidation contribution/distribution adjustments in preparing
the accounts for the parent company for the current year.
51 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
vi.
Significant accounting judgements and estimates
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.
Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and
the amount and timing of future taxable income. Given the wide range of international business
relationships and the long-term nature and complexity of existing contractual agreements, differences
arising between the actual results and the assumptions made, or future changes to such assumptions,
could necessitate future adjustments to tax income and expense already recorded. The Group establishes
provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the
respective counties in which it operates. The amount of such provisions is based on various factors, such
as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and
the responsible tax authority. Such differences in interpretation may arise for a wide variety of issues
depending on the conditions prevailing in the respective domicile of the Group companies.
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit
will be available against which the losses can be utilised. Significant management judgement is required to
determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the
level of future taxable profits together with future tax planning strategies.
vii. 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 statement of cash flows 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.
52 | AUSTAL LIMITED ANNUAL REPORT 2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Capital s
structure
Note 10.
Current
Cash and c
cash equival
ents
20
014
’0
00
20
13
’00
00
Cash at bank an
nd in hand
$
77,345
$
38,030
Total
Restricted cash:
Unutilised Go Zo
one Bond funds (i)
Cash and term d
deposits (ii)
Total
$
77,345
$
38,030
$
9,532
$
11,617
-
58,056
$
9,532
$
69,673
Total Cash per Cas
sh Flow Statement
$
86,877
$
1
07,703
(i) Unutilised Go Zo
one Bonds may only b
be spent on those capi
ital works projects tha
at were specifically ide
entified in the documen
ntation issued to inves
stors.
(ii) Comparitive bala
ance represented part
tial proceeds from the
FY2013 capital raisin
g that were used in FY
Y2014 to retire Go Zo
ne debt.
i.
Reco
ognition and
measureme
nt
Cash
short-
and short-te
-term deposit
rm deposits i
ts with an orig
n the stateme
ginal maturity
ent of financia
y of three mon
al position co
nths or less.
mprise cash a
at bank and i
n hand and
For th
equiv
he purposes o
valents as def
of the Cash F
fined above, n
Flow Stateme
net of cash he
nt, cash and
eld as a guar
cash equival
rantee.
ents consist o
of cash and c
cash
53 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Note 11.
Interest be
aring loans
and borrowi
ngs
Current
Revolving Cred
it Facility
Multi-Option Fa
cility (1)
Equipment line
(2)
Bank Loan (uns
secured) (3)
Go Zone Bonds
s (4)
Total
Non - Current
Bank Loan (uns
secured) (3)
Go Zone Bonds
s (4)
Total
Total
2014
’000
2013
’000
$
(12,000)
$
-
-
-
(1,192)
-
(8,000)
(22,283)
(8,357)
(204,974)
$
(13,192)
$
(243,614)
$
-
$
(1,163)
(142,264)
-
$
(142,264)
$
(1,163)
$
(155,456)
$
(244,777)
1. Cash advanc
2. The Equipme
3. The Bank loa
4. The Go Zone
approximatel
5. The loans an
ce was provided un
ent line was closed
an is payable by ins
e Bonds are variabl
ly 3.7% in FY2014.
nd facilities incur int
n facility.
der the Multi Optio
at 30 June 2014.
stalments until Octo
e rate demand bon
terest at various ave
erage rates betwee
en 4% and 5%.
ober 2014, with an a
nds and mature on
average variable in
1 May 2041 and ar
nterest rate between
re payable in US do
n 4.1% to 4.7% in F
ollars with an averag
FY2014.
age effective interes
st rate of
i.
Reco
ognition and
measureme
nt
All loa
attribu
amort
ans and borro
utable transa
tised cost usi
owings are in
ction costs. In
ng the effecti
itially recogni
nterest-bearin
ive interest m
ised at the fa
ng loans and
method.
ir value of the
borrowings a
e consideratio
are subseque
on received le
ently measure
ess directly
ed at
Gains
derec
s and losses a
cognised.
are recognise
ed in the state
ement of com
mprehensive i
ncome when
the liabilities
s are
ii.
Go Zo
one Bonds
The G
autho
areas
matur
FY20
Gulf Opportun
orized by the
s that were aff
rity to invest i
13.
nity Zone Bon
US Federal G
ffected by Hu
n the develop
nds (Go Zone
Government t
rricane Katrin
pment of ship
e Bonds or GZ
to incentivise
na in 2005. Au
pbuilding infra
ZB) are a form
private inves
ustal qualified
astructure in A
m of indebted
tment in infra
d to borrow U
Austal USA b
dness that we
astructure in g
US$225M with
between FY20
ere
geographical
h a 30 year
008 &
Go Zo
of 0.0
syndi
was 3
one Bonds ar
054% in FY20
cate with a m
3.677%.
re tax-exemp
014. GZB bon
maturity date o
t municipal bo
ndholders are
of 31 Decemb
onds in the U
e secured by l
ber 2015. The
United States
letters of cred
e average cos
and attracted
dit issued by A
st of the lette
d an average
Austal’s bank
rs of credit in
coupon rate
king
FY2014
Austa
June
al has redeem
2014.
med (repaid) a
a cumulative
amount of ~
US$90M of G
GZB funds an
nd owes US$1
135M at 30
Austa
term o
or bef
to tha
al has the opt
of the indebte
fore 31 Dece
at date.
ion of redeem
edness with a
mber 2015 o
ming the outst
a 30 day notic
r may extend
tanding GZB
ce to bondhol
d the debt by o
balance, in w
lders. Austal
obtaining an
whole or in pa
may choose t
extension to t
art, at any tim
to redeem th
the letters of
e during the
t
ese bonds at
credit prior
54 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
iii.
Banking facilities
Facilities used at reporting date
Revolving Credit Facility (1)
Multi-Option Facility (2)
Equipment Line (3)
Bank Loan (unsecured) (4)
Go Zone Bonds (5)
Contingent Instrument Facility (6)
Other unsecured facility
2014
’000
2013
’000
$
(12,000)
$
-
-
-
(1,192)
(142,264)
(41,605)
-
(34,933)
(22,283)
(9,470)
(204,974)
-
(50)
Total
$
(197,061)
$
(271,710)
Facilities unused at reporting date
Revolving Credit Facility (1)
Multi-Option Facility (2)
Equipment Line (3)
Bank Loan (unsecured) (4)
Go Zone Bonds (5)
Contingent Instrument Facility (6)
Other unsecured facility
$
(38,000)
$
-
-
-
-
-
(58,395)
-
(56,567)
-
-
-
-
-
Total
$
(96,395)
$
(56,567)
Total Facilities Available
Revolving Credit Facility (1)
Multi-Option Facility (2)
Equipment Line (3)
Bank Loan (unsecured) (4)
Go Zone Bonds (5)
Contingent Instrument Facility (6)
Other unsecured facility
$
(50,000)
$
-
-
-
(1,192)
(142,264)
(100,000)
-
(91,500)
(22,283)
(9,470)
(204,974)
-
(50)
Total
$
(293,456)
$
(328,277)
1. The Revolving Credit Facility is provided under a new Syndicated Facility Agreement (SFA) which was executed on 19 July 2013. The maturity of
the SFA is 31 December 2015. Funds were borrowed under the Revolving Credit Facility in FY2014 with an average variable interest rate of 4.5% in
FY2014.
2. Cash advance and contingent instruments were provided under the Multi Option facility until 19 July 2013 when the facility was closed and replaced
with the SFA.
3. The Equipment Line was transferred into the SFA at 19 July 2013 and then repaid and closed at 30 June 2014.
4. The Bank Loan is payable by instalments until October 2014, with an average variable interest rate of 4.8% in FY2014.
5. The Go Zone Bonds of US$ 135.040 million are variable rate demand bonds that are wrapped by Letters of Credit that are provided under the SFA.
The Go Zone Bonds mature on 1 May 2041 whilst the Letters of Credit mature on 31 December 2015. The Bonds are payable in US dollars with an
average effective interest rate of approximately 3.7% in FY2014.
6. The Contingent Instrument Facility is used to support letters of credit (excluding the letters of credit supporting the Go Zone Bonds), performance
bonds and other financial and non-financial guarantees (refer to note 23).
iv.
Fair value of borrowings
The fair values of all classes of borrowings are not materially different to their carrying amounts since the
interest payable on those borrowings is either close to current market rates or the borrowings are of a short-
term nature.
55 | AUSTAL LIMITED ANNUAL REPORT 2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Note 12.
Contribute
d equity and
d reserves
Shares
’000
2014
2013
4
2014
2013
Ordinary Shares on
n Issue
1 July
346,173,1
195
188,193,00
07
$
120
0,940
$
41
,373
Shares issued du
uring the year
371,7
738
157,980,18
88
$
270
$
79
,567
30 June
346,544,9
933
346,173,19
95
$
12
1,210
$
120
,940
Reserved Shares
1 July
Options exercise
d
30 June
(4,350,6
601)
(4,350,60
01)
$
9,612)
(9
$
(9
,612)
-
-
-
$
-
$
-
(4,350,6
601)
(4,350,60
01)
$
9,612)
(9
$
(9
,612)
Net
i.
ii.
iii.
342,194,3
332
341,822,59
94
$
11
1,598
$
111
,328
Reco
ognition and
measureme
nt
Ordin
nary shares
Ordin
or opt
nary shares ar
tions are show
re classified a
wn in equity a
as equity. Inc
as a deductio
cremental cos
on, net of tax,
sts directly at
from the pro
ttributable to t
ceeds of the
the issue of n
new shares o
new shares
or options.
Ordin
nary shares ha
ave no par va
alue and the c
company doe
es not have a
limited amou
unt of authori
sed capital.
Fully
paid ordinary
y shares carry
y one vote pe
er share and c
carry the right
t to dividends
s.
Rese
rved shares
Own e
Plan a
statem
instru
equity instrum
are classified
ment of comp
uments.
ments which a
d as reserved
prehensive inc
are issued an
shares and a
come on the
nd held by a t
are deducted
purchase, sa
trustee under
from equity.
ale, issue or c
Austal Group
No gain or lo
cancellation o
p Manageme
oss is recogn
of the Group’s
ent Share
ised in the
s own equity
Refer
r to Note 29 fo
or more inform
mation in rela
ation to the Au
ustal Group M
Management
Share Plan.
Move
ements in ord
dinary share
e capital
The e
Mr An
Remu
issued
entire movem
ndrew Bellam
uneration Rep
d was $0.83
ent in ordinar
my on 26 Nove
port on page
per share.
ry shares dur
ember 2013 a
16) The volum
ring year ende
as part of his
me weighted
ed 30 June 2
contract of e
average pric
014 is compr
mployment. (
ce (VWAP) on
rised of share
(Refer to the
n which the sh
es issued to
hares were
Natur
re & purpose
s
e of reserves
Forei
ign currency
y translation
reserve
The fo
of the
oreign curren
e financial sta
ncy translation
atements of fo
n reserve is u
oreign subsidi
used to record
iaries.
d exchange d
differences ar
rising from the
e translation
Empl
loyee benefit
ts reserve
This r
their r
reserve is use
remuneration
ed to record t
n. Refer to No
the value of e
ote 29 for furt
equity benefits
ther details of
s provided to
f share based
employees a
d payment pla
and directors
ans for the G
as part of
roup.
56 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Cash
h flow hedge
reserve
This r
determ
reserve recor
mined to be a
rds the portion
an effective h
n of the gain
edge.
Comm
mon control
reserve
or loss on a h
hedging instru
ument in a ca
ash flow hedg
ge that is
This r
reserve repre
esents the pre
emium paid o
Asse
t revaluation
n reserve
n the acquisit
tion of the mi
nority interes
st in a controll
led entity.
This r
reserve is use
ed to record i
ncreases in t
the fair value
of land and b
buildings.
Note 13.
Governmen
nt grants rel
ating to asse
ets
Deferred Grant Inc
ome
Current
2014
’000
2013
’000
Infrastructure
e Development
$
(3,550)
$
(4,221)
Total
Non - Current
$
(3,550)
$
(4,221)
Infrastructure
e Development
$
(49,892)
$
(52,794)
Total
Total
$
(49,892)
$
(52,794)
$
(53,442)
$
(57,015)
i.
Reco
ognition and
measureme
nt
Austa
for the
al has receive
e expansion o
ed grants from
of the Group’
m various gov
s USA opera
vernment bod
ations in Mobi
dies in Alabam
le, Alabama.
ma to fund the
e infrastructur
re required
When
releas
n the grant re
sed to profit a
lates to an as
and loss over
sset, the fair v
the expected
value is credi
d useful life o
ted to a defer
f the relevant
rred income l
t asset.
liability accou
unt and is
When
the gr
n the grant re
rant on a syst
lates to an ex
tematic basis
xpense item,
s to the costs
it is recognis
that it is inten
ed as income
nded to comp
e over the per
pensate.
riods necessa
ary to match
Gove
grant
rnment grant
will be receiv
ts are only rec
ved and all at
cognised whe
ttaching cond
en received o
ditions will be
or when there
complied with
is reasonabl
h.
e assurance
that the
57 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Working
g capital
Trade and
other receiv
ables
Note 14.
Current
Trade amounts o
owing by unrelated en
ntities – construction c
ontracts
Allowance accou
unt for doubtful debts
Total
Non - Current
Trade amounts o
owing by unrelated en
ntities
Total
Total
i.
Reco
ognition and
measureme
nt
20
014
000
’0
20
13
’00
00
$
95,842
$
1
04,130
(89)
(1,387)
$
95,753
$
1
02,743
$
1,020
$
-
$
1,020
$
-
$
96,773
$
1
02,743
Trade
amou
there
when
e receivables
unt less an all
is objective e
identified.
which are wi
owance for a
evidence that
thin the norm
any uncollectib
t the Group w
mal credit term
ble amounts.
will not be able
ms are recogn
An allowanc
e to collect th
nised and car
ce for doubtfu
e debts. Bad
rried at origina
ul debts is ma
d debts are w
al invoice
ade when
written off
ii.
Impa
ired trade re
eceivables
Individ
direct
that a
impai
evide
dual receivab
tly. The other
an impairmen
rment losses
nce of impair
bles which are
receivables a
t has been in
are recognis
rment if any o
e known to be
are assessed
curred but no
sed in a separ
of the followin
e uncollectibl
d collectively t
ot yet been id
rate provision
ng indicators a
e are written
to determine
dentified. For t
n for impairme
are present:
off by reducin
whether ther
these receiva
ent. The Grou
ng the carryin
re is objective
ables the esti
up considers
ng amount
e evidence
mated
that there is
significant f
inancial diffic
ulties of the d
debtor
probability t
that the debto
or will enter ba
ankruptcy or
financial reor
rganisation, a
and
default or d
elinquency in
n payments (m
more than 90
days overdu
e).
Rece
there
ivables for wh
is no expecta
hich an impai
ation of recov
irment provisi
vering additio
ion was recog
nal cash.
gnised are wr
ritten off agai
inst the provis
sion when
Impai
amou
irment losses
unts previousl
s are recognis
ly written off a
sed in profit o
are credited a
or loss within o
against other
other expens
expenses.
es. Subseque
ent recoverie
es of
58 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
iii.
Allowance account for doubtful debts
Trade receivables of an initial value of $0.089 million (FY2013: $2.198 million) were impaired and fully
provided for at 30 June 2014. Movements in the provision for impairment of receivables are detailed below:
Provision for Doubtful Debts
1 July
Charge for the Year
Utilised
Unused amounts reversed
Movement
30 June
2014
$’000
2013
$’000
$
(1,387)
$
(1,863)
$
(89)
$
(414)
1,387
-
890
-
$
1,298
$
476
$
(89)
$
(1,387)
The allowance for doubtful debts has 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.
iv.
Ageing analysis of current trade & other receivables at 30 June
0-30
31-60
61-90
90+
Impaired
Total
Days
2014
2013
’000
$
89,580
$
4,430
$
435
$
2,417
$
(89)
$
96,773
’000
$
94,422
$
3,452
$
677
$
5,579
$
(1,387)
$
102,743
Receivable balances are monitored on an ongoing basis.
v.
Fair values of current trade and other receivables
Due to the short term nature of the current receivables, their carrying amount is assumed to be the same as
their fair value.
59 | AUSTAL LIMITED ANNUAL REPORT 2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Note 15.
Constructi
on contracts
s
s in progress
20
014
’0
00
20
13
’00
00
Work in Progress
Construction rev
venue recognised to d
ate
$
3,6
603,494
$
2,5
503,102
less Progress pa
ayments received & re
eceivable
(3,2
275,969)
(2,2
225,910)
Total due from c
customers
327,525
3
$
277,192
2
$
Progress Payment
ts Received in Advan
nce
Construction rev
venue recognised to d
ate
less Progress pa
ayments received & re
eceivable
204,322
2
$
$
49,848
(2
233,384)
(71,638)
(
Total due to cust
tomers
$
(29,062)
(21,790)
(
$
Total due from / (to
o) customers
298,463
2
$
255,402
2
$
i.
ii.
Reco
ognition and
measureme
nt
Const
any p
perce
date a
truction work
provision for a
entage of com
as a proportio
in progress i
anticipated fut
mpletion basis
on of estimate
s valued at c
ture losses an
s. Percentage
ed total contra
contract cost i
nd progress b
e of completio
act costs.
ncurred to da
billings. Cons
on is determin
ate, plus profi
struction profit
ned by referen
it recognised
ts are recogn
nce to actual
to date, less
nised on the
costs to
Signi
ificant accou
unting judge
ments and e
estimates
Refer
r to Note 4 for
r details of es
stimates made
e regarding c
construction c
contracts.
Note 16.
Inventories
Work in progress
s
Other stock
Total
Inventories
s and work in
n progress
Notes
2014
’000
2013
’000
15
$
327,525
5
$
2
277,192
7
617
6
696
$
2
328,142
$
8
277,888
i.
Reco
ognition and
measureme
nt
Stock
produ
k and finished
uction overhe
d goods are v
ads. Cost of s
alued at the l
stock is deter
lower of cost
rmined on the
and net realis
e weighted av
sable value, w
verage cost b
where costs i
basis.
nclude
60 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Trade and
other payab
les
Note 17.
Current
Trade & other pa
ayables owed to unrela
ated entities (i)
Total
Notes
2014
’000
2013
’000
$
)
(183,570)
$
(133,813)
$
)
(183,570)
$
(133,813)
(i) Trade payabl
es are unsecured, non
n-interest bearing and
are normally settled o
on 45 day terms.
i.
Reco
ognition and
measureme
nt
Trade
servic
Group
e payables an
ces provided
p becomes ob
nd other paya
to the Group
bliged to mak
ables are carr
prior to the e
ke future paym
ried at amortis
end of the fina
ments in resp
sed costs and
ancial year th
pect of the pu
d represent lia
at are unpaid
rchase of the
abilities for go
d and arise w
ese goods an
oods and
hen the
d services.
ii.
Fair v
value of trad
e and other
payables
The c
their s
carrying amou
short-term na
unts of trade a
ature.
and other pay
yables are as
ssumed to be
the same as
s their fair valu
ues, due to
61 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Infrastru
ucture & o
other ass
ets
Note 18.
Property, p
plant and equ
uipment
i.
ii.
Net c
carrying amo
ount
Balance
e 1 July 2013
Gross
s carrying amount
at fair
r Value
at cos
st
Accu
mulated Depreciation
& Impairment
Freehold
Land &
Plant &
Capi
tal
Buildings
Equipment
’000
’000
P
WIP
0
’000
Total
’000
$
332,695
$
$
-
$
-
$
332,69
95
-
127,250
(8,817)
(55,355)
4,599
4
(455)
131,84
49
(64,62
27)
Net C
Carrying Amount
$
323,878
$
$
71,895
4,144
4
$
$
399,91
7
Balance
e 30 June 2014
Gross
s carrying amount
at fair
r Value
at cos
st
Accu
mulated Depreciation
& Impairment
$
316,786
$
$
-
$
-
$
316,78
86
16,404
122,974
(29,370)
(61,114)
822
-
140,20
00
(90,48
86)
Net C
Carrying Amount
$
303,819
$
$
61,859
$
822
$
366,50
00
Reco
onciliation of
f movement f
for the year
Freehold
Land &
Plant &
Capi
tal
Buildings
Equipment
’000
’000
P
WIP
0
’000
Total
’000
$
273,700
$
$
67,630
$
29
9,053
$
5,573
$
$
14,270
1,422
1
$
29,585
(43)
(310)
(430)
(8,817)
(12,642)
-
23,880
-
3,376
(29
9,275)
-
(455)
324
3,076
3
$
50,178
$
$
4,264
$
(24
4,908)
$
370,38
83
$
21,26
65
-
(47
73)
(21,91
4)
-
32
24
30,33
32
$
29,53
34
$
323,878
$
$
71,894
4,145
4
$
$
399,91
7
$
2,269
$
$
5,230
4,385
4
$
7,930
(16,766)
(8,707)
(4,788)
(205)
(1,611)
(12,886)
(560)
7,724)
(7
-
-
16
$
11,88
84
1
(18,37
77)
(21,59
93)
(5,33
32)
$
(20,062)
$
$
(10,032)
$
3,323)
(3
$
(33,41
7)
$
303,816
$
$
61,862
$
822
$
366,50
00
Balance
e 1 July 2012
Addit
ions
Trans
sfer (in / out)
Dispo
osals
Depre
eciation charge for the
e year
Impai
irment
Excha
ange Adjustment
Total
Balance
e 1 July 2013
Addit
ions
Trans
sfer (in / out)
Dispo
osals
Depre
eciation charge for the
e year
Excha
ange Adjustment
Total
Balance
e 30 June 2014
62 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
iii.
Recognition and measurement
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.
If land and buildings were measured using the cost model, the carrying amount would be as follows:
Land & Buildings valued using cost model
Cost
Accumulated Depreciation & Impairment
Net Carrying Amount
2014
’000
2013
’000
$
404,029
$
313,594
(84,191)
(38,517)
$
319,838
$
275,077
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.
iv.
Depreciation
Depreciation is calculated on a straight-line or diminishing value basis over the estimated useful life of the
asset.
The following useful lives have been adopted as follows:
Buildings – over 20 to 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.
v.
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 profit or loss.
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.
63 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
vi.
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.
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 profit and loss in the year the
asset is derecognised.
vii. Key judgements and accounting estimates
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.
Revaluation of land and buildings
Information about the valuation of land and buildings is provided in Note 21.iii.
64 | AUSTAL LIMITED ANNUAL REPORT 2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Note 19.
Intangible
assets
Co
omputer
Developm
ment
S
oftware
’000
s
Costs
’000
Goodwill
’000
Total
’000
Balance 1 July 201
3
$
4,931
$
1
,132
$
6,463
$
12,526
Additions
Amortisation for t
the year
Disposals
Exchange Adjust
tment
Total
$
729
$
534
$
-
$
1,263
(2,012)
(601)
(37)
(168)
(1
,498)
-
-
-
-
(2,180)
(2,099)
(37)
$
(1,921)
$
(1
,132)
$
-
$
(3,053)
Balance 30 June 20
014
$
3,010
$
-
$
6,463
$
9,473
Balance 1 July 201
3
Cost
$
13,953
$
1
,200
$
6,463
$
21,616
Accumulated Am
mortisation & Impairme
nt
(9,022)
(68)
-
(9,090)
Net Carrying Am
ount
$
4,931
$
1
,132
$
6,463
$
12,526
Balance 30 June 20
014
Cost
$
13,195
$
-
$
6,463
$
19,658
Accumulated Am
mortisation & Impairme
nt
(10,185)
-
-
(10,185)
Net Carrying Am
ount
$
3,010
$
-
$
6,463
$
9,473
i.
Reco
ognition and
measureme
nt
Intang
asset
Intern
expen
gible assets a
ts are carried
nally generate
nditure is cha
acquired sepa
at cost less a
ed intangible
arged against
arately are ini
any accumula
assets, exclu
profit or loss
itially measur
ated amortisa
uding capitalis
in the year in
red at cost. F
ation and any
sed developm
n which the e
Following initia
accumulated
ment costs, ar
xpenditure is
al recognition
d impairment
re not capitali
s incurred.
n, intangible
losses.
sed and
useful lives of
The u
lives are amo
finite
that th
he intangible
gible asset wi
intang
cted useful lif
expec
t are accounte
asset
counting estim
in acc
statem
ment of comp
t.
asset
f intangible as
ortised over th
asset may be
ith a finite use
fe or the expe
ed for by cha
mate. The am
prehensive inc
ssets are ass
he useful life
e impaired. T
eful life are re
ected pattern
nging the am
mortisation ex
come in the e
essed to be e
and assesse
The amortisat
eviewed at lea
of consumpti
mortisation per
xpense on int
expense cate
either finite or
ed for impairm
tion period an
ast at each fin
ion of future e
riod or metho
tangible asset
gory consiste
r indefinite. In
ment wheneve
nd the amortis
nancial year-e
economic ben
od, as approp
ts with finite l
ent with the fu
ntangible ass
er there is an
sation metho
end. Change
nefits embodi
priate, which is
ives is recog
unction of the
sets with
indication
d for an
es in the
ed in the
s a change
nised in the
e intangible
A sum
mmary of the
policies appl
ied to the Gro
oup’s intangib
ble assets is a
as follows:
Rese
arch and de
velopment c
costs
Resea
recog
arch costs ar
gnised as an i
re expensed a
intangible ass
as incurred. D
set when the
Development
Group can d
expenditure
emonstrate:
on an individ
ual project ar
re
the technical
t
its intention to
i
h
how the asse
t
the availabilit
the ability to m
t
feasibility of c
o complete an
et will generat
y of resource
measure relia
completing th
nd its ability t
te future econ
es to complete
ably the expe
he intangible
to use or sell
nomic benefit
e the asset
nditure during
asset so that
the asset
s
g developme
nt
it will be ava
ailable for use
e or sale
65 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
The asset is carried at cost less any accumulated amortisation and accumulated impairment losses
following initial recognition of the development expenditure as an asset. 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. The asset is tested for impairment
annually during the period of development.
Other intangibles
Other intangible assets are initially measured at cost and amortised on a straight-line basis over the
estimated useful life of the asset. Impairment testing is conducted annually.
The following useful lives have been adopted as follows:
Computer software – straight-line over 2.5 years
Development costs – straight line over 5 years
Goodwill
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 in a business combination.
Goodwill is measured at cost less any accumulated impairment losses after initial recognition. For the
purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the
Group’s cash-generating units that are expected to benefit from the combination from the acquisition date,
irrespective of whether other assets or liabilities acquired are assigned to those units.
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.
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.
ii.
Impairment testing of goodwill and intangible assets with indefinite useful lives
Goodwill acquired through business combinations has been allocated to the Darwin CGU, which is part of
the Australia segment. (Refer to Note 3 for details.)
The Group tests whether goodwill is recoverable on an annual basis. The recoverable amount of Darwin
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. 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.
66 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
iii.
Significant accounting judgement and estimates
Recoverable amount of the Darwin CGU
The recoverable amount of the Darwin CGU is $15 million and is determined based on value in use
calculations using cash from projections from financial budgets approved by senior management covering a
five year period. The following table sets out the key assumptions:
Budget period gross
margins (1)
2014
2013
Darwin
10-15%
10-15%
Growth rate beyond
budget period (2)
2014
5.0%
2013
5.0%
Discount rate (3)
2014
2013
15.0%
10.5%
(1) Budgeted gross margin
(2) Weighted average growth rate used to extrapolate cash flows beyond the budget period
(3)
In performing the value-in-use calculations for the Darwin CGU, the group has applied post-tax discount rates to
discount the forecast future attributable post-tax cash flows. The equivalent pre-tax discount rates are disclosed above.
Management determined budgeted gross margin based on past performance and its expectation for the
future. The growth rate beyond the budgeted period is consistent with the long term average growth rate of
the ship building industry. The discount rate used reflects specific risks relating to the Australian ship
building industry.
iv.
Sensitivity to changes in assumptions
The estimated recoverable amount of the Darwin CGU is significantly greater than the carrying value of the
assets within the CGU. No reasonably foreseeable changes in any of the key assumptions are likely to
result in an impairment loss.
67 | AUSTAL LIMITED ANNUAL REPORT 2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Other lia
abilities
Note 20.
s
Provisions
Employee
Workers'
Benefits
Compensation W
Warranty
’000
’000
’000
Other
’000
Total
’000
Provisons at 1 J
uly 2013
$
(11,193)
$
(6,449)
$
(6,510)
$
(3,1
93)
$
(27,345)
)
Arising during
the year
Utilised
Unused amou
unts reversed
Effects of fore
eign exchange
$
(14,912)
$
(5,400)
$
(5,314)
$
(6,2
204)
12,648
(102)
(164)
3,648
-
57
5,249
-
-
2,8
827
269
2
16
Movement
$
(2,530)
$
(1,695)
$
(65)
Provisions at 30
June 2014
$
(13,723)
$
(8,144)
$
(6,575)
$
(3,0
092)
$
(6,2
285)
$
)
(31,830)
24,372
167
(91)
)
$
)
(7,382)
$
)
(34,727)
Employee
Workers'
Benefits
Compensation W
Warranty
’000
’000
’000
Other
’000
Total
’000
$
(10,088)
$
(6,449)
$
(6,510)
$
(2,08
1)
$
(25,128)
(1,105)
-
-
(1,11
2)
(2,217)
$
(11,193)
$
$
(6,449)
$
(6,510)
$
(3,19
3)
$
(27,345)
$
(12,700)
$
(8,144)
$
(6,575)
$
(6,28
5)
$
(33,704)
(1,023)
-
-
-
(1,023)
$
(13,723)
$
$
(8,144)
$
(6,575)
$
(6,28
5)
$
(34,727)
2013
Current
Non-Current
Total
2014
Current
Non-Current
Total
i.
ii.
Reco
ognition and
measureme
nt
Provis
past e
the ob
sions are rec
event, it is pro
bligation and
ognised whe
obable that a
a reliable est
n the Group h
n outflow of r
timate can be
has a present
resources em
e made of the
t obligation (l
mbodying econ
e amount of th
egal or const
nomic benefit
he obligation.
tructive) as a
ts will be requ
result of a
e
uired to settle
Provis
effect
sions are disc
t of the time v
counted using
value of mone
g a current pr
re-tax rate tha
.
ey is material
at reflects the
e risks specific
c to the liabili
ity if the
The in
is use
ncrease in the
ed.
e provision d
ue to the pas
ssage of time
is recognised
d as a finance
e cost when d
discounting
Inform
mation abou
ut individual
provisions a
and significa
ant accountin
s
ng estimates
Wage
es, salaries,
vested sick
leave, work
safe bonus
and other sh
hort term ben
nefits
Liabil
be se
servic
liabilit
ities for wage
ettled within 1
ces up to the
ties are settle
ed.
es and salarie
2 months of t
reporting dat
es, including n
the reporting
te. They are
non-monetary
date are reco
measured at
y benefits and
ognised in oth
the amounts
d accumulatin
her payables
expected to
ng sick leave
in respect of
be paid when
expected to
employees’
n the
Long
g service leav
ve
The li
prese
the re
obliga
emplo
paym
terms
iability for lon
ent value of ex
eporting date.
ations. This re
oyees attainin
ments are disc
s to maturity a
g service lea
xpected futur
. Assumption
equires estim
ng the service
counted using
and currencie
ve is recognis
re payments t
ns are formula
mation of futur
e period requ
g market yield
es that match,
sed in the pro
to be made in
ated when de
re wage and s
ired to qualify
ds at the repo
, as closely a
ovision for em
n respect of s
etermining the
salary levels a
y for long serv
orting date on
s possible, th
mployee bene
ervices provid
e Group’s lon
and the proba
vice leave be
national gove
he estimated f
efits and mea
ded by emplo
g service lea
ability of curre
enefits. Expec
vernment bon
future cash o
sured as the
oyees up to
ve
ent
cted future
ds with
outflows.
68 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
Dividends
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. No provision for dividends has been recognised as
at 30 June 2014. (FY2013: nil).
Warranties
Provision for warranty is made upon delivery of the vessels based on the estimated future costs of warranty
repairs on vessels.
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.
Other
Other includes a provision for refitting a military vessel to return it to a passenger ferry specification. This is
consistent with the comparative period.
69 | AUSTAL LIMITED ANNUAL REPORT 2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Financia
al risk ma
anagemen
nt
Note 21.
Fair value m
measuremen
nts
i.
Finan
ncial assets
and financia
al liabilities
The G
Group holds t
he following f
financial instr
ruments:
Financia
al Assets
Notes
Derivatives
used for
hedging at fair
h
value
’000
Assets at
A
ortised cost
amo
’000
Total
T
’000
2014
Cash and equivalents
C
Restricted cash
R
Trade & other receivabl
T
les
Forward exchange cont
F
tracts
Total
T
2013
Cash and equivalents
C
Restricted cash
R
Trade & other receivabl
T
les
Forward exchange cont
F
tracts
10
10
14
23
10
10
14
23
$
-
-
-
8,488
$
77,345
$
77,345
9,532
95,753
-
9,532
95,753
8,488
$
8,488
$
182,630
$
191,118
$
-
-
-
9,400
$
38,030
69,673
102,743
-
$
38,030
69,673
102,743
9,400
Total
T
$
9,400
$
210,446
$
219,846
Financia
al Liabilities
2014
Derivatives
used for
hedging at fair
h
value
’000
Lia
amo
abilities at
ortised cost
’000
Total
T
’000
Notes
s
Trade & other payables
T
Forward exchange cont
F
tracts
nterest bearing borrow
In
ings borrowings
Total
T
2013
s
Trade & other payables
T
Forward exchange cont
F
tracts
nterest bearing borrow
In
ings borrowings
17
23
11
17
23
11
$
-
$
(183,570)
$
(183,570)
(4,201)
-
-
(155,456)
(4,201)
(155,456)
$
(4,201)
$
(339,026)
$
(343,227)
$
-
$
(133,813)
$
(133,813)
(17,078)
-
-
(244,777)
(17,078)
(244,777)
Total
T
$
(17,078)
$
(378,590)
$
(395,668)
The G
maxim
financ
Group’s expos
mum exposur
cial asset me
sure to variou
re to credit ris
ntioned abov
us risks assoc
sk at the end
ve.
ciated with th
of the reporti
he financial ins
ng period is t
struments is d
the carrying a
discussed in
amount of eac
e
note 22. The
ch class of
The fa
in the
air value of a
ssets and liab
.
e table above.
bilities held a
t amortised c
cost is describ
bed in the ass
sociated note
e referenced
70 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
Recognised fair value measurements - fair value hierarchy
This section explains the judgements and estimates made in determining the fair values of the financial
instruments that are recognised and measured at fair value in the financial statements. To provide an
indication about the reliability of the inputs used in determining fair value, the Group has classified its
financial instruments into the three levels prescribed under the accounting standards. An explanation of
each level follows underneath the table.
Recurring fair value measurement
Balance 30 June 2014
Notes
Level 1
’000
Level 2
’000
Level 3
’000
Total
’000
Financial assets
Derivatives used for hedging
23
$
-
$
8,488
$
-
$
8,488
Total
$
-
$
8,488
$
-
$
8,488
Financial liabilities
Derivatives used for hedging
23
$
-
$
(4,201)
$
-
$
(4,201)
Total
$
-
$
(4,201)
$
-
$
(4,201)
Balance 30 June 2013
Financial assets
Derivatives used for hedging
23
$
-
$
9,400
$
-
$
9,400
Total
$
-
$
9,400
$
-
$
9,400
Financial liabilities
Derivatives used for hedging
23
$
-
$
(17,078)
$
-
$
(17,078)
Total
$
-
$
(17,078)
$
-
$
(17,078)
There were no transfers between any of the levels for recurring fair value measurements during the year.
Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives,
and trading and available-for-sale securities) is based on quoted market prices at the end of the reporting
period. The quoted market price used for financial assets held by the Group is the current bid price. These
instruments are included in level 1.
Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-
the-counter derivatives) is determined using valuation techniques which maximise the use of observable
market data and rely as little as possible on entity-specific estimates. The instrument is included in level 2 if
all significant inputs required to fair value an instrument are observable.
Level 3: The instrument is included in level 3 if one or more of the significant inputs is not based on
observable market data.
Valuation techniques used to determine fair values
Specific valuation techniques used to value financial instruments include:
the use of quoted market prices or dealer quotes for similar instruments
the fair value of forward foreign exchange contracts is determined using forward exchange rates at the
balance sheet date
the fair value of the remaining financial instruments is determined using discounted cash flow analysis.
For financial instruments that are recognised at fair value on a recurring basis, the Group determines
whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on
the lowest level input that is significant to the fair value measurement as a whole) at the end of each
reporting period.
All of the resulting fair value estimates are included in level 2.
71 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
ii.
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.
Impairment testing of trade receivables is described in note 14.
iii.
Non-financial assets and liabilities
Recognised fair value measurements - fair value hierarchy
This section explains the judgements and estimates made in determining the fair values of the non-financial
instruments that are recognised and measured at fair value in the financial statements. To provide an
indication about the reliability of the inputs used in determining fair value, the Group has classified its assets
and liabilities measured at fair value into the three levels prescribed under the accounting standards. An
explanation of each level is provided in note 21 (i).
Balance 30 June 2014
Notes
Level 1
’000
Level 2
’000
Level 3
’000
Total
’000
Property, plant and equipment
Land & buildings
18
$
-
$
-
$
303,819
$
303,819
Total
$
-
$
-
$
303,819
$
303,819
Balance 30 June 2013
Property, plant and equipment
Land & buildings
18
$
-
$
-
$
323,878
$
323,878
Total
$
-
$
-
$
323,878
$
323,878
There were no transfers between any of the levels for recurring fair value measurements during the year.
Valuation techniques used to determine fair values
The Group engages independent accredited 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.
The last revaluation was performed on 29 June 2012.
72 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
Valuation inputs and relationships to fair value
The following table summarises the quantitative information about the significant unobservable inputs used
in recurring level 3 fair value measurements.
Description
Fair value at 30
June 2014
'000
Land - Mobile
US$ 11,000
Unobservable inputs
Selection of land with
similar approximate
utility
Range of inputs
(probability-weighted
average)
Relationship of unobservable
inputs to fair value
US$1.69 - US$ 2.04
(US$1.70) per ft2
Higher value of similar land
increases estimated fair value
Buildings -
Mobile
US$ 304,242 Consumed economic
benefit/ obsolescence
of asset
2.22%
Greater consumption of
economic benefit or increased
obsolescence lowers fair value.
Land -
Henderson
Buildings -
Henderson
Cost per square foot
floor area (ft2)
US$100 - $211 ($185) per
ft2
Higher cost per ft2 increases fair
value.
A$ 8,800
Selection of land with
similar approximate
utility
$200-220 ($210) per m2
Higher value of similar land
increases estimated fair value
A$ 22,900 Consumed economic
benefit/ obsolescence
of asset
2.50%
Greater consumption of
economic benefit or increased
obsolescence lowers fair value.
Cost per square meter
floor area (m2)
$500 - $1,750 ($998) per
m2
Higher cost per m2 increases
fair value.
iv.
Impairment – non-financial assets
Significant accounting judgements
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.
Impairment testing of property, plant and equipment, goodwill and other intangible assets is described in
Note 18 and Note 19 respectively.
73 | AUSTAL LIMITED ANNUAL REPORT 2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Note 22.
Financial r
isk managem
ment
xplains the Gr
rformance. Cu
roup’s exposu
urrent year pr
ure to financia
rofit and loss
al risks and h
information h
how these risk
has been incl
ks could affec
uded where r
ct the Group’s
relevant to ad
s future
dd further
This note ex
financial per
context.
Risk
Market risk -
interest rate
Market risk -
y
foreign currency
Credit risk
Liquidity
Exposure a
arising from
Mea
asurement
Management
Long-term b
borrowings at vari
able rates
Sen
sitivity analysis
Interest rate sw
waps
Future comm
Recognised
liabilities no
currency
mercial transactio
d financial assets
t denominated in
ons,
and
functional
Cash, short
receivables
instruments
term deposits, tra
and derivative fin
ade
nancial
Borrowings,
derivative fin
, trade payables a
nancial instrumen
and
nts
Cas
Sen
h flow forecast,
sitivity analysis
n
Forward foreign
racts,
exchange contr
ncy
Forward curren
options
Age
Cred
ing analysis,
dit ratings
Monitoring cred
allowances
dit
Roll
fore
ing cash flow
casts
Availability of
committed cred
and borrowing
facilities
dit lines
Objectives
and policy
Ultimate res
Committee u
risks identifie
projections.
ponsibility for
under the aut
ed below, inc
r identification
hority of the B
cluding hedgin
n and control
Board. The B
ng cover of fo
of financial r
Board reviews
oreign currenc
isks rests wit
s and agrees
cy, credit allo
h the Audit &
policies for m
wances, and
& Risk Manage
managing eac
future cash f
ement
ch of the
flow forecast
Details of the
of measurem
asset, financ
e significant a
ment and the
cial liabilities a
accounting po
basis on whic
and equity ins
olicies and m
ch income an
strument are
ethods adopt
nd expenses
disclosed in
ted, including
are recognise
the relevant n
the criteria fo
ed, in respect
notes to the f
for recognition
t of each clas
financial state
n, the basis
ss of financial
ements.
Market risk
i.
Capit
tal managem
ment
The G
confid
the G
determ
Group’s policy
dence to sust
Group defines
mines the lev
y is to mainta
tain future dev
as total shar
vel of dividend
in a strong an
velopment of
eholders’ equ
ds to shareho
nd flexible ca
f the business
uity attributab
olders.
apital base to
s. The Group
ble to membe
provide inves
p monitors the
rs of Austal L
stor, creditor
e return on ca
Limited. The
and market
apital, which
Board
The G
and d
not lim
Group monito
detailed budge
mit the Group
ors statement
eting process
p’s growth opp
of financial p
ses. The gros
portunities an
position streng
ss gearing ra
nd is in line w
gth and flexib
tio is monitor
with peers and
bility using cas
ed and maint
d industry nor
sh flow foreca
tained at a lev
rms.
ast analysis
vel that does
There
policie
e were no cha
es and proce
anges in the G
edures are est
Group’s appro
tablished with
oach to capit
h regular mon
al manageme
nitoring and re
ent during the
eporting.
e year. Risk m
t
management
Neithe
than n
er the Group
normal bankin
nor any of its
ng requireme
s subsidiaries
ents.
s are subject t
to externally
imposed cap
ital requireme
ents, other
74 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
ii.
Interest rate risk exposure
The Group’s exposure to market interest rates relates primarily to the Group’s long-term debt obligations
and investment in cash funds.
The Group constantly analyses its interest rate exposure. Consideration is given to potential renewals of
existing positions and alternative financing.
At the end of the reporting period, the Group had the following variable rate borrowings and interest rate
swap contracts outstanding:
Financial Assets
Cash and cash equivalents
Australian variable rate interest
US variable rate interest
Total
Financial Liabilities
Interest bearing loans and borrowings
Australian variable rate interest
US variable rate interest
Total
Net Exposure
2014
’000
2013
’000
$
35,324
$
18,320
51,553
89,383
$
86,877
$
107,703
$
(13,192)
$
(17,520)
(142,264)
(227,257)
$
(155,456)
$
(244,777)
$
(68,579)
$
(137,074)
Profit or loss is sensitive to higher/lower interest income from cash and cash equivalents and interest
expenses on borrowings as a result of changes in interest rates. There would be no impact on other
components of equity as a result of changes in interest rates. The below sensitivity analysis shows the
impact on post tax profit had a 1 percentage point movement in interest rates occurred. 1 percentage point
was deemed to be a reasonable level of volatility based on FY2014 observations.
Post tax gain / (loss)
+1% (100 basis points)
-1% (100 basis points)
2014
’000
2013
’000
$
(686)
$
(1,371)
686
1,371
75 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
iii.
Foreign currency risk
Refer to Note 23 for Derivatives.
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:
negotiation of contracts to adjust for adverse exchange rate movements;
use of natural hedging techniques; and
using financial instruments (refer to Note 23).
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 Group 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.
Tax profit and equity would have been affected as illustrated in the table below had the Australian Dollar,
US Dollar and Euro moved relative to one another at balance date with all other variables held constant:
Judgement of reasonable possible movements
Post tax profit (higher / (lower)
Equity (higher / (lower)
2014
’000
2013
’000
2014
’000
2013
’000
USD / AUD
+5%
-5%
EUR / AUD
+5%
-5%
EUR / USD
+5%
-5%
$
4,727
$
3,316
$
17,106
$
3,764
(4,727)
(3,316)
(17,106)
(3,764)
$
2
$
17
$
(1,769)
$
(1,172)
(2)
(17)
1,769
1,172
$
4,515
$
-
$
4,515
$
-
(4,515)
-
(4,515)
-
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 23.
76 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
iv.
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.
The Group undertakes investments in 11am / 24 hour call deposits, term deposits or negotiable certificates
of deposit in order to achieve this objective.
In addition, vessel sales contracts are structured to ensure that the Group will be paid on delivery of the
vessel through the following measures:
obtaining progress payments from the client to cover the cost of the construction; or
obtaining a letter of credit from a credible bank to cover payment of the contract; or
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 10 and Note 23.
Cash and term deposits are predominantly held with two tier one Australian financial institutions, which are
considered to be low concentrations of credit risk.
77 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
v.
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 last reporting date (30 June 2013). Execution of the
new facility was achieved subsequent to the last reporting date on 19 July 2013 which provides credit until
31 December 2015 and enabled the reclassification of a significant portion of current liabilities as non-
current liabilities in the current accounting period.
The following are the contractual maturities of financial liabilities, including interest payments:
Balance 30 June 2014
Derivative financial assets / (liabilities)
Carrying
Amount
’000
0 - 1
’000
Years to maturity
1 - 2
’000
2 - 5
’000
> 5
’000
Contractual
Cash
Flows
’000
Outflow
Inflow
$
-
$
(154,468)
$
(161,766)
$
(81,962)
$
(172)
$
(398,368)
-
155,193
165,183
82,129
172
402,677
Net derivative financial assets / (liabilities)
$
-
$
725
$
3,417
$
167
$
-
$
4,309
Non Derivative financial liabilities
Trade & other payables
Bank loan (unsecured)
Go Zone Bond facility (i)
Revolving Credit Facility
Total
$
(183,570)
$
(183,570)
$
-
$
-
$
-
$
(183,570)
(1,192)
(142,264)
(12,000)
(1,217)
-
-
(150,171)
(12,019)
-
-
-
-
-
-
-
(1,217)
(150,171)
(12,019)
$
(339,026)
$
(196,806)
$
(150,171)
$
-
$
-
$
(346,977)
(i) Go Zone Bonds are classified with 1 - 2 years to maturity because the letters of credit wrapping the bonds mature on 31 December 2015.
Balance 30 June 2013
Derivative financial assets / (liabilities)
Carrying
Amount
’000
0 - 1
’000
Years to maturity
1 - 2
’000
2 - 5
’000
> 5
’000
Contractual
Cash
Flows
’000
Outflow
Inflow
$
-
$
(155,105)
$
(59,776)
$
(33,307)
$
-
$
(248,188)
-
162,502
62,111
38,019
-
262,632
Net derivative financial assets / (liabilities)
$
-
$
7,397
$
2,335
$
4,712
$
-
$
14,444
Non Derivative financial liabilities
Trade & other payables
Bank loan (unsecured)
Equipment line (secured)
Go Zone Bond facility
Total
$
(133,813)
$
(133,813)
$
-
$
-
$
-
$
(133,813)
(9,470)
(22,283)
(204,974)
(8,529)
(23,174)
(377,151)
(1,177)
-
-
-
-
-
-
-
-
(9,706)
(23,174)
(377,151)
$
(370,540)
$
(542,667)
$
(1,177)
$
-
$
-
$
(543,844)
The Group had $38.000 million (FY2013: $56.567 million) of unused credit facilities available for its
immediate use at balance date (refer to Note 11). The Group also has a total of $77.345 million (FY2013:
$38.030 million) in cash and cash equivalents, which it is able to use to meet its liquidity needs.
78 | AUSTAL LIMITED ANNUAL REPORT 2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Note 23.
Derivative
financial ins
struments an
nd hedging
The Group is
each other a
s exposed to
arising from re
the risk of ad
eceipts from e
dverse movem
export sales a
ments in the A
and the purch
Australian Do
hase of comp
ollar, US Dolla
ponents for co
ar and Euro r
onstruction.
relative to
The Group u
to hedge its
receipts and
received and
uses derivativ
risks associa
d payments an
d made.
ve financial in
ated with fore
nd they are ti
struments su
ign currency
med to matur
uch as forward
fluctuations.
re when the r
d exchange c
These contra
receipts and p
contracts and
acts are matc
payments are
d forward curr
ched to highly
e scheduled t
rency options
y probable
o be
i.
ii.
Reco
ognition and
measureme
nt
Such
entere
value
derivative fin
ed into and a
is positive an
nancial instrum
are subsequen
nd as liabilitie
ments are sta
ntly remeasur
es when the fa
ated at fair va
red at fair val
fair value is ne
alue on the da
lue. Derivativ
egative.
ate on which a
ves are carrie
a derivative c
ed as assets w
contract is
when the fair
Any g
cash
gains or losse
flow hedges,
es arising from
are taken to
m changes in
the statemen
the fair value
nt of compreh
e of derivative
hensive incom
es, except for
me.
r those that q
ualify as
The fa
contra
air value of fo
acts with simi
orward curren
ilar maturity p
ncy contracts
profiles. Cred
is calculated
it risk has be
by reference
en included in
e to current fo
n foreign curr
orward excha
rency contrac
nge rates for
cts.
The G
calcu
direct
Group’s deriva
lated using va
tly or indirectl
atives are cat
aluation tech
y based on m
tegorised in le
niques where
market observ
evel 2 of the
e the inputs th
vable data.
valuation hie
hat have a sig
rarchy, as the
gnificant effec
eir fair value h
ct on the valu
has been
ation are
Hedg
ge designatio
on
For th
he purposes o
of hedge acco
ounting, hedg
ges are class
ified as:
f
fair value hed
liability or an
l
dges when the
unrecognised
ey hedge the
d firm commit
e exposure to
tment other th
changes in t
han foreign c
he fair value o
urrency risk;
of a recognis
or
sed asset or
cash flow hed
c
particular risk
p
commitments
c
dges when th
k associated w
s.
ey hedge exp
with a recogn
posure to var
nised asset or
riability in cas
r liability or fo
h flows that is
reign exchan
s attributable
nge risks on fi
either to a
rm
At the
relatio
strate
e inception of
onship to whi
egy for undert
f a hedge rela
ch the Group
taking the hed
ationship, the
p wishes to ap
dge.
Group forma
pply hedge ac
ally designate
ccounting and
s and docum
d the risk man
ments the hed
nagement ob
ge
bjective and
documentatio
e of the risk b
tting the expo
n includes ide
being hedged
osure to chan
entification of
d and how the
ges in the he
f the hedging
e entity will as
edged item’s f
instrument, t
ssess the hed
fair value or c
the hedged ite
dging instrume
cash flows att
em or transac
ent’s effective
tributable to th
ction, the
eness in
he hedged
The d
nature
offset
risk.
Such
and a
the fin
hedges are e
are assessed
nancial report
expected to b
on an ongoin
ting periods f
be highly effec
ng basis to de
for which they
ctive in achie
etermine that
y were design
nated.
ving offsettin
they actually
g changes in
y have been h
fair value or
highly effectiv
cash flows
t
ve throughout
iii.
Fair v
value hedge
accounting
Fair v
liabilit
such
loss.
attribu
both a
value hedges
ty or an unrec
an asset, liab
For fair value
utable to the
are taken to t
are hedges o
cognised firm
bility or firm co
e hedges, the
risk being he
the statement
of the Group’s
m commitment
ommitment th
e carrying am
dged, the der
t of comprehe
s exposure to
t other than fo
hat is attributa
mount of the h
rivative is rem
ensive incom
o changes in
oreign exchan
able to a part
edged item is
measured to f
e.
the fair value
nge rate risk,
icular risk and
s adjusted for
fair value and
e of a recognis
or an identifi
d could affec
r gains and lo
d gains and lo
sed asset or
f
ied portion of
t profit or
osses
osses from
The G
or exe
desig
intere
as so
for ch
Group discont
ercised, the h
nation. Any a
est method is
on as an adju
hanges in its f
tinues fair va
hedge no long
adjustment to
used is amor
ustment exist
fair value attr
lue hedge ac
ger meets the
o the carrying
rtised to the s
ts and shall b
ibutable to th
ccounting if th
e criteria for h
g amount of a
statement of c
egin no later
e risk being h
e hedging ins
hedge accoun
hedged finan
comprehensiv
than when th
hedged.
strument expi
nting or the G
ncial instrume
ve income. A
he hedged ite
ires or is sold
Group revokes
ent for which
Amortisation m
em ceases to
d, terminated
s the
the effective
may begin
be adjusted
79 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
iv.
Cash flow hedge accounting
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 other comprehensive income, while the
ineffective portion is recognised in the profit and loss.
Amounts taken to other comprehensive income are transferred to the profit and loss 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.
Amounts previously recognised in equity are transferred to the profit and loss if the forecast transaction is
no longer expected to occur. Amounts previously recognised in equity will remain in equity until the forecast
transaction occurs if the hedging instrument expires or is sold, terminated or exercised without replacement
or rollover, or if its designation as a hedge is revoked.
v.
Summary of forward foreign exchange contracts
The following table summarises by currency the Australian dollar value of the significant 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.
2014
2013
Average
Forward
Rate
Average
Forward
Rate
Sell
'000
Buy
'000
Average
Forward
Rate
Average
Forward
Rate
Sell
'000
Buy
'000
0.9603
$ 897
1.0012
$ 249
1.0305
$ 81
0.9215
$ 6,507
0.9167
80,868
0.9599
3,436
1.0139
492
0.9593
95,628
0.8775
131,794
0.9713
86
0.6303
1,034
0.9190
29,231
$ 213,559
$ 3,771
$ 1,607
$ 131,366
0.6608
$ 1,809
-
$ -
0.5511
$ 153
0.7445
$ 53
0.7403
203
0.6400
1,382
0.5434
310
0.7992
130
0.7343
477
0.6089
22,285
0.5311
476
0.8019
2,640
$ 2,489
$ 23,667
$ 939
$ 2,823
-
$ -
1.3322
$ 782
0.9296
$ 34,825
0.9529
$ 24,824
-
-
1.3709
59,448
-
-
0.9584
17,976
-
-
1.3941
85,849
-
-
0.9813
26,146
$ -
$ 146,079
$ 34,825
$ 68,946
-
$ -
0.6222
$ 36
0.6360
$ 116
-
$ -
0.5640
1,637
0.6126
115
0.6222
154
0.5897
1,715
0.5511
3,265
0.5548
552
0.6047
365
0.5548
4,902
$ 4,902
$ 703
$ 635
$ 6,617
-
$ -
-
$ -
0.9730
$ 836
0.9584
$ 522
0.5851
1,682
-
-
0.9407
12,346
-
-
0.6160
2,026
-
-
0.9275
2,584
-
-
$ 3,708
$ -
$ 15,766
$ 522
-
$ -
5.6830
$ 192
-
$ -
-
$ -
-
-
5.6138
2,334
-
-
-
-
-
-
5.4524
1,469
-
-
-
-
$ -
$ 3,995
$ -
$ -
USD / AUD
less than 3 months
3 - 12 months
13 months or greater
EUR / AUD
less than 3 months
3 - 12 months
13 months or greater
USD / EUR
less than 3 months
3 - 12 months
13 months or greater
GBP / AUD
less than 3 months
3-12 months
13 months or greater
Total
USD / GBP
less than 3 months
3-12 months
13 months or greater
Total
SEK / AUD
less than 3 months
3-12 months
13 months or greater
Total
80 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
vi.
Offsetting financial instruments
The Group presents its assets and liabilities on a gross basis. Derivative financial instruments entered into
by the Group are subject to enforceable master netting arrangements such as International Swaps and
Derivatives Associations (ISDA) master netting agreement. In certain circumstances, for example, when a
credit event such as a default occurs, all outstanding transactions under an ISDA agreement are
terminated. The termination value is assessed and only a single net amount is payable in settlement of all
transactions.
The amounts set out in the table above represent the derivative financial assets and liabilities of the group
that are subject to the above arrangements and are presented on a gross basis.
81 | AUSTAL LIMITED ANNUAL REPORT 2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Unrecog
gnised ite
ems
Note 24.
Commitme
ents and con
tingencies
i.
Comm
mitments
The G
contra
disclo
those
Group entities
acts. No mate
osed (if any) i
e financial liab
s may have p
erial losses a
s the director
bilities.
otential finan
re anticipated
rs’ best estim
cial liabilities
d in respect o
ate of amoun
that could ar
of any of those
nts that would
ise from histo
e contingenci
d be payable b
orical comme
ies. The fair v
by the Group
ercial
value
p to settle
Operatin
ng lease commitmen
nts
Futu
re minimum rentals
Withi
in one year
payable under non-c
cancellable leases as
s at 30 June are as fo
ollows
After
one year but not more
e than five years
Total
Capital c
commitments
Build
dings USA
Guarant
tees
Bank
k performance guarant
tees (i)
4
2014
’000
2013
’000
$
1,395)
(1
$
(1
,125)
(1
1,744)
(1
,496)
$
3,139)
(3
$
2,621)
(2
$
(72)
$
(16)
$
(41
1,605)
$
(26
6,933)
(i)
The bank performa
and buildings and fl
equipment.
nce guarantees and G
oating charges over
Go Zone Bonds are s
cash, receivables, wo
ecured by a mortgag
ork in progress and p
ge over the land
plant and
ii.
Other
r contingent
t liabilities ex
xcluded from
m the above
include:
The p
parent compa
any has guara
anteed the pe
erformance of
f certain contr
ract obligation
ns of a subsid
diary.
Austa
is in r
the pa
intend
al received no
respect of con
arties specific
ds to defend t
otice of Arbitra
nsequential d
cally excludes
the claim.
ation proceed
amages arisi
s consequent
dings initiated
ing from a wa
tial damages
d by a comme
arranty defect
in relation to
ercial custome
t. The shipbu
warranty def
er in FY2013
uilding contra
fects. The co
. The claim
ct between
ompany
Note 25.
Events afte
er the balanc
ce date
The Group a
million.
announced th
he completion
n of the sale o
of Hull 270 (10
02 m stock ve
essel) on 20 A
August 2014
for $61.500
82 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
The Grou
up, mana
agement a
and relate
s
ed parties
Note 26.
Parent inte
erests in sub
bsidiaries
The consolid
in the followi
dated financia
ing table.
al statements
s include the f
financial state
ements of Aus
stal Limited a
and the subsid
diaries listed
Company
Austal Cyprus Ltd
Austal Egypt LLC
Austal Holdings Inc
Austal Hull 130 Cha
artering LLC
Austal Muscat LLC
Austal Philippines P
Pty Ltd
Austal Service Darw
win Pty Ltd
Austal Service Pty L
Ltd
Austal Ships Pty Ltd
d
Austal Systems Pty
Ltd
Austal UK Ltd
Austal USA LLC
Hydraulink (NT) Pty
y Ltd*
Image Marine Pty Lt
td
KM Engineering (NT
T) Pty Ltd*
Oceanfast Luxury Y
Yachts Pty Ltd
Oceanfast Pty Ltd
Seastate Pty Ltd
Country of
Incorporation
Equity Int
terest
2014
2013
Cyprus
Egypt
USA
USA
Oman
Australia
Australia
Australia
Australia
Australia
United Kingdom
USA
Australia
Australia
Australia
Australia
Australia
Australia
100%
100%
100%
100%
100%
100%
80%
100%
100%
100%
100%
100%
80%
100%
80%
100%
100%
100%
100%
100%
100%
100%
100%
100%
80%
100%
100%
100%
100%
100%
80%
100%
80%
100%
100%
100%
Austal Limited is t
*100% owned by A
the ultimate parent
Austal Service Darw
of the Group and is
win Pty Ltd, which
s incorporated in Pe
itself is 80% owned
erth, Western Austr
d by Austal Service
ralia.
Pty Ltd.
Note 27.
Related pa
rty disclosu
re
It is Group p
policy that all t
transactions w
with related p
parties are co
onducted on c
commercial te
erms and con
ditions.
No related p
Personnel re
party transact
emuneration a
ions occurred
and the matte
d with the con
ers disclosed
nsolidated en
in this report
tity other than
t,.
n Directors’ a
and Key Mana
agement
Note 28.
Key manag
gement pers
onnel compe
ensation
Short-term employe
ee benefits
Post-employment be
enefits
s
Termination benefits
Long term benefits
Share-based payme
ent
Total
2014
’000
2013
’000
$
3,454,506
$
3,600,806
115,046
-
27,688
442,486
85,880
332,647
-
234,463
$
4,039,726
$
4,253,796
Detailed rem
muneration dis
sclosures are
e provided in t
the Remuner
ration report c
commencing
on page 16.
83 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Note 29.
Share base
s
ed payments
i.
Long
g Term Incen
tive Plan
The e
the 20
below
respo
establishment
012 Annual G
w) and aims to
onsibilities wit
t of the Austa
General Meet
o reward KMP
thin the Group
al Limited Lon
ing. The plan
P with the iss
p so as to:
ng Term Incen
n replaced the
sue of perform
ntive Plan (LT
e previous Em
mance rights c
TIP) was appr
mployee Shar
commensurat
roved by sha
re Option Plan
te with their p
reholders at
n (refer
position and
attract and
impact the g
retain except
growth and p
ional employe
rofitability of t
ees (‘key em
the Group;
ployees’) tha
t have the ca
apacity to sign
nificantly
align key em
reward key
mployees’ be
employees fo
haviour towa
or sustained c
rds the growt
contributions
th and profita
to business s
bility objectiv
success.
ves of the Gro
oup; and
Struc
cture
The p
by the
performance r
e Remunerat
rights may be
ion Committe
e granted to K
ee.
KMP and exe
cutives in acc
cordance with
h the LTIP rul
les and set
The te
issued
at lea
erms of each
d following th
ast 12 months
offer to parti
he vesting of a
s, although th
cipate in the
any performa
e holder will b
LTIP may diff
ance rights wi
be entitled to
ffer depending
ll generally b
any dividend
g on the relev
e subject to a
ds paid during
vant KMP role
a restriction o
g that restricte
e. Shares
on trading for
ed period.
Entitle
result
ement to perf
ts to sharehol
formance righ
lders, thereby
hts under the
y ensuring tha
LTIP is base
at the objectiv
ed solely on m
ves of KMP a
measures whic
and sharehold
ch deliver im
ders are align
proved
ned.
Perfo
ormance hur
rdles
The g
ROIC
rather
Perfo
a pres
granting of pe
C and TSR tar
r than busine
rmance rights
scribed perio
erformance rig
rgets set perio
ess unit perfor
s will not vest
d determined
xclusively to o
ghts is tied ex
he Board. The
odically by th
der to maximi
rmance in ord
e hurdles, are
t unless these
d.
d by the board
overall Group
e targets will b
ise alignment
e met. Perfor
p performance
be based on G
t with shareho
rmance hurdl
e, measured
Group perfor
older interest
es will be me
against
mance,
s;
easured over
The p
performance h
hurdles for rig
ghts granted i
in FY2014 ar
re as follows:
Retur
rn on Investe
ed Capital (R
ROIC) measu
ure
70% o
target
for the
target
reduc
than t
of the perform
t over the pre
e full entitlem
ts for FY2013
ces progressiv
the threshold
mance rights
escribed perio
ment of perform
3 is included w
vely as ROIC
target over t
that vest und
od as per the
mance rights
within the Re
C steps down
he prescribed
der the LTIP w
definition of R
under this as
muneration r
such that the
d period.
will be tied to
ROIC in the R
spect of the L
eport on com
e performance
the achievem
Remuneration
LTI Plan. An e
mmencing pag
e rights will no
ment of an ave
n Report. To
example of th
ge 16. The LT
ot vest if ROI
erage ROIC
be eligible
e ROIC
t
TI entitlement
IC is less
Total
Shareholde
er Return (TS
SR) measure
30% o
for the
target
entitle
is less
itself
consid
of any LTI aw
e full entitlem
ts for the FY2
ement reduce
s than the thr
is not enough
ders this to b
ward will depe
ment of perform
2013 grant is
es progressive
reshold target
h to meet the
be consistent
end on the ac
mance rights
included with
ely as TSR st
t over the pre
hurdle requir
with its objec
chievement of
under this as
hin the Remu
teps down su
escribed perio
red for perfor
ctive of improv
f TSR levels p
spect of the L
neration repo
uch that the p
od. Maintenan
mance rights
ving returns t
prescribed by
LTI Plan. An e
ort commenci
erformance r
nce of existing
under this m
o shareholde
y the Board. T
example of th
ng on page 1
rights will not
g TSR perfor
measure. The
ers.
To be eligible
e TSR
6. The LTI
vest if TSR
rmance in
Board
84 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
Rights issued and valuation
1,049,022 performance rights were issued during the year.
The Group uses the Monte Carlo model to value the performance rights. The following table lists the inputs
to the valuation model used:
Performance Rights Valuation Inputs
Grant date
Spot price ($)*
Expected volatility (%)
Discount rate (%)
Dividend yield (%)
Staff turnover
Expected life of option (years)
Tranche
1
2
18 Nov 2013
13 Dec 2013
$ 0.70
$ 0.84
40%
2.90%
Nil
Nil
3
40%
2.80%
Nil
Nil
3
ii.
Employee Share Option Plan (ESOP)
The ESOP was established in 2006 and replaced by the LTIP in 2012. No options have been issued under
this plan since December 2011.
The ESOP aimed to reward executives and senior managers with the issue of share options commensurate
with their position and responsibilities within the Group. The Group used Total Shareholder Return (TSR) as
the performance hurdle for the ESOP.
Summaries of options granted under ESOP
The following table illustrates the movement in share option holdings and weighted average exercise prices
(WAEP) during the year:
Summary of options granted under ESOP
Number
WAEP
Number
WAEP
2014
2013
Outstanding at the beginning of the year
7,190,486
$
2.49
8,273,611
$
2.46
Granted during the year
Exercised during the year
Forfeited during the year
-
-
(658,750)
$
-
-
2.23
-
-
(1,083,125)
$
-
-
2.25
Outstanding at the end of the year
6,531,736
$
2.52
7,190,486
$
2.49
Exercisable at the end of the year
4,606,736
2,826,736
Share options outstanding at the end of the year have the following expiry dates and exercise prices:
Tranche
Grant date
Expiry Date
Exercise Price
No. of share options at year end
Exercisable
Outstanding
2
3
4
5
8
9
10
Total
13-Sep-07
24-Oct-07
10-Sep-08
03-Nov-09
27-Sep-10
21-Oct-11
20-Dec-11
13-Sep-14
24-Oct-14
10-Sep-15
03-Nov-16
27-Sep-17
21-Oct-18
20-Dec-18
3.60
3.60
2.40
2.95
2.34
2.15
2.15
311,236
140,000
725,500
1,505,000
1,925,000
1,785,000
140,000
6,531,736
311,236
140,000
725,500
1,505,000
1,925,000
-
-
4,606,736
85 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
iii.
Austal Group Management Share Plans (AGMSP)
The trustee holds a total of 4,350,601 shares at balance date on behalf of the plans represented by:
733,539 shares allocated under Plan 1 and Plan 2 with a weighted average price of $1.33 each, with
no contractual life, and
3,617,062 share that are unallocated.
Plan 1
The Group established the first Austal Group Management Share Plan (Plan 1) in 1998 so that directors
and key managers could participate in owning shares in the Company. The features of the Plan are:
Austal offered loans to participants for up to 100% of the purchase consideration for their shares on
a limited recourse basis.
The shares were made available to the participants at market value.
The Board determined the number of shares that were made available to each participant.
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 the shares at the end of
5 years.
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.
Interest on the loans is charged at a fixed rate of 6%, or such other rate as determined by the Board.
Upon termination of employment or contract arrangements the shares must be sold and the loan (if
any) repaid.
Plan 2 & 3
Two additional share plans were established by the Group in 2000. (Plan 2 and Plan 3)
All three plans are fundamentally similar in terms of operation with two main points of distinction being:
The interest on loans offered under Plan 1 is calculated as 6% per annum, whilst the interest on
loans offered under Plan 2 and Plan 3 is calculated as 60% of any dividends paid on any shares
acquired by the person to whom the loan was made.
The definition of an ‘Eligible Person’ differs across the three plans. Plan 2 specifies an Eligible
Person as a person who is employed as a Manager and Plan 3 specifies an Eligible Person is a
person who is a contractor supplying services as a ‘Contract Worker’. As a point of distinction, Plan 3
does not require the Contract Worker to be in a management position whilst Plan 1 (which covers
contractors and employees) and Plan 2 (employee only) specifies that an Eligible Person is a person
who is a manager within the Austal Group.
Although they are described as shares offered to the director or employee, they are in substance ‘options’
due to the limited recourse nature of the loan provided. Refer below for a description of the accounting for
equity settled share based payments.
Details of the movement in the number of options issued under the Austal Group Management Share Plan
are shown below:
2014
’000
2013
’000
Summary of options granted under AGMSP
Outstanding at the beginning of the year
1,351
1,351
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at the end of the year
All remaining options were fully vested and exerciseable throughout the year
-
-
(617)
734
-
-
-
1,351
86 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
iv.
CEO fixed remuneration share issue
23% of the CEO’s fixed remuneration is provided in shares which are subject to an 18 month holding period
from the date at which the shares are released to the CEO and no performance condition exists as it is
considered part of his base remuneration. 371,738 shares were issued during the year. The fair value of
the shares was determined using the closing price on the grant date.
The Board is recommending that the issue of shares, which form part of the CEO’s base salary, will be
made in 2 equal instalments through the year immediately after the publication of the interim and full year
accounts. The number of shares to be issued will be calculated based on the 6 month volume weighted
average price (VWAP) of the shares immediately preceding the issue. The Board considers that this best
reflects the intention of paying a proportion of the CEO’s salary as shares but avoids the administrative
issues of issuing monthly as is the case for the cash component. This arrangement is subject to
shareholder approval at the 2014 Annual General Meeting.
v.
Recognition and measurement - 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, whereby employees render services in exchange for
shares or rights over shares (equity-settled transactions).
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
The Long Term Incentive Plan (LTI Plan).
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 transactions is recognised, 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).
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.
87 | AUSTAL LIMITED ANNUAL REPORT 2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
vi.
Reco
ognised shar
re-based pay
yment expen
nses
The e
expense reco
gnised for sh
are based pa
ayments durin
ng the year is
shown in thee table below:
Share B
Based Payments Expe
ense
Expe
ense arising from equit
ty-settled share-based
ns
d payment transaction
2014
’000
2013
’000
$
(383)
$
(1,263)
Note 30.
Parent enti
ity
Information r
relating to Au
ustal Limited,
the Parent en
ntity, is detail
ed below:
Balance sheet
Assets
Current
nt
Non - Curren
Total
Liabilities
Current
nt
Non - Curren
Total
Net Assets
Equity
Contributed E
Equity
Employee be
enefiit reserve
Asset revalua
ation reserve
Cash flow he
edge reserve
Retained ear
rnings
Total
Income
2014
’000
2013
’000
$
239,735
$
290,917
176,776
112,054
$
416,511
$
402,971
$
(28,135)
$
(46,052)
(19,980)
(27,741)
$
(48,115)
$
(73,793)
$
368,396
$
329,178
$
111,598
$
111,328
6,750
8,247
8,675
233,126
3,887
14,162
11,340
188,461
$
368,396
$
329,178
Profit / (Loss
) after tax
Total Compre
ehensive Income
$
39,563
$
39,563
840
840
88 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Note 31.
Business c
combination
s
No business
s combination
ns have taken
n place within
the Group in
n the year end
ded 30 June 2
2014.
The Group a
subsidiary A
considered t
acquired an 8
Austal Service
to be materia
80% interest i
e Darwin Pty L
l for the Grou
n KM Engine
Ltd in the com
up.
ering (NT) Pt
mparative yea
ty Ltd and Hy
ar ended 30 J
draulink (NT)
June 2013. Th
) Pty Ltd thro
he transactio
ugh its
n was not
Accounting f
below.
for business c
combinations
s in previous p
periods has b
been done in
accordance w
with the acco
unting policy
i.
Acco
ounting for b
usiness com
mbinations
Busin
busin
acqui
forme
intere
ness combina
ess combina
sition date fa
er owners of t
est in the acqu
ations are acc
tion shall be
air values of th
the acquiree a
uiree.
counted for us
measured at
he assets tran
and the equit
sing the acqu
fair value, wh
nsferred by th
ty issued by th
uisition metho
hich shall be
he acquirer, th
he acquirer, a
d. The consid
calculated as
he liabilities in
and the amou
deration trans
s the sum of t
ncurred by th
unt of any non
sferred in a
he
he acquirer to
n-controlling
For e
fair va
ach business
alue or at the
s combination
proportionate
n, the acquire
e share of the
r measures th
e acquiree's i
he non-contro
dentifiable ne
olling interest
et assets.
t in the acquir
ree either at
Acqui
isition-related
d costs are ex
xpensed as in
ncurred, and i
included in ad
dministrative
expenses.
When
appro
the G
includ
n the Group a
opriate classif
Group’s opera
des the separ
acquires a bus
fication and d
ting or accou
ration of embe
siness, it ass
designation in
nting policies
edded deriva
esses the fin
n accordance
s and other pe
atives in host
ancial assets
with the cont
ertinent cond
contracts by t
and liabilities
tractual terms
itions as at th
the acquiree.
s assumed fo
s, economic c
he acquisition
.
or
conditions,
n date. This
business com
equity interes
mbination is a
st in the acqui
achieved in st
iree is remea
tages, the ac
sured to fair v
quisition date
value at the a
e fair value of
acquisition da
f the acquirer'
ate through pr
's previously
rofit and
If the
held e
loss.
Any c
acqui
be an
chang
be rem
contingent con
sition date. S
n asset or liab
ge to other co
measured un
nsideration to
Subsequent c
bility will be re
omprehensive
ntil it is finally
o be transferr
hanges to the
ecognised in a
e income. If th
settled within
red by the acq
e fair value of
accordance w
he contingent
n equity.
quirer will be
f the continge
with AASB 13
t consideratio
recognised a
ent considerat
9 either in pro
on is classified
at fair value at
tion which is
rofit and loss
d as equity, it
t the
deemed to
or as a
t should not
Good
contro
gain i
consid
dwill is recogn
olling interest
s recognised
deration trans
nised if the ag
t is in excess
in profit and
sferred. Refe
ggregate of th
of the net ide
loss if the fai
r to Note 19 f
he considerati
entifiable asse
ir value of the
for additional
ion transferre
ets acquired
e net assets a
information o
ed and the am
and liabilities
acquired is in
on goodwill re
mount recogn
s assumed. A
excess of the
ecognised by
ised for non-
lternatively a
e aggregate
the Group.
Acqui
isitions prior t
to July 2009 w
were account
ted for using
the purchase
e method of a
accounting.
89 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
Directors’ declaration
In accordance with a resolution of the directors of Austal Limited, I state that:
In the opinion of the directors:
The financial statements and notes of the consolidated entity are in accordance with the Corporations Act
2001, including:
Giving a true and fair view of the consolidated entity’s financial position as at 30 June 2014 and of its
performance for the year ended on that date; and
Complying with Accounting Standards (including the Australian Accounting Interpretations) and
Corporations Regulations 2001.
The financial Statements and notes also comply with International Financial Reporting Standards as
disclosed in Note 2.
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.
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 2014.
On behalf of the Board.
John Rothwell AO
Chairman
26 August 2014
JHSV 3 & LCS 4
90 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
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 the Group’s approach to corporate governance is
summarised in this section of the report. This Corporate Governance Statement should be read in conjunction
with the Directors’ Report on page 9.
The Board of Austal Limited is responsible for guiding and monitoring of the consolidated entity on behalf of
shareholders. The Board’s Audit and Risk subcommittee is tasked with the oversight and management of the
Group’s corporate governance policies and procedures.
The Austal Limited Corporate Governance Statement is now structured to specifically align with the ASX
Corporate Governance Council’s (the Council) Principles and Recommendations, which are as follows:
Principle 1.
Lay solid foundations for management and oversight
Principle 2.
Structure the board to add value
Principle 3.
Promote ethical and responsible decision making
Principle 4.
Safeguard integrity in financial reporting
Principle 5.
Make timely and balanced disclosure
Principle 6.
Respect the rights of shareholders
Principle 7.
Recognise and manage risk
Principle 8.
Remunerate fairly and responsibly
Principle 1 – Lay solid foundations for management and oversight
The Board gives direction and exercises judgment in setting the Group’s objectives and overseeing their
implementation. Responsibility for the operation and administration of the Group 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:
adopting a Strategic Plan for the Group, including general and specific goals and reviewing actual results
against that plan, which is aimed at meeting stakeholders’ objectives and managing business risk;
establishing and maintaining policies directed to ensuring that the Group complies with the law and conforms to
the highest standards of financial and ethical behaviour;
reviewing the Group’s reporting systems and internal controls (both operational and financial) together with
appropriate monitoring of compliance activities to determine these systems and controls are adequate and
appropriate;
ensuring that significant risks are identified, assessed, appropriately managed and monitored;
the appointment, performance assessment and, if necessary, removal of members of the executive
management team;
determining and implementing appropriate delegations of authority from the Board to the management to
enable their respective functions to be effectively carried out;
agreeing key performance indicators (both financial and non-financial) with management and monitoring
progress against these indicators; and
reporting to shareholders.
The performance of key executives is reviewed regularly against both measurable and qualitative indicators. Each
year the Nomination and Remuneration Committee assesses the performance of key executives. The
performance criteria against which they are assessed are aligned with the financial and non-financial objectives of
the Group.
91 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
Principle 2: Structure the Board to add value
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.
In accordance with the Council’s Recommendation 2.1, a majority of the Board are independent directors. The
Board is made up of a Non-Executive Chair, one Executive director and three independent Non-Executive
directors. As a result the Board considers those independent directors have a material impact on Board matters
and the Group’s direction, and are therefore able to ensure that management acts in the best interests of the
Group. The directors believe that the Board is well balanced, with a mix of expertise that ensures value for
shareholders.
Each year the Nomination and Remuneration Committee conducts a performance assessment for each Board
member against both measurable and qualitative indicators. The performance criteria against which directors are
assessed are aligned with the financial and non-financial objectives of the Group. Directors whose performance is
consistently unsatisfactory may be asked to retire.
The performance of the directors was assessed during the year in accordance with the above process and the
Board is satisfied with the performance of the Company’s directors.
Independence
The Council guidelines provide that directors 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.
In the context of director independence, the Board considers ‘materiality’ from both the Group’s and the individual
director’s perspective. The determination of materiality is based on the Council’s guidelines which include:
whether a director is a substantial shareholder of the Company, or affiliated with a substantial shareholder of
the Company;
whether the director is employed or has previously been employed by the Company, the nature of that
employment and the period (if any) between ceasing employment and commencing as a director;
whether the director has been a member or principal of an organisation that has provided services or consulted
to the Group within the last 3 years;
whether the director is, or is affiliated with a material supplier to or customer of the Group; and
whether the director has a material contractual relationship with the Group other than as a director.
The above matters, along with any other qualitative factors which point to the actual ability of the Director to have
an influence in shaping the direction of the Group, are considered when determining each director’s
independence.
Based on the above criteria, the Board considers the following directors are independent:
Name
Position
Dario Amara
David Singleton
Giles Everist
Non-Executive Director
Non-Executive Director
Non-Executive Director
Austal’s Non-executive Chairman is not classified as independent (as the term is used in the Council’s
recommendations), however he is a founding director of the Company and possesses extensive Australian
shipbuilding experience, from which Austal’s shareholders continue to benefit. Mr Rothwell has made a significant
contribution to the development of the shipbuilding industry in Australia and continues to draw on his broad
experience to add value to the Group.
The Chairman’s position is reviewed regularly by the Nomination and Remuneration Committee. Following the
most recent review and in light of the above unique skills and experience he brings to the Group, it remains the
Board’s opinion that Mr Rothwell is the best candidate to Chair the Company.
Directors are required to disclose any actual or potential conflicts or material personal interests on their
appointment to the Board. These disclosures are required to be kept up to date. Directors with material personal
interests in matters that are before the Board are excluded from consideration of the matter and from related
voting processes.
All directors are entitled to seek independent professional advice at the Group’s expense if required.
92 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
Outside directorships
The number of outside directorships held by directors is considered as part of his or her appointment and
retention. Unless exceptional circumstances apply, the Group follows the Council’s guidelines for acceptance of
outside directorships by Executive and Non-Executive Directors.
None of the Company’s current directors have outside directorship commitments that exceed the Council’s
guidelines.
Nomination and Remuneration Committee
The Nomination and Remuneration Committee has 3 members, comprised of two independent directors and the
Non-executive Chairman. The Nomination and Remuneration Committee is chaired by David Singleton, an
independent director. The Committee reviews and makes recommendations to the Board in relation to candidates
for vacant Board positions, remuneration of directors and key executives, Board evaluation processes and
succession planning.
The Nomination and Remuneration Committee’s functions are described in its charter, which is reviewed and
updated regularly and published on the Group’s website.
Principle 3: 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. The Group has adopted a
Director Code of Conduct under which directors are expected to:
act honestly and in good faith;
exercise due care and diligence in fulfilling the functions of their office;
use their powers to act in the best interests of the Group as a whole;
avoid conflicts and make full disclosure of any possible conflict of interest;
comply with the law;
be independent in judgement and ensure all reasonable steps are taken to be satisfied as to the soundness of
Board decisions;
encourage the reporting and investigating of unlawful and unethical behaviour; and
comply with the share trading rules and other Group policies.
The Group also has an Employee Code of Conduct that applies to all employees across the Austal Group. The
Employee Code of Conduct contains requirements that are similar to those contained in the Director Code of
Conduct, adjusted to reflect the different roles and expectations arising out of various positions of employment
within the Group.
Share trading policy
Directors and key management personnel are required to comply with the Group’s share trading policy, which may
from time to time be adjusted by the Board and applies in addition to legislative requirements and the ASX Listing
Rules.
The Group’s share trading policy is published on its website and includes:
a restriction on trading in securities of Austal Limited shares to the period of four months following the release
of half yearly and preliminary final reports. Directors and executive managers are also restricted from trading in
Austal Limited shares for 24 hours following any announcement by the Company to the ASX;
any director or executive manager 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
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.
93 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
Diversity at Austal
Austal 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 Group is committed to ensuring all employees are treated with respect and
given equal opportunities for employment and development, and the Board has adopted an Equity and Diversity
policy which can be found on the Group’s website. Among other things, the Group’s diversity policy:
articulates how the Group considers diversity within the workforce will make a valuable contribution towards the
Group’s continuous improvement and the achievement of goals; and
sets out the Board’s commitment to promoting a corporate culture which embraces diversity.
The Group’s ability to achieve diversity within the workforce is restricted by the industry in which it operates, the
significant majority of which is male. As there is a limited number of women who hold the particular fabrication,
welding and production skills required by the bulk of the Group’s workforce, the ability to meet targets for gender
diversity is necessarily restricted. In accordance with the Group’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 Group, and value to the Group, regardless of their gender, racial background, age, religious
beliefs or other values.
The Board therefore has 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 Group emphasises equal opportunity for employment. While there are currently no female Board members, in
light of the sector in which the Group operates, women are relatively well represented in other roles. Women
currently occupy professional, management and senior management roles across the business in the following
numbers:
Business unit
Australia Operations
US Operations
Philippines Operations
% of Senior
management
roles filled
by women
% of
management
roles filled
by women
% of
professional
roles filled
by women
21%
4%
13%
14%
19%
16%
33%
23%
35%
The Group has obtained certification of compliance with the Workplace Gender Equality Act 2012 (Cwlth) from the
Federal Government’s Workplace Gender Equality Agency. A copy of the gender diversity report that the Group
submitted to the agency can be found on the Group’s website.
The Board will continue to embrace diversity within the Group’s workforce as the Group and its activities grow and
appropriately skilled candidates are available.
94 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
Principle 4: Safeguard integrity in financial reporting
Audit and Risk Management Committee
The Company’s Audit & Risk Management Committee has 3 members, all of whom are independent Non-
executive directors. The Audit & Risk Management Committee is chaired by Dario Amara. The Committee also
obtains advice on corporate governance and related financial matters from an independent academic consultant
who attends Committee meetings as required.
The Audit & Risk Management Committee’s functions are described in its charter, which is reviewed and updated
regularly and published on the Group’s website. They include:
reviewing the Group’s financial reporting processes to ensure the integrity, accuracy and timeliness of the
Group’s financial accounts;
reviewing the internal controls, policies and procedures the Group uses to identify and manage business risks;
the policies and procedures for ensuring compliance with relevant regulatory and legal requirements, and good
corporate governance practice;
ensuring compliance with statutory reporting responsibilities;
assessing the effectiveness of the management of business risk and reliability of management reporting; and
reporting any significant deficiencies in the above to the Board.
In addition to the above, the Audit & Risk Management Committee (in accordance with its Charter) annually
reviews the performance of the external auditor on behalf of the Board, focussing particularly on:
the scope and rigour of the audit;
the quality of the service provided, considered form the shareholders’ point of view; and
the independence of the auditor.
If the Board considers a change in auditor is necessary, it will make a recommendation to shareholders to do so.
Such recommendation would be the subject of shareholder approval in a General Meeting.
Principle 5: 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 compliance with ASX disclosure commitments and improving access to information for all
investors. The objective is to ensure information announced by the Company is timely, factual, clear and contains
all information relevant to shareholders and potential investors.
The Chief Executive Officer, with oversight from the Audit & Risk Committee, has responsibility for:
making sure that the Group complies with continuous disclosure requirements;
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 Group’s disclosure policies and procedures and raising awareness of the
principles underlying continuous disclosure.
The Company releases all price sensitive information through the ASX, whether as part of regulatory reporting
such as financial results, directors interests and changes in shareholdings, or other operational information that is
relevant to shareholders or anyone considering investment in the Company.
95 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
Principle 6: Respect the rights of shareholders
Shareholder communication policy
The Board is ultimately responsible for ensuring that the shareholders are informed of all major developments
affecting the Group’s state of affairs.
Information is communicated to shareholders through:
the Annual Report;
the interim financial report;
disclosures made to the ASX;
notices and explanatory memoranda of the Annual General Meeting (AGM); and
the AGM.
The Company posts all ASX announcements on its website immediately after they are published by ASX and
maintains that information on the website for 4 years. Announcements include the full content of all presentations
made to analysts and industry conferences, which are lodged with ASX and published prior to the presentation
being given.
It is Company policy for the auditor’s lead engagement partner to be present at the AGM in the event of questions
about the conduct of the audit, the preparation and content of the auditors’ report, accounting policies adopted by
the Group or auditor independence. The Company’s legal adviser is also present at the AGM.
Principle 7: Recognise and manage risk
Risk management and internal compliance and control
The Board determines the Group’s ‘risk profile’ and reviews internal processes and procedures to satisfy itself that
management has developed and implemented a thorough system of risk management and internal control. The
Board delegates responsibility for undertaking and assessing risk management and internal control effectiveness
to management, however it retains ultimate responsibility for this function and therefore requires management to
regularly assess internal compliance, risk management and control procedures and report back to the Board on
the efficiency and effectiveness of those procedures. The Group’s process of risk management and internal
compliance and control includes:
continuously identifying and measuring risks that might impact upon the achievement of the Group’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 of 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; and
specific vessel risks.
The Board oversees regular assessment of the effectiveness of risk management and internal compliance and
control. In the past year, a focus on financial risk has led to the revision and updating of several risk management
policies regarding treasury management, financial accounting, financial risk management and taxation and the
employment of additional resources to ensure these issues are continually addressed and policies improved.
The Board is satisfied with the executive’s approach to and management of the risks faced by the business, based
on the measures adopted for addressing those risks.
The Board receives monthly updates from management about the financial status of the Group and its controlled
entities. The Board is comfortable that the declarations made by the CEO and CFO in accordance with s295A are
based on a sound process. To ensure the appropriate level of confidence in this process, executives across the
business are required to make similar declarations to the CEO before the declaration is made to the Board.
96 | AUSTAL LIMITED ANNUAL REPORT 2014
REPORT TO THE MEMBERS OF AUSTAL LIMITED
Principle 8: Remunerate fairly and responsibly
It is the Group’s objective to provide maximum stakeholder benefit from the retention of a high quality Board and
executive team by remunerating directors and key executives fairly and appropriately with reference to relevant
employment market conditions. The Group has implemented and will maintain a responsible, performance-based
remuneration policy that is aligned with the long-term interests of its shareholders as set out in more detail in the
Remuneration Report found at page 16. The key objectives of the remuneration policy are to:
strike the right balance between meeting shareholders’ expectations, paying our employees competitively, and
responding appropriately to the regulatory environment;
motivate executives to pursue the long term success of the Group; and
clearly demonstrate the relationship between executives’ performance and remuneration, and the alignment of
those 2 factors.
The Group’s approach to remuneration, including the structuring of executive remuneration and the role of
incentives, is set out in detail in the Remuneration Report. Only executives and employees are eligible to
participate in the Group’s incentive schemes (whether those schemes are based on STI, LTI or employee share
plans). Non-executive directors are paid a fixed fee which does not include equity-based remuneration, in order to
maximise the benefit of their independence and eliminate the potential for conflicts of interest to arise.
97 | AUSTAL LIMITED ANNUAL REPORT 2014
REPOR
RT TO THE M
MEMBERS O
OF AUSTAL L
LIMITED
Independ
dent aud
it report t
to the me
embers of
f Austal L
Limited
98 | AUSTA
AL LIMITED ANN
NUAL REPORT
2014
REPOR
RT TO THE M
MEMBERS OOF AUSTAL LLIMITED
99 | AUSTAAL LIMITED ANN
NUAL REPORT
2014
SHAREHOLDER INFORMATION
Shareholder information
The following information was extracted from the Company’s register as at 22 August 2014.
Distribution of shares
1 - 1000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Total
Number of
Number of
% of Total
holders
units
Issued Capital
1,406
1,914
708
834
72
697,036
5,339,322
5,499,713
22,981,871
312,026,991
0.20%
1.54%
1.59%
6.63%
90.04%
4,934
346,544,933
100.00%
Twenty largest shareholders
Rank
Shareholder
Number of
% of Total
holders
Issued Capital
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
Citicorp Nominees Pty Ltd
Austro Pty Ltd
Navigator Australia Ltd
Onyx (WA) Pty Ltd
Mr Vincent Michael O’Sullivan
UBS Nominees Pty Ltd
RBC Investor Services Australia Nominees Pty Limited
Austal Group Management Share Plan Pty Ltd
BNP Paribas Noms Pty Ltd
Garry Heys & Dorothy Heys
Mr William Robert Chambers
Mirrabooka Investments Limited
Lavinia Shipping Ltd
Mossisberg Pty Ltd
Lujeta Pty Ltd
Kenny Nominees (NT) Pty Ltd
Gregory McKechnie
Total
Substantial shareholders
Rank
Shareholder
1
2
3
4
5
6
HSBC Custody Nominees
J P Morgan Nominees Australia Limited
National Nominees Limited
Citicorp Nominees Pty Ltd
Austro Pty Ltd
Navigator Australia Ltd
Voting rights
55,850,870
54,921,985
41,721,882
32,841,970
32,200,745
27,870,610
9,817,570
8,650,000
6,699,324
5,535,282
4,355,531
3,948,971
2,844,670
2,625,650
2,550,000
2,280,000
1,883,945
1,300,000
1,240,783
1,112,575
16.12%
15.85%
12.04%
9.48%
9.29%
8.04%
2.83%
2.50%
1.93%
1.60%
1.26%
1.14%
0.82%
0.76%
0.74%
0.66%
0.54%
0.38%
0.36%
0.32%
300,252,363
86.66%
Number of
% of Total
holders
Issued Capital
55,850,870
54,921,985
41,721,882
32,841,970
32,200,745
27,870,610
16.12%
15.85%
12.04%
9.48%
9.29%
8.04%
All ordinary shares issued by Austal Limited carry one vote per share without restriction.
100 | AUSTAL LIMITED ANNUAL REPORT 2014
CORPORATE DIRECTORY
Corporate directory
Directors
Executive Directors
Andrew Bellamy
Non-Executive Directors
John Rothwell
Dario Amara
David Singleton
Giles Everist
Auditors
Ernst & Young
The Ernst & Young Building
11 Mounts Bay Road
Perth 6000
Western Australia
Company Secretary
Adrian Strang
Registered office
100 Clarence Beach Road
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
Cape Byron
Launch of Cape Sorell
Cape Byron
101 | AUSTAL LIMITED ANNUAL REPORT 2014