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Héroux-DevtekAUUSTAL L IMITED 2015 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 Remuneration Report ............................................................................................................................................... 15 Auditor independence and non-audit services ......................................................................................................... 33 Consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2015 ....... 34 Consolidated statement of financial position as at 30 June 2015 ............................................................................ 35 Consolidated statement of changes in equity for the year ended 30 June 2015 ..................................................... 36 Consolidated statement of cash flows for the year ended 30 June 2015 ................................................................ 37 Notes to the financial statements ............................................................................................................................. 38 Directors’ declaration ............................................................................................................................................... 96 Independent audit report to the members of Austal Limited .................................................................................... 97 Shareholder information ........................................................................................................................................... 99 Corporate governance statement ............................................................................................................................ 99 Corporate Directory ................................................................................................................................................ 100 GHAGHA-1 – ONE OF TWO 45M FAST CREW BOATS BUILT FOR ABU DHABI NATIONAL OIL COMPANY (ADNOC) 1 | AUSTAL LIMITED ANNUAL REPORT 2015 HIEF EXECU UTIVE OFFICE ER’S REPOR RT Index to the notes s to the f financial s statemen nts Basis of prep paration ....... ..................... ..................... .................... ..................... ..................... .................... Corpor Basis o rate Informatio of preparation on ................... ...................... ...................... ...................... ..................... ..................... ...................... ...................... ...................... ...................... Current year r performance e ................... ..................... .................... ..................... ..................... .................... Operat Revenu Other i Earning Reconc Dividen Income ing segments ue ................. ncome and ex gs per share . ciliation of net nds paid and p e and other tax ..................... ...................... xpenses ......... ...................... profit after tax proposed ....... xes ................ ...................... ...................... ...................... ...................... x to net cash f ...................... ...................... ..................... ..................... ..................... ..................... flows from ope ..................... ..................... ...................... ...................... ...................... ...................... erations ......... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... Capital struc cture ............. ..................... ..................... .................... ..................... ..................... .................... Cash a Interes Contrib Govern and cash equiv t bearing loan buted equity an nment grants r valents ........... s and borrowi nd reserves ... relating to ass ...................... ings ............... ...................... sets ................ ..................... ..................... ..................... ..................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... Working cap pital .............. ..................... ..................... .................... ..................... ..................... .................... Trade a Constru Invento Trade a and other rece uction contrac ories and work and other pay eivables ......... cts in progress k in progress .. ables ............. ...................... s .................... ...................... ...................... ..................... ..................... ..................... ..................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... Infrastructur re & other ass sets ............... ..................... .................... ..................... ..................... .................... Propert Intangi Collate ty, plant and e ble assets ..... eral ................ equipment ...... ...................... ...................... ...................... ...................... ...................... ..................... ..................... ..................... ...................... ...................... ...................... ...................... ...................... ...................... Other liabiliti ies ............... ..................... ..................... .................... ..................... ..................... .................... Provisio ons ............... ...................... ...................... ..................... ...................... ...................... Financial ris k manageme ent ................. ..................... .................... ..................... ..................... .................... Fair va Financ Derivat lue measurem ial risk manag tive financial in ments ............. gement ........... nstruments an ...................... ...................... nd hedging .... ..................... ..................... ..................... ...................... ...................... ...................... ...................... ...................... ...................... Unrecognise ed items ....... ..................... ..................... .................... ..................... ..................... .................... Commi Events itments and co after the bala ontingencies .. ance date ....... ...................... ...................... ..................... ..................... ...................... ...................... ...................... ...................... The Group, management t and related parties ......... .................... ..................... ..................... .................... Parent Related Key ma Share b Parent interests in su d party disclos anagement pe based paymen entity ........... ubsidiaries ..... sure ............... ersonnel comp nts ................. ...................... ...................... ...................... pensation ....... ...................... ...................... ..................... ..................... ..................... ..................... ..................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... 1. Note 1 2. Note 2 3. Note 3 4. Note 4 5. Note 5 6. Note 6 7. Note 7 8. Note 8 9. Note 9 Note 1 Note 1 Note 1 Note 1 10. 11. 12. 13. Note 1 Note 1 Note 1 Note 1 14. 15. 16. 17. Note 1 Note 1 Note 2 18. 19. 20. Note 2 21. Note 2 Note 2 Note 2 22. 23. 24. Note 2 Note 2 25. 26. Note 2 Note 2 Note 2 Note 3 Note 3 27. 28. 29. 30. 31. 8 ................ 38 8 ................. 38 8 ................. 38 5 ................ 45 5 ................. 45 9 ................. 49 0 ................. 50 2 ................. 52 3 ................. 53 4 ................. 54 5 ................. 55 9 ................ 59 9 ................. 59 0 ................. 60 2 ................. 62 4 ................. 64 5 ................ 65 5 ................. 65 7 ................. 67 7 ................. 67 8 ................. 68 9 ................ 69 9 ................. 69 2 ................. 72 5 ................. 75 6 ................ 76 6 ................. 76 8 ................ 78 8 ................. 78 2 ................. 82 6 ................. 86 8 ................ 88 8 ................. 88 8 ................. 88 9 ................ 89 9 ................. 89 9 ................. 89 9 ................. 89 0 ................. 90 5 ................. 95 2 | AUSTAL L LIMITED ANN UAL REPORT 2 2015 HIEF EXECUTIVE OFFICER’S REPORT Chairman’s report It is my pleasure to present the 2015 Annual Report to you on behalf of the Board of Austal Limited. The past 12 months represented another year of embedding sustainable operational improvements from FY2014 and further strengthening of the balance sheet through the generation of cash and repayment of debt. Highlights from the year are as follows: $1.4 billion Group Revenue exceeded initial guidance of $1.2 billion and subsequent guidance of $1.35 billion. Concluded the sale of the 102 metre stock trimaran to Condor ferries and used part of the proceeds to repay debt. Maintained a strong focus on cash generation which was also used to repay debt. Littoral Combat Ship (LCS) 6 completed acceptance trials with the US Navy and delivery occurred post balance date. LCS 6 is the first LCS that Austal has built as prime contractor. Confirmed funding for the final two Littoral Combat Ships under the original contract with the US Navy. Secured new shipbuilding contracts with an undisclosed Asian operator and Caspian Marine Services from Azerbaijan. Increased the EBIT contribution and EBIT margin of the Service and Sustainment business in the USA. 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 $53.156 million in FY2015, compared to $31.859 million in FY2014. FY2015 earnings before interest, tax, depreciation and amortisation were (EBITDA) $109.069 million for the year compared to $79.338 million in FY2014. The improvement in earnings was driven by stronger shipbuilding margins in Australia and one off non-cash foreign exchange gains relating to inter-company loans. These loans have now been converted to equity. 3 | AUSTAL LIMITED ANNUAL REPORT 2015 Revenue for the year grew by 26 per cent from $1,122.863 million in FY2014 to $1,414.888 million. US operations were the largest contributor to revenue, delivering $1,119.703 million (FY2014: $933.615 million) and $58.429 million in earnings before interest and tax (EBIT) (FY2014: $61.682 million) as Austal continued to perform work on its major LCS and Joint High Speed Vessels (JHSV) contracts for the US Navy. Australian operations delivered another improvement in results as construction of the Cape Class Patrol Boat fleet nears completion with $211.808 million in revenue (FY2014: $241.912 million) and $31.774 million EBIT (FY2014: $16.684 million). Philippines Operation reported a $0.992 million EBIT (FY2014: $2.703 million). Group net debt was reduced to $6.094 million (FY2014: $71.496 million) after generating operating cash flow of $110.434 million. Financial summary Revenue* EBITDA Depreciation Amortisation 2015 $’000 2014 $’000 $ 1,414,888 $ 1,122,863 $ 109,069 $ 79,338 $ (22,736) (1,530) $ (21,593) (2,180) EBIT Net Interest (Expense) / Income $ 84,803 (4,110) $ 55,565 (8,421) Operating Profit Before Tax $ 80,693 $ 47,144 Tax (Expense)/Benefit $ (27,537) $ (15,285) Operating Profit After Tax $ 53,156 $ 31,859 % EBIT/Revenue Basic Earnings Per Share ($ per share) Net Assets Return on Invested Capital (%) $ $ 6.0% 0.16 512,399 10.8% $ $ 4.9% 0.09 433,232 9.1% *Excludes other income EBIT and EBITDA are non-IFRS measures. The information is unaudited but is extracted from the audited financial statements. EBIT is used to understand segment performance and EBITDA is used by management to understand cash flows within the group. The US Navy added an option for an additional LCS (LCS 26) under the existing contract. Year ended 30 June HIEF EXECUTIVE OFFICER’S REPORT Board and Executive management People Jim McDowell joined the Board as an Independent Director in December 2014 and brings extensive defence industry experience to the team. The Executive management team has remained stable and focussed on executing strategic initiatives. Strategy and governance The Board has continued its active engagement in reviewing the development of Group strategy proposed by Executive management. The annual review of the Group’s risk management framework was conducted with involvement by the Audit and Risk committee and Remuneration and Nomination committee to ensure that the necessary controls and governance are in place, fit for purpose and amended as required. Austal has demonstrated success in leveraging its intellectual property in high speed ferries and defence vessels to penetrate adjacent markets, with the recent contracts for high speed crew transfer vessels into UAE and Azerbaijan exemplifying the initiative. Finally I would like to thank and acknowledge our employees for their consistent loyalty and hard work during the year that has made our achievements possible. I extend my thanks to shareholders for your ongoing support of Austal. It is immensely pleasing to continue to deliver improved operational and financial performance to drive shareholder value. John Rothwell AO Chairman AUSTAL USA 4 | AUSTAL LIMITED ANNUAL REPORT 2015 Chief Executive Officer’s report Record Revenue and Profit Austal delivered record NPAT of $53.156 million from record revenue of $1.4 billion in FY2015, which was underpinned by significant profit generation in the USA and Australia segments. A major milestone was achieved in the USA with LCS 6 completing acceptance trials in June and delivery to the US Navy being completed post balance date in August 2015. LCS 6 is the first of the LCS that Austal has delivered as prime contractor to the US Navy. Completion of LCS 6 was more difficult than planned, which will also impact LCS 8 and 10, and this has been reflected in a reduction in USA EBIT margin in FY2015. Substantial knowledge has been garnered from the completion of LCS 6 that will deliver improved performance in the construction of future ships. Strong generation of cash has further strengthened the balance sheet and supported the return to dividends (1 cent interim dividend and a final dividend of 3 cents, bringing the year to a total of 4 cents) after a three year hiatus. Strategy The strong profit is testament to sustained focus on the core strategy. Balance sheet gearing was reduced year on year with a substantial reduction in net debt from $71.496 million to $6.094 million. This was achieved through strong operational cash generation and the sale of the 102 m trimaran ferry to Condor Ferries in the UK. The USA is a core market for Austal and the US Navy’s commitment to the LCS program is articulated by the shipbuilding plan for a total fleet of 52 LCS (to be renamed fast frigate after LCS 32) and is being realised with the appropriation of funds for LCS 22 & 24 by US Congress and a contract extension to include an eleventh ship (LCS 26) which is expected to be funded in FY2016. The confirmation of LCS 22 & 24 added ~ US$700 million to the order book which secures work through CY2020. The USA segment has achieved significant milestones in the development of a substantial vessel sustainment business with maintenance planning and execution contracts awarded and $1,119.703 million of revenue being generated in FY2015. Efficient and hence productive completion of the Cape Class Patrol Boat fleet for the Australian Border Force demonstrates the benefits that can 5 | AUSTAL LIMITED ANNUAL REPORT 2015 flow from continuous shipbuilding activities. This perfectly aligns with the Federal Government’s recent Shipbuilding Policy announcement (August 2015) to transition into a continuous surface shipbuilding procurement pattern with > $40 billion of new shipbuilding projects scheduled over the next decade. Austal’s growth has been underpinned by the core skill of its people to innovate and to apply new technologies in the commercial world to generate an economic return. This skill is a critical enabler to our strategy of expanding into new or adjacent products and customer markets. The benefits of this strategy are already being realised and are exemplified by projects such as the High Speed Support Vessel (HSSV) contract for the Royal Navy of Oman, and the award of contracts to three customers for high speed crew transfer vessels for the oil and gas industry. Technology transfer to the Philippines Operation and integration of the Philippines into the supply chain for the Group has increased the competitiveness of the Group. Prudent cash management is embedded in decision making to ensure a balanced approach to operational activities, investment in future growth and capital management. This will enhance Austal’s ability to deliver on the record amount of work in progress and strategic objectives. Strategic objectives for the year ahead are productivity enhancements and cost reduction initiatives across the Group, growing the Sustainment business and growth in the Australian market. People Our Values of Excellence, Customer, Integrity and Teamwork are unchanged and continue to be the basis for many tangible and sustainable business successes throughout the year. There has been an increased focus on Human Resources Strategy with succession planning reviewed and developed across the top 3 tiers of management and critical skill areas, and capability development and recruitment to deepen the talent pool. This has presented a new round of opportunities for many employees to grow and the organisation is stronger and more sustainable as a result. There will be focus on increased female participation in the workplace as a core diversity initiative in the year ahead. Austal is pu markets, w low Austral competitive ursuing many hich reflects a ian dollar pla e position. y opportunitie a healthy out aces the Grou s in core tlook and the up in a highly The strengt operational greater cas capital man growth initia th of the orde improvemen sh generation nagement, inv atives and ret er book and th nts will transla n which enabl vestment in s turns to share he sustained ate into e prudent strategic eholders. Andrew Be Managing D llamy Director and C Chief Executi ive Officer LCS 6 – USS J JACKSON Aremiti Ferry 2 – built in the Ph hilippines I thank all of stakeholders excellence, c f our employe s for their har commitment r ees and other otion to rd work, devo and loyalty. Outlook The order bo 30 June 201 CY2020. ook stands at 5 which sust t $3.1 billion a ains work thr at ough The longevit programs in orders, awar Congression award of con fleet sustain investment i increase the platforms to ty of the LCS the USA is c rd of contract nal funding fo ntracts in futu ment capabil n research an e capability of meet future r hipbuilding firmation of and JHSV sh clear with con t extensions, ation / or the confirma estment in ure years, inve Navy ity, and US N ent to nd developme f both the LCS S and JHSV requirements . The Australi policy annou shipbuilding shipbuilding Offshore Pat frigate progr represent su Australia. an Federal G uncement to s capability thr procurement trol Vessel co ram to replace ubstantial opp Government’s sustain Austra rough continu t and accelera ontract, and f e the ANZAC portunities for recent alian uous ation of the uture C fleet, r Austal in Austal’s dem domestic an successful p Navy progra approximate the Group in Offshore Pat replacement monstrated pe d export mar prime contrac ams (LCS & J ely 15% of the n good stead trol Vessel an t programs. edigree in pen rkets and evo tor for two ma HSV) that wi e US Navy fle to compete fo nd ANZAC fle netrating lution into a ajor US ll represent eet, place or the eet The lower A competitiven reducing the markets. ustralian dolla ness of the Au e cost of Aust ar has increa ustralian busi ralian conten sed the iness by t in export A weaker AU repatriation o Philippines b UD also impro of earnings fr business units oves the tran rom the USA s. slation and and The Middle E continue to p East is a third pursue severa d core market al credible ini t and we itiatives. Austal maint commercial several sale Austal has c applying clea innovate our in the Philipp positioned to eventuate. tains a watch ferry market s leads in est committed a m an fuel techn r product offe pines means o seize upon ing brief on th in Europe an tablished mar modest invest ologies to fur ering. The low that Austal is opportunities he d Asia with rkets. tment to rther w cost base s well s if they 6 | AUSTAL L LIMITED ANN UAL REPORT 2 2015 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 2015 $'M 2014 $'M $ 1,119.703 $ 933.615 58.429 5.2% 61.682 6.6% Austal’s US operations were the most significant contributor to the Group result again in FY2015. EBIT was ~ $2 million lower and EBIT margin reduced year over year from 6.6% to 5.2% as a result of issues arising from LCS 6, which is the first LCS Austal is building as prime contractor. There will be a flow on impact to LCS 8 and 10 due to the staggered but concurrent production of the three vessels. The ability to generate a substantial business unit EBIT whilst absorbing lower margin results on LCS 6 demonstrates the resilience of the business and the benefit of having a broad portfolio of projects under construction at any one point in time. 17 vessel construction projects contributed to profit generation in FY2015. The total USA workforce was maintained within the target range of 4,100 – 4,200 with a sharp focus on skills development and identifying and exploiting opportunities for productivity improvements which is continuing to drive Austal along the learning curve of the two vessel programs. Stringent cash management is embedded in management decision making and capital expenditure was restricted to sustaining activities in FY2015. Two more vessels were added to the order book after funds for LCS 22 & 24 - the ninth and tenth LCS under the US$3.5 billion contract – were appropriated by Congress in March 2015. These projects added a further ~ US$700 million to the order book and secured funding for the LCS program through CY2020. The US Navy also extended the existing block buy contract to include an additional option for LCS 26 which is expected to be funded by Congress in FY2016. The addition of the option for LCS 26; an eleventh ship under the block buy contract; demonstrates the US Navy’s strong support for the high performance, 7 | AUSTAL LIMITED ANNUAL REPORT 2015 low cost LCS and is consistent with their stated plans to build a total fleet of 52 ships across two variants. US Congress also appropriated funds for an eleventh JHSV during FY2015 which is expected to result in an extension of the original block buy contract for 10 ships. It is anticipated that a contract modification for the award of JHSV 11 will occur during FY2016. There was significant progress in both major programs during the year from a construction perspective. JHSV 4, USNS Fall River was delivered in September 2014 after successfully completing acceptance trials in July 2014, JHSV 5, USNS Trenton was launched in September 2014 and delivered in April 2015, JHSV 6, USNS Brunswick was christened and launched in May 2015. The JHSV programme is progressing well with a mature vessel design and a stabilised bill of materials. Exploiting productivity initiatives is the major focus to drive the business along the learning curve which takes cost out of the programme. USS Jackson (LCS 6) – the first LCS being built by Austal as the prime contractor under the 10-vessel contract, completed US Navy acceptance trials in June 2015 and delivery to the US Navy was completed post balance date in August 2015. Six additional LCS are at various stages of construction. USS Montgomery (LCS 8) is preparing for sea trials later this year while USS Gabrielle Giffords (LCS 10) was recently christened. USS Omaha (LCS 12) is preparing for launch in CY2015 and final assembly is well underway on USS Manchester (LCS 14). Modules for USS Tulsa (LCS 16) and USS Charleston (LCS 18) are both under construction. The first cutting of metal for USS Cincinnati (LCS 20) is scheduled for later this year. Austal has grown revenue and earnings from Sustainment activities with the award of the LCS Planning Yard Contract in FY2015 H1 to the Bath Iron Works / Austal team. Austal is already delivering work packages under new contracts, is negotiating teaming agreements for additional scopes of work and is developing its strategy for increased global reach of Austal vessels deployed by the US Navy. Australian operations Year ended 30 June Revenue EBIT EBIT Margin 2015 $'M 2014 $'M $ 211.808 $ 241.912 31.774 15.0% 16.684 6.9% Austal’s Australian operations delivered another significant increase in EBIT and EBIT margin in FY2015. This result was again driven by efficient construction of the $330 million Cape Class Patrol Boat (CCPB) fleet in the Henderson shipyard for Australian Border Force. The efficiencies extracted over the four year construction period demonstrate the benefits from continuous shipbuilding with a mature vessel design. CCPB 3 – 6 were all delivered to the Australian Border Force during FY2015. CCPB 7 was delivered subsequent to balance date and the final vessel is due to be delivered in August 2015. CCPB 1 and 2 returned to the Henderson shipyard for their first major dockings since delivery to the customer in FY2013 and FY2014 respectively, as part of the 5 years in service support contract for the entire CCPB fleet. Design and construction of the two 72 metre High Speed Support Vessels (HSSV) for the Royal Navy of Oman continued to advance and will sustain construction activity into late CY2016. Austal entered into a contract with Caspian Marine Services from Azerbaijan to construct a 70 metre fast crew boat to service oil and gas exploration and production platforms operated by the State Oil Company of Azerbaijan and British Petroleum (BP). The 30 knot, 150 passenger catamaran will be jointly built in Austal’s Philippines and Henderson shipyards with delivery expected in Australia in CY2016. The project will support deeper integration of supply chain and production activities between the two shipyards. Philippines operations Year ended 30 June Revenue EBIT EBIT Margin 2015 $'M 2014 $'M $ 38.743 $ 33.767 0.992 2.6% 2.703 8.0% The Philippines Operations completed the customisation of the 102 m trimaran ferry that was sold to Condor ferries in August 2014, completed construction of a 26 metre wind farm vessel which was delivered to the United Kingdom in the second quarter of FY2015 and substantially constructed two high speed crew transfer vessels for an oil and gas customer in the United Arab Emirates. Both vessels were contractually delivered to the customer post balance date. The award of another two high speed crew transfer vessels added ~ US$25 million to the Philippines order book and provides contracted work through FY2016. The award of four orders for high speed crew transfer vessels across the last two financial years demonstrates further diversification of Austal’s 8 | AUSTAL LIMITED ANNUAL REPORT 2015 customer markets and application of intellectual property to new products. Philippines Operations continued to support Sustainment activities by providing personnel to undertake docking of Austal vessels in Europe. 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. Components were manufactured and shipped from the Philippines to Australia during FY2015 and this approach is now a core element of the construction strategy for current vessel orders. Austal is pursuing several credible leads with existing high speed vessel operators in Europe for large vehicle passenger ferries with a focus on green energy systems. The Philippines Operations is well established to exploit these market opportunities if they are realised. Safety performance 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. Our goal of Zero Harm means no injuries to anyone, ever and whilst the target is aspirational, it remains a target to strive for. The Shipbuilders Council of America (SCA) recognised Austal USA’s ongoing commitment to safety with an Award for Improvement in Safety for CY2014 recognising a year on year reduction in the total recordable incident rate of 10% or more. The SCA is a US national trade association that represents 41 companies that own and operate over 120 shipyards across the USA.Austal reports safety performance in accordance with AS1885.1. 107.0 60.1 65.8 38.9 17.8 14.3 16.0 19.7 21.7 14.1 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 Medical Treatment Injury Frequency Rate (per million hours worked) 6.35 5.38 6.05 5.90 3.92 3.90 2.20 2.30 2.30 2.10 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 Lost Time Injury Frequency Rate (per million hours worked) Directors’ report The Board of Directors of Austal Limited submit their report for the year ended 30 June 2015. 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.) Dario resigned as a Director on the 30 October 2014. 9 | AUSTAL LIMITED ANNUAL REPORT 2015 Jim McDowell – Independent Director Jim brings a strong, relevant industry background to Austal, with more than 30 years of experience in the defence and aerospace sectors. He was most recently Chief Executive Officer at BAE Systems Saudi Arabia operations. Prior to this, Jim was Chief Executive Officer at BAE Systems Australia where he oversaw a significant expansion of its operations. Jim joined BAE Systems in 1996 and held senior management positions prior to his CEO roles. Before commencing at BAE Systems, Jim worked for 18 years at aerospace company Bombardier Shorts in legal, commercial, and marketing positions. Jim left BAE Systems Saudi Arabia in 2013 to return to Australia. He has taken a strong interest in the continuing education sector, and is currently Chairman of the Australian Nuclear Science and Technology Organisation. Jim is a Non-Executive Director at Codan Limited. Jim is Chancellor elect of the University of South Australia. Jim holds a Bachelor of Laws from the University of Warwick in England. 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. 10 | AUSTAL LIMITED ANNUAL REPORT 2015 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. 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. 11 | AUSTAL LIMITED ANNUAL REPORT 2015 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 Number Options^ Performance Rights^^ John Rothwell Andrew Bellamy Dario Amara David Singleton Giles Everist Jim McDowell 32,200,745 478,474 - 28,600 20,000 - - 280,000 - - - - - 666,703 - - - - ^This represents options granted from the Employee Option Share Plan (ESOP) (refer to Note 30 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 30 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 $53.156 million after income tax (FY2014: $31.859 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 A dividend of 1 cent per share was paid after the FY2015 half year results (FY2014 Half year: Nil) and a further dividend of 3 cents per share has been proposed for FY2015 (FY2014: Nil). Significant events after the balance date A fully franked dividend of 3 cents per share (FY2014: Nil) has been proposed. 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 2015 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 2015. 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 30 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 The parent entity has agreed to indemnify its auditors, Ernst & Young, to the extent permitted by law, 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 Limited Audit & Risk Remuneration Board Committee Committee Number of meetings held Number of meetings attended: John Rothwell Andrew Bellamy Dario Amara 1 David Singleton Giles Everist Jim McDowell 2 6 6 6 2 6 6 3 4 - - 1 3 4 2 3 3 - - 3 3 - 1. Dario Amara retired as a director of the Company (and Chairman of the Audit & Risk Committee) on 30 October 2014. Giles Everist replaced him as Chairman of the Audit & Risk Committee. 2. Jim McDowell was appointed as a director on 31 December 2014 and has attended all Board meetings since his appointment. He joined the Audit & Risk Committee in February 2015 and has attended all Audit & Risk Committee meetings since his appointment. 13 | AUSTAL LIMITED ANNUAL REPORT 2015 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 2 Giles Everist 1 David Singleton Jim McDowell Nomination and Remuneration David Singleton 1 Giles Everist John Rothwell 1. Designates the Chairman of the committee. 2. Designates resigned during the year 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. Cape Class Patrol Boats 14 | AUSTAL LIMITED ANNUAL REPORT 2015 Remune eration Re eport This Remun Company an regulations. eration Repo nd the Group This informat ort for the yea in accordanc tion has been ar ended 30 J ce with the re n audited as r une 2015 out equirements o required by se tlines the rem of the Corpora ection 308(3C muneration arr ations Act 200 C) of the Act. rangements o 01 (the Act) a of the and its The Remune eration Repo rt is presente ed under the f following sect tions: 1. 2. 3. 4. 5. 6. 7. 8. 9. I. II. III. IV. I. II. III. IV. I. II. III. IV. I. II. III. IV. V. VI. VII. Mess age from the Nomination & & Remunerat tion Committe ee (NRC) ...... ..................... Perso ons covered b by this report .................... .................... ..................... ..................... .................... 6 ................ 16 .................... 7 ................ 17 Remu uneration gov vernance fram mework and s strategy ........ ..................... ..................... .................... Nomination Share Tradin Executive R Remuneratio & Remunerati ng Policy ...... Remuneration C on Framework ion Committee ...................... Consultant En k .................... e Charter ...... ...................... ngagement Po ...................... ..................... ..................... olicy ............... ..................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... Execu utive KMP rem muneration p policy ............ .................... ..................... ..................... .................... Structure .... Base Remun Short Term Long Term I ..................... neration KMP Incentive (STI ncentive (LTI) ...................... ..................... I) Plan Policy . ) Plan Policy .. ...................... ...................... ...................... ...................... ..................... ..................... ..................... ..................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... Non-E Executive Dir rector remune eration .......... .................... ..................... ..................... .................... Application . Remuneratio Fees ........... No terminati ..................... on structure .. ..................... ion benefits ... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ..................... ..................... ..................... ..................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... Remu uneration of K KMP .............. ..................... Equity y instruments s held by KMP P .................. .................... ..................... ..................... .................... 6 ................ 26 .................... ..................... ..................... .................... FY2012 Opt FY2014 Per FY2015 Per FY2016 Per Share rights Options and Shareholdin tions vesting d rformance Rig rformance Rig rformance Rig s granted durin d rights holding gs ................. during the peri hts Vesting .... hts Grant ....... hts Grant ....... ng the period . gs .................. ...................... iod ................. ...................... ...................... ...................... ...................... ...................... ...................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... Group p Performanc ce .................. ..................... .................... ..................... ..................... Other r related matt ters ............... ..................... .................... ..................... ..................... .................... ................ 31 .................... ................ 31 I. II. III. IV. V. Board comp Details of co Loans to KM Other transa Use of Indep position .......... ontractual prov MP ................. actions with KM pendent Remu ...................... visions for KM ...................... MP ................ uneration Con ...................... MP .................. ...................... ...................... nsultants ........ ..................... ..................... ..................... ..................... ..................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ................. 31 ................. 31 ................. 31 2 ................. 32 2 ................. 32 8 ................ 18 8 ................. 18 8 ................. 18 8 ................. 18 9 ................. 19 9 ................ 19 9 ................. 19 0 ................. 20 2 ................. 22 3 ................. 23 5 ................ 25 5 ................. 25 5 ................. 25 5 ................. 25 5 ................. 25 7 ................ 27 7 ................. 27 7 ................. 27 8 ................. 28 9 ................. 29 0 ................. 30 0 ................. 30 0 ................. 30 15 | AUSTA AL LIMITED ANN NUAL REPORT 2015 Nomination & Remunera ation Comm ittee (NRC) 1. Messag ge from the Dear Shareh holder, Austal has e (KMP) remu completed in phased out. embarked upo neration gove n FY2016, alt on a two year ernance, polic though it may r journey to fu cies and prac y take somew ully review, re ctices. This p what longer fo ecalibrate and process bega r all the chan d align key ma n in FY2015, ges to be evi anagement p and is expec ident as old p personnel cted to be practices are The NRC ha last financial outcomes fro that all of the order to carr and major in also commis from last yea as been focus l year. The fo om the imple ese are prope ry out this act nstitutional inv ssioned detai ar. ssed on revie ocus has bee mentation of erly aligned to tivity, the Com vestors follow led analysis f wing a numb en primarily on the Long Ter o positive sha mmittee has ta wing the public from an Indep ber of areas o n executive a rm Incentive ( areholder outc aken inputs f cation of last pendent Rem f policy imple and non-exec (LTI) and Sho comes using from several p year’s remun muneration Ex ementation in utive remune ort Term Ince clear and cha parties, includ neration repor pert which fu the company eration, review ntive plans a allenging obje ding from pro rt. The Comm urther built on y during the wing nd ensuring ectives. In xy advisers mittee has the inputs The NRC re and in one o used its con in the fast fe time delivere vessels on ti the only fore is commente in demandin equally high cognises that of the most te siderable inte erry and work er of vessels ime and to sp eign owned de ed on at lengt ng markets wi quality indivi t Austal is a s chnically dem ellectual prop boat industry to the Austra pecification. T esigner and c th in this repo th highly sop duals who ar sophisticated manding indus erty predomin y in to the wo lian federal g These capab constructor of ort. The signi histicated cus re selected, s business tha stries in the w nantly in alum orldwide Defe government p bilities have cr f frontline and ificance of thi stomers and supported and at operates fro world. The co minium multi h nce industry. roducing, mo reated the pla d support ves s is that the A therefore its d remunerate om Australia a ompany, in th hulled vessels Austal has b ost recently, th atform on whi sels for the U Austal busine leadership m d accordingly across a glob he last few ye s, to build on been a reliabl he new Cape ich Austal has US Navy, a m ess now opera ust be drawn y. bal footprint ars, has its position le and on e Class s become matter which ates globally, from The focus fo of global role to judge bas the Australia this group, w incentive ele ensures that for the longe or Austal is to es and share se pay agains an market has we have also ement of pay t a focus on a er term succe ensure that e holder expec st a peer grou s few peers to deemed it ap is calibrated achieving stre ess of the com executive pay tations increa up of industria o Austal. Wh ppropriate to m at the 75th pe etching short t mpany is main y and incentiv asingly set by al and service hilst we have move towards ercentile of th term targets ntained. ve schemes t y a compariso e sector comp set a base pa s a structure e peer group is achieved w read a fine lin on to the broa panies of a sim ay guideline a where the lon . We believe whilst ensuring ne between th ader market. milar size, ac at the 50th per ng and short e that this stru g that critical he demands Our policy is ccepting that rcentile of term ucture positioning The remune and are bein implemented the impact th eration report ng implement d and the Com his is having o describes the ed during the mmittee’s atte on the compa e progressive e FY2016 yea ention will foc any performa e changes tha ar. We now b cus on the tar ance. at have been believe that m rgets being se reviewed dur much of the str et and measu ring the last fi ructural chan ured for its ex inancial year ge has been d xecutives and The Commit Committee w Arabia and p business. T both now an business, ha contribution ttee is also re welcomes Jim prior to that w The appointme nd in the futur as a unique, d beyond that w esponsible for m McDowell to was the CEO o ent recognise re. The Comm detailed and e which would r nominations o the Board. of BAE Syste es the continu mittee continu essential insig be deemed a s which includ Jim was mos ems, Australia ued and incre ues to suppo ght into the b as normal. de for the Boa st recently the a which includ eased emphas rt the compan business and ard and the C e CEO of BAE des its shipbu sis of Defenc ny Chairman continues to Chairman. Th E Systems in uilding and su ce in Austal’s who, as a fou make a signi his year the n Saudi upport business under of the ficant The Board a efforts of the stakeholders looks forwar appreciates th e Board to rev s and engage rd to the conti he continued view and imp e with their vie inued suppor and strong su rove remuner ews, as well a rt of sharehold upport of sha ration govern as noting the ders for the R areholders at t nance and pra excellent per Remuneration the 2014 AGM actices, and to rformance of n Report reso significant M. Given the h o consult with y, the Board the Company 2015 AGM. lution at the 2 Yours sincer rely, David Single eton Chairman, N Nomination an nd Remunera ation Committ tee 16 | AUSTA AL LIMITED ANN NUAL REPORT 2015 Remuneration report (audited) 2. Persons covered by this report This report covers all Key Management Personnel (KMP) as defined in the Accounting Standards, including all Directors, as well as those Executives who have specific responsibility for planning, directing, and controlling material activities of the Group. The KMP for the year ended 30 June 2015 were as follows: Executive Directors Mr Andrew Bellamy Chief Executive Officer and Managing Director since February 2011 Executives with no Director duties Mr Greg Jason Group Chief Financial Officer since January 2013 Mr Brian Leathers Chief Financial Officer USA since February 2008 Mr Craig Perciavalle President USA since November 2012 Mr Joselito Turano President Philippines since December 2012 The following person ceased to be executive KMP of Austal during FY2015: Mr Graham Backhouse President Australia until April 2015 Non-Executive Directors Mr John Rothwell Chairman since 1998 Member of the Nomination & Remuneration Committee since December 1998 Mr David Singleton Independent non-executive director since December 2011 Chairman of the Nomination & Remuneration Committee since September 2012 Member of the Audit & Risk Committee since February 2012 Mr Giles Everist Independent non-executive director since November 2013 Chairman of the Audit & Risk Committee since October 2014 Member of the Nomination & Remuneration Committee since February 2014 Mr Jim McDowell Independent non-executive director since December 2014 Member of the Audit & Risk Committee since February 2015 The following person ceased to be a non-executive director during FY2015: Mr Dario Amara Independent, non-executive director until October 2014 17 | AUSTAL LIMITED ANNUAL REPORT 2015 3. Remuneration governance framework and strategy I. Nomination & Remuneration Committee Charter The role and responsibilities of the committee are outlined in the Austal Nomination & Remuneration Committee Charter (the Charter), which is available on the Austal Website. The role of the Nomination & Remuneration Committee is to ensure that appropriate remuneration policies are in place which are designed to meet the needs of the Company and to enhance corporate and individual performance. The Committee also oversees the implementation of the policies in setting remuneration and performance objectives related to the STI and LTI plans. The remit of the Nomination & Remuneration Committee also includes succession planning and a significant development in this area has been led by the CEO and overseen by the Board. The Committee has overseen a significant renewal of the Board as the company enters into a new phase of its development with two new non-executive Directors appointed over the last 19 months. Under the Charter, the Nomination & Remuneration Committee is to be composed of at least three members with the majority being independent directors. II. Share Trading Policy The Share Trading Policy of Austal is available on the Austal website. It contains the standard references to insider trading restrictions that are a legal requirement under the Corporations Act, as well as conditions associated with good corporate governance. To this end the policy specifies “Closed Periods” during which “Restricted Persons” must not trade in the securities of the Company, unless written permission is provided by the Board following an assessment of the circumstances. All equity based remuneration awards which have vested are subject to the Group’s Share Trading Policy. III. Executive Remuneration Consultant Engagement Policy Austal has adopted an executive remuneration consultant (ERC) engagement policy which is intended to manage the interactions between the Company and ERCs. This is intended to ensure independence of advice and ensure that the Nomination & Remuneration Committee has clarity regarding the extent of any interactions between management and the ERC. This policy enables the Board to state with confidence that advice received has been independent. The Policy states that ERCs are to be approved and engaged by the Board before any advice is received and that such advice may only be provided to a non-executive director. Any interactions between management and the ERC must be approved and overseen by the Nomination & Remuneration Committee, this includes the collection of factual internal records (e.g. superannuation paid or allowances and benefits etc.). 18 | AUSTAL LIMITED ANNUAL REPORT 2015 IV. Remuneration Framework Austal is committed to responsible remuneration practices. The need to reward the Company’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 Individual Remuneration 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 Award and differentiate based on individual performance and contributions. 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 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 4. Executive KMP remuneration policy I. Structure The following outlines the policy that applies to executive KMP and executive directors: Total Remuneration Packages (TRP) should be composed of: Base Package (inclusive of superannuation, allowances, benefits and any applicable fringe benefits tax (FBT) as well as any salary sacrifice arrangements) Short term incentive (STI) which provides a reward for performance against annual objectives Long term incentive (LTI) which provides an equity-based reward for performance against indicators of shareholder benefit or value creation, over a three year period Internal TRP relativities and external market factors should be considered TRPs should be structured with reference to market practices and the particular circumstances of the Company where appropriate. 19 | AUSTAL LIMITED ANNUAL REPORT 2015 II. Base Remuneration KMP Base Packages should be set with reference to the market practice of ASX listed companies at the P50* level. TRPs at Target bonus levels (being the Base Package plus incentive awards intended to be paid for targeted levels of performance) should be set in the P50 to P75 range of the relevant market practice to create a strong incentive to achieve targeted objectives in both the short and long term. Remuneration will be managed within a range to allow for the recognition of individual differences such as individual experience, knowledge or competency with which they fulfil a role (a range of +/- 20% is generally targeted in line with common market practices). The Base Packages of the KMP executives fall within or below the P50 +/- 20% policy range. Adjustments to some individuals will be made over a 2 year period to bring them into line in some cases where remuneration of the KMP falls below the target. * The term P50 refers to the median where 50% of the comparator group are above the level and 50% are below. i. Base Remuneration – CEO The structure of Base Remuneration for the CEO has been changed during FY2015. The previous structure provided for the following base remuneration for the CEO: Fixed cash remuneration Fixed share based remuneration equal to 30% of the Fixed cash remuneration payable twice per annum based on the volume weighted average closing price of ASB shares in each 6 month period. The Board resolved to amend the previous structure with effect from 1 January 2015 to simplify the Fixed remuneration structure. These changes reflect general market practice and more effectively align the CEO’s remuneration with stakeholder comments received last year. A new base remuneration consisting solely of cash was set post year end for the period 1 January 2015 to 30 June 2015 which is equal to the previous Fixed cash remuneration plus the cash equivalent of the Fixed share based remuneration. This structure will be maintained in the FY2016 financial year. ii. Peer group benchmarking Austal has undertaken a detailed benchmarking of its remuneration levels and structure throughout the KMP comparing to a relevant benchmark group with the assistance of its ERC: The benchmark group is composed of 20 companies (listed below) with 10 companies larger and 10 companies smaller than Austal’s market capitalisation The group is limited to the Industrial & Service Sector (excludes, energy, resources, materials and financials which tend to have different remuneration structures to the Industrial & Service sector) The group is limited to companies with approximately one half to double the market capitalisation of the Austal (noting that the Australian listed market is small making it challenging to select a relevant group of companies that are similarly sized) Companies that are most comparable in terms of industry sector and market shall be preferentially included 20 | AUSTAL LIMITED ANNUAL REPORT 2015 iii. Peer group list of companies Company Industry Group McMillan Shakespeare Limited Monadelphous Group Limited APN News and Media Limited Transfield Services Limited GWA Group Limited iSentia Group Limited Bega Cheese Limited Industrials Industrials Consumer Industrials Industrials Information Technology Consumer Amcom Telecommunications Limited Telecommunication Services ERM Power Limited Utilities Vocus Communications Limited Telecommunication Services Credit Corp Group Limited Tassal Group Limited NEXTDC Limited Tox Free Solutions Limited UGL Limited Bradken Limited Skilled Group Limited Programmed Maintenance Services Ltd Collection House Limited Ruralco Holdings Limited Industrials Consumer Discretionary Information Technology Industrials Industrials Industrials Industrials Industrials Industrials Consumer Discretionary The results of the FY2015 peer group analysis for CEO remuneration as presented by Austal’s ERC is depicted in the table below and compared to that actually paid to the Austal CEO. Component Peer Group Results Percentile Austal CEO 25 50 75 FY2015 Base Remuneration $ 628,000 $ 906,000 $ 1,316,000 $ 1,051,347 Total Remuneration Package $ 1,259,000 $ 1,654,000 $ 2,102,000 $ 1,492,451 The Remuneration and Nomination Committee formed the following conclusions from the assessment of Base Packages undertaken in FY2015: The CEO's Base Package (inclusive of salary sacrificed equity) fell within the Company's policy range of P50 +/- 20%, based on the benchmark described above. No change will be made to the CEO's Base Package in FY2016 on the basis that the base remuneration is at the upper end of the P50 + 20%. 21 | AUSTAL LIMITED ANNUAL REPORT 2015 III. Short Term Incentive (STI) Plan Policy The short term incentive policy of the Company dictates that an annual component of the KMP executives’ remuneration will be aligned to the individual and Company performance. The principles of the plan are that STI should be aligned with clear and measurable targets which are set at the start of the financial year. Targets will be aligned with the achievement of the company’s business plan. The STI should be paid in cash. The STI should have a weighting in the remuneration mix that is no greater than the LTI to ensure an adequate balance in focus between short and long term objectives. STI payments will be made at the end of the financial year and after the full year accounts have been approved by the Board. The Board undertook a review of the Austal STI policy during FY2015 through the Remuneration and Nomination Committee by requesting a benchmarking review to be undertaken by its ERC. The report recommended that the STI scheme should become a bigger component of both the CEO’s and KMPs’ annual remuneration but that performance targets at the threshold payout level should become more challenging. These recommendations were based on rigorous benchmarking against similar companies and were adopted by the Board and are outlined in this report below. i. Purpose The purpose of the STI Plan is to incentivise Senior Executives to deliver and outperform key performance indicators (KPIs) and annual business plans. This is intended to lead to sustainable superior returns for shareholders and to modulate the cost of employing Senior Executives, such that the cost of employment reflects the performance of the company. ii. Measurement Period The measurement period for STI awards is aligned with the financial year of the Group. iii. Key Performance Indicators KPIs are customised for each KMP and reflect the nature of their roles, whilst creating shared objectives where appropriate. Weightings are applied to the KPIs selected for each participant to reflect the relative importance of each KPI. KPIs set for the CEO in FY2015 were as follows: Key Performance Indicator FY2015 Group EBIT FY2015 Group Net Cash Flow FY2015 Group New Vessel Orders Group Strategy Development & Execution Implementation of Business Improvement Initiatives Relative Weight Performance STI Achieved Estimated 23.3% 23.3% 23.3% 20.0% 10.0% 100.0% 100.0% 100.0% 66.7% 66.7% 23.3% 23.3% 23.3% 13.3% 6.7% 90.0% Total 100.0% 90.0% 22 | AUSTAL LIMITED ANNUAL REPORT 2015 iv. Target and maximum award Target and maximum awards are applied to base remuneration. The Board retains discretion in the application of the STI scheme to ensure that outcomes match overall Group achievement and can defer payments where it believes this to be appropriate. Incumbent Target Maximum Estimated1 Forfeited Target Maximum FY2015 FY2016 33% 20% 40% 30% 20% 20% 50% 30% 60% 45% 30% 30% 45% 27% 5% 4% 30% 8% 5% 3% 55% 41% 0% 22% 50% 30% 30% 30% N/A 15% 100% 60% 60% 60% N/A 30% Position CEO Mr Andrew Bellamy Group Chief Financial Officer Mr Greg Jason President USA Mr Craig Perciavalle Chief Financial Officer USA President Australia Mr Brian Leathers Mr Graham Backhouse 2 President Philippines Mr Joselito Turano 1. The final STI for FY2015 will be paid to KMP in FY2016. 2. Mr Graham Backhouse resigned on 21 April 2015 IV. Long Term Incentive (LTI) Plan Policy The long term incentive plan policy of the Company is that an annual component of remuneration of executives should be at-risk and based on equity in the Company. This is intended to ensure that executives hold a stake in the Company and to align their interests with those of shareholders. The board undertook a review of the LTI plan following its initial 2 years of operation and implemented a number of changes. The purpose was to ensure that the scheme continued to drive long term executive performance as well as meet normal industry practice. Notable changes were made to award levels which are depicted in section ix on page 24 and the Total Shareholder Return (TSR) measure has been changed from an absolute TSR to an indexed TSR (iTSR) following market feedback as described in section v on page 23 and amended weighting of performance measures from TSR 30% / ROIC 70% to iTSR 40% / ROIC 60%. i. Purpose The purpose of the LTI Plan is to incentivise Senior Executives to deliver Group performance that will lead to sustainable superior returns for shareholders and to modulate the cost of employing Senior Executives. ii. Form of incentive The LTI should be based on Performance Rights that vest based on an assessment of performance against objectives. No dividends are payable or accrued on Performance Rights which are unvested. iii. Measurement period The Company instituted a transitional arrangement for the LTI scheme for FY2014 and FY2015 performance rights grants which was explained in the FY2014 Annual Report. The standard measurement period from FY2016 onwards will be three years. iv. Measures of long term performance The Company will use two long term performance measures: TSR which the Board believes best reflects internal measures of performance ROIC which the Board believes best reflects external measures of performance v. Total Shareholder Return Measure (TSR) The Board believes that TSR is the measure that has the strongest alignment with shareholders. It is recognised however that absolute TSR is influenced by overall economic movements, and therefore future grants of LTI will be offered to executives that vest based on indexed TSR (iTSR). iTSR determines the shareholders returns of Austal relative to the market rather than capturing the absolute performance of the Group. 23 | AUSTAL LIMITED ANNUAL REPORT 2015 A relative peer group TSR was considered however it was not possible to identify a comparator group of companies that was statistically robust enough to be meaningful. The Board was concerned that this would undermine the link between executive performance and reward outcomes and therefore decided to adopt the iTSR measure. iTSR will apply to future grants of LTI from FY2016 based on a comparison of Austal’s TSR against the S&P All Ordinaries Accumulation index “XAOAI”. vi. Return on Invested Capital Measure (ROIC) Senior Executives are faced with significant and long term business development and project based challenges. Therefore, the LTI is also linked to the achievement of ROIC growth objectives that will lead to value creation for shareholders. This measure is considered the best measure of long term performance from an internal perspective by recognising the long term nature of investment in fixed assets necessary in a shipbuilding business. ROIC is calculated by dividing the Net operating profit after tax by Net Assets (excluding Cash, Debt, Derivatives and Tax Accounts). Actual ROIC results are compared against internal targets set by the Board. vii. Vesting of Performance Rights The Performance Rights for each employee vest at the end of the measurement period, subject to meeting the performance hurdles. viii. Holding period A one year holding period applies to shares that are awarded as a result of Performance Rights vesting. ix. Target and maximum award Target and maximum awards are applied to base remuneration. Position CEO Incumbent Mr Andrew Bellamy Group Chief Financial Officer Mr Greg Jason President USA Chief Financial Officer USA President Australia Mr Craig Perciavalle Mr Brian Leathers Mr Graham Backhouse 1 President Philippines Mr Joselito Turano 1. Mr Graham Backhouse resigned on 21 April 2015 FY2015 Grant Vesting Target Maximum FY2016 Grant Vesting Target Maximum 25.0% 17.5% 17.5% 17.5% 17.5% 17.5% 50.0% 35.0% 35.0% 35.0% 35.0% 35.0% 50.0% 35.0% 35.0% 20.0% N/A 20.0% 100.0% 70.0% 70.0% 40.0% N/A 40.0% 24 | AUSTAL LIMITED ANNUAL REPORT 2015 5. Non-Executive Director remuneration I. Application The Non-executive Director Remuneration Policy applies to non-executive directors (NEDs) of the Company in their capacity as directors and as members of committees. II. Remuneration structure Remuneration is composed of: Board fees Committee fees Superannuation Other benefits (if appropriate) III. Fees i. Fee cap Remuneration will be managed within the aggregate fee limit (AFL) or fee pool approved by shareholders of the Company which is currently $3,000,000. ii. Chairman Remuneration for the current Chairman of the Board reflects his continued high level of contribution to the company and the Board. The fee level is reviewed every year and has been reduced from $300,000 to $250,000 per annum effective from 1 February 2015. iii. Non-executive director fees Board fees paid for membership of the Board, inclusive of superannuation and exclusive of committee fees will be set with reference to the 50th percentile of the market of comparable ASX listed companies (as previously described for executive remuneration). iv. Committee fees Committee fees recognise additional contributions to the work of the Board by members of committees. They are similarly referenced to the benchmark group as above. IV. No termination benefits Termination benefits are not paid to NEDs by the Company. 25 | AUSTAL LIMITED ANNUAL REPORT 2015 6. Remuneration of KMP Year ended 30 June 2015 Non-executive directors John Rothwell Dario Amara 2 David Singleton Giles Everist Jim McDowell 3 Executive directors Short-Term Benefits Post Employment Benefits Super- Long Term Benefits Short Other annuation / Salary & Fees Term Incentive 1 Monetary Benefits Social Security Share Based Payments Termination Long Term % Share Based % Performance Leave Benefits Fixed Incentive Total Payments related $ 279,167 $ - $ - $ - $ - $ - $ - $ - $ 279,167 28,311 82,192 98,300 38,813 - - - - - - - - 2,689 7,808 - 3,687 - - - - - - - - - - - - - - - - 31,000 90,000 98,300 42,500 - - - - - - - - - - Andrew Bellamy $ 733,522 $ 363,922 $ - $ 18,783 $ 70,291 $ - $ 209,560 $ 63,316 1,459,394 18.7 29.3 Other key management personnel Greg Jason Craig Perciavalle Brian Leathers Graham Backhouse 4 Joey Turano $ 314,269 $ 96,447 $ - $ 18,783 $ 33,225 $ - $ - $ 66,840 $ 529,564 515,500 341,906 217,651 253,270 32,239 15,582 74,186 23,379 22,038 8,580 - 26,002 84,143 57,375 15,164 31,333 - - 16,742 - - - 77,992 - - - - - 57,748 46,939 - 15,827 711,668 470,382 401,735 349,811 12.6 8.1 10.0 - 4.5 30.8 12.6 13.3 18.5 11.2 $ 2,902,901 $ 605,755 $ 56,620 $ 239,765 $ 120,258 $ 77,992 $ 209,560 $ 250,670 $ 4,463,521 1 Represents the amount accrued for but not paid by the Group for services performed in FY2015. 2 Mr Dario Amara resigned on 30 October 2014 3 Mr Jim McDowell joined the Board of Directors on 31 December 2014 4 Mr Graham Backhouse resigned on 21 April 2015 Year ended 30 June 2014 Non-executive directors John Rothwell Dario Amara David Singleton Giles Everist 2 Executive directors Short-Term Benefits Salary & Fees Short Term Incentive 1 Other Monetary Benefits Post Employment Benefits Super- annuation / Social Security Long Term Benefits Share Based Payments Termination Leave Benefits Fixed Long Term Incentive Total % Share Based Payments % Performance related $ 290,577 84,932 86,758 50,989 $ - - - - $ - - - - $ 27,605 8,068 8,242 4,844 $ - - - - $ - - - - $ - - - - $ - - - - $ 318,182 93,000 95,000 55,833 - - - - - - - - Andrew Bellamy $ 726,842 $ 263,040 $ - $ 17,774 $ 69,208 $ - $ 271,369 $ 56,658 1,404,891 23.3 22.8 Other key management personnel Greg Jason Craig Perciavalle Brian Leathers Graham Backhouse Joey Turano $ 286,763 430,591 298,379 249,204 226,151 $ 75,840 54,972 44,454 86,427 27,421 $ - 14,021 3,370 - 7,877 $ 17,774 28,764 24,421 25,460 853 $ 29,391 - - 26,229 - $ - - - - - $ - - - - - $ 45,819 30,250 26,714 6,288 5,388 $ 455,587 558,598 397,338 393,608 267,690 10.1 5.4 6.7 1.6 2.0 26.7 15.3 17.9 23.6 12.3 $ 2,731,186 $ 552,154 $ 25,268 $ 163,805 $ 124,828 $ - $ 271,369 $ 171,117 $ 4,039,727 1 Represents the amount accrued for but not paid by the Group for services performed in FY2014. 2 Mr Giles Everist joined the Board of Directors in November 2013 26 | AUSTAL LIMITED ANNUAL REPORT 2015 7. Equity instruments held by KMP I. FY2012 Options vesting during the period i. FY2012 Options Grant 280,000 options were granted to KMP in FY2012, who were still employed by Austal at 30 June 2015. Further information on the options is set out in Note 30 ii. Options vesting KMP Options from the FY2012 grant that vested in FY2015 are detailed below. Name Award year Options granted Grant date Fair value per option at award date Vesting date No. vested during year No. forfeited during year Greg Jason Craig Perciavalle Brian Leathers 2012 2012 2012 140,000 70,000 70,000 20 Dec 2011 20 Dec 2011 20 Dec 2011 $ 0.618 0.618 0.618 20 Dec 2014 20 Dec 2014 20 Dec 2014 140,000 70,000 70,000 - - - II. FY2014 Performance Rights Vesting i. FY2014 Performance Rights Grant 789,085 performance rights were granted to KMP in FY2014, who were still employed by Austal at 30 June 2015. ii. Measurement Periods There were two measurement periods for the performance rights granted in FY2014 as outlined in the LTI transition plan that was depicted in the FY2014 Annual Report: 1 July 2013 – 30 June 2015 for 50% of the Performance Rights 1 July 2013 – 30 June 2016 for 50% of the Performance Rights iii. FY2014 Grant Performance Criteria The ROIC and TSR performance criteria relating to the FY2014 grant of performance rights to KMP are detailed below. Measure Weight Threshold Vesting % Performance Austal 30% <= 15% 0% At or below Threshold Absolute TSR (CAGR) 15% < TSR < 25% >= 25% 6.0% 8.0% 10.0% ROIC 70% Total 100% Pro-rata 50% Pro-rata 100% Target Stretch or Above 0% At or below Threshold Pro-rata 50% Pro-rata 100% Target Stretch or Above 27 | AUSTAL LIMITED ANNUAL REPORT 2015 iv. Vesting of Performance Rights from the FY2014 Grant The actual TSR performance for the first measurement period from 1 July 2013 – 30 June 2015 vesting of performance has been calculated to be 167%. The actual ROIC performance for the first measurement period from 1 July 2013 – 30 June 2015 vesting of performance will be calculated using the FY2015 audited accounts. The estimated ROIC performance in the first measurement period from 1 July 2013 – 30 June 2015 is 10.0%. The estimated number of performance rights from the first measurement period for the FY2014 grant that will vest and lapse as a result of the actual Group performance is detailed below. The final number of performance rights that will vest and lapse will be calculated using the FY2015 audited accounts. Auditor sign off of the accounts occurs after the accounts are prepared and approved by the Board of directors, hence the actual calculation cannot be prepared before the Auditor sign off occurs. Measurement Period 1 Rights Granted Maximum Vesting Estimated Vesting % Rights ROIC TSR Total 10.0% 167% 100% 100% 100% 70% 70% 30% 30% 100% 100% Actual Result Award Weight Vesting % Employee Andrew Bellamy Greg Jason Craig Perciavalle Brian Leather Joselito Turano CEO CFO President USA CFO USA President Philippines 287,313 125,345 168,675 114,235 93,517 50% 50% 50% 50% 50% 143,656 62,672 84,337 57,117 46,758 100,559 43,870 59,035 39,981 32,730 43,096 18,801 25,301 17,135 14,027 143,655 62,671 84,336 57,116 46,757 Total 789,085 50% 394,540 276,175 118,360 394,535 1. Graham Backhouse forfeited 108,130 Performance rights upon his resignation in April 2015. III. FY2015 Performance Rights Grant i. FY2015 Performance Rights Grant Performance rights granted to KMP in FY2015 are depicted in the table below. Name Andrew Bellamy Greg Jason Craig Perciavalle Brian Leathers Graham Backhouse 1 Joey Turano Total Grant date 30 Oct 2014 21 Oct 2014 21 Oct 2014 21 Oct 2014 21 Oct 2014 21 Oct 2014 Performance Fair value per performance right rights granted Value of awards at grant date 379,390 109,288 142,692 99,885 104,027 73,130 908,412 $ 0.46 0.43 0.43 0.43 0.43 0.43 $ 176,383 47,371 61,850 43,295 45,090 31,698 $ 405,687 1. Graham Backhouse forfeited 104,027 Performance rights upon his resignation in April 2015. 28 | AUSTAL LIMITED ANNUAL REPORT 2015 ii. Measurement Periods There are two measurement periods for the performance rights granted in FY2015 as outlined in the LTI transition plan that was depicted in the FY2014 Annual Report: 1 July 2014 – 30 June 2016 for 25% of the Performance Rights 1 July 2014 – 30 June 2017 for 75% of the Performance Rights Performance rights can vest in two tranches at the completion of each of the two measurement periods. iii. FY2015 Grant Performance Criteria The ROIC and TSR performance criteria relating to the FY2015 grant of performance rights to KMP are detailed below. Measure Austal Absolute TSR (CAGR) ROIC 70% Total 100% Weight Threshold Vesting % Performance 30% <= 15% 0% At or below Threshold 15% < TSR < 25% >= 25% 6.9% 7.8% 8.8% Pro-rata 50% Pro-rata 100% Target Stretch or Above 0% At or below Threshold Pro-rata 50% Pro-rata 100% Target Stretch or Above IV. FY2016 Performance Rights Grant i. FY2016 Grant Performance Criteria The ROIC and iTSR performance criteria relating to the prospective FY2016 grant of performance rights to KMP are detailed below. Measure Indexed TSR Weight 40% Threshold1 Vesting % Performance <= 100% 0% At or below Threshold Pro-rata 100% < iTSR < 200% 50% Target >= 200% Pro-rata 100% Stretch or Above ROIC 60% 8.0% 0% At or below Threshold 10.0% 12.0% Pro-rata 50% Pro-rata 100% Target Stretch or Above Total 100% 1. 100% is equal to the average TSR of companies included in the XAOAI Index as defined above. 29 | AUSTAL LIMITED ANNUAL REPORT 2015 V. Share rights granted during the period Details of share rights provided as fixed remuneration to key management personnel are shown below. Further information is set out in Note 30. Name Period earned Grant date Granted Fair value per share Fair value Andrew Bellamy Andrew Bellamy FY2015 H1 FY2015 H2 30 Oct 2014 30 Oct 2014 Total 92,602 68,598 161,200 $ 1.30 1.30 $ 120,383 89,177 $ 209,560 VI. Options and rights holdings Options and rights holdings Balance at Granted as Balance at Vested and 30 June 2014 Remuneration Forfeited Exercised 30 June 2015 Exercisable Unvested 30 June 2015 Directors Andrew Bellamy Options Share Rights Performance Rights Executives Greg Jason Options Performance Rights Craig Perciavalle Options Performance Rights Brian Leathers Options Performance Rights Graham Backhouse 1 Options 280,000 227,634 287,313 437,500 125,345 250,000 168,675 239,000 114,235 - 161,200 379,390 - 109,288 - 142,692 - 99,885 - - - - - - - - - - - - Performance Rights 108,130 104,027 (212,157) Joey Turano Options Performance Rights - 93,517 - 73,130 - - VII. Shareholdings - (320,236) - - - - - - - - - - - 280,000 68,598 666,703 437,500 234,633 250,000 311,367 239,000 214,120 - - - 166,647 280,000 68,598 - - - 666,703 437,500 - - 234,633 250,000 - - 311,367 239,000 - - - - - - 214,120 - - - 166,647 30 June 2015 30 June 2014 Exercised exercised Balance at Share Rights Options FY2015 Movements Performance rights vested Disposed Net Movement 30 June 2015 Balance at Non - Executive Directors John Rothwell 2 Dario Amara David Singleton Giles Everist Executives Andrew Bellamy Greg Jason Craig Perciavalle Brian Leathers Graham Backhouse 1 Joey Turano 32,200,745 50,000 28,600 50,000 - - - - 566,928 320,236 - - - - - - - - - - Total 32,896,273 320,236 - - - - - - - - - - - - - - - - - - - - - - - (50,000) - (30,000) - (50,000) - (30,000) 32,200,745 - 28,600 20,000 (408,690) (88,454) 478,474 - - - - - - - - - - - - - - - (488,690) (168,454) 32,727,819 1 Mr Graham Backhouse resigned on 21 April 2015 2 Mr Dario Amara sold his share on the 11 May 2015 and resigned on 30 October 2014 None of the shares held by key management personnel are held nominally. 30 | AUSTAL LIMITED ANNUAL REPORT 2015 8. Group Performance EPS (cents per share) Annual Average Share Price 18 16 14 12 10 8 6 4 2 0 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 FY10 FY11 FY12 FY13 FY14 FY15 Basic EPS Annual Average Share Price 9. Other related matters I. Board composition The Nomination and Remuneration sub-committee reviews the structure, size and composition of the Board annually, taking inputs from investors and other independent advisors received during the year into account. The sub-committee has recommended that the current practice of maintaining 3 independent Non-Executive Directors on the Board should remain following the FY2015 review. The process to ensure that the skills at Board level are appropriate to the business needs has continued with the appointment of Jim McDowell. 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. II. Details of contractual provisions for KMP Name Employing company Andrew Bellamy Greg Jason Craig Perciavalle Brian Leathers Austal Limited Austal Limited Austal USA LLC Austal USA LLC Contract Duration Unlimited Unlimited Unlimited Unlimited Termination Notice Period Company Executive 3 months 12 weeks 0 months 3 months 3 months 12 weeks 0 months 0 months 1. 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. Executives are not entitled to this termination payment in the event of termination for serious misconduct or other nominated circumstances. 2. On termination of employment, executives will be entitled to the payment of any fixed remuneration calculated up to the termination date, any leave entitlement accrued at the termination date and any payment or award permitted under the remuneration policy. III. Loans to KMP There were no loans to Directors or other key management personnel at any time during year ended 30 June 2015. 31 | AUSTAL LIMITED ANNUAL REPORT 2015 IV. Other transactions with KMP 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. V. Use of Independent Remuneration Consultants The Company established policies and procedures governing engagements with external remuneration consultants to ensure that KMP remuneration recommendations were free from undue influence from the KMP to whom they relate. The NRC engaged Godfrey Remuneration Group Pty Limited as a remuneration consultant for the year ended 30 June 2015 to provide recommendations in relation to KMP remuneration. KMP Remuneration Review of long term incentive plan, procedures, rules etc. in light of regulatory changes and assistance with drafting the Remuneration Report and advice regarding stakeholder engagement on remuneration matters. $34,000 +GST $12,000 + GST End of Remuneration Report 32 | AUSTAL LIMITED ANNUAL REPORT 2015 Auditor i independ dence and d non-aud dit servic ces The Director rs received th he following d eclaration fro om the audito or of Austal Li mited. Erns 11 M Pert GPO st & Young Mounts Bay Road th WA 6000 Austra O Box M939 Perth W alia WA 6843 Tel: +6 Fax: + ey.com 61 8 9429 2222 +61 8 9429 2436 m/au Auditor’s I Independen nce Declara ation to the e Directors of Austal L Limited In relation to o knowledge and any applicable our audit of the d belief, there h e code of profes financial repor t of Austal Limi ontraventions o have been no co t. ssional conduct ited for the fina of the auditor in ancial year ende ndependence re ed 30 June 2015 equirements of t 5, to the best o the Corporation of my ons Act 2001 or Ernst & Young by Robert A Kirkb Partner 25 August 201 15 A member firm of Ernst Liability limited by a sch & Young Global Limited heme approved under Pro ofessional Standards Leg gislation 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 s compatible w 01. The natur mpromised. e year, are di with the gene re and scope isclosed in No eral standard of each type ote 5. The of of non-audit Signed in ac ccordance wit th a resolution n of Directors s. John Rothwe Chairman ell 25 August 2 015 And Exe y drew Bellamy tor and Chief ecutive Direct Executive Of fficer 33 | AUSTA AL LIMITED ANN NUAL REPORT 2015 Consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2015 Continuing operations Revenue Cost of sales 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 Notes 2015 ’000 2014 ’000 4 5 5 9 $ 1,414,888 $ 1,122,863 (1,296,909) (1,028,599) $ 117,979 $ 94,264 $ 31,504 $ 21,913 (49,124) (14,674) (4,992) (51,895) (8,396) (8,742) $ 80,693 $ 47,144 $ (27,537) $ (15,285) $ 53,156 $ 31,859 $ 53,225 $ 31,548 (69) 311 $ 53,156 $ 31,859 Amounts that may subsequently be reclassified to profit and loss: Cash flow hedges - Gain / (loss) on cash flow hedges taken to equity $ (31,886) $ 17,231 - (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 (9,183) 12,622 (20,705) 865 $ (28,447) $ (2,609) $ 57,922 $ (4,075) (1,851) 217 $ 56,071 $ (3,858) $ 27,624 $ (6,467) Total comprehensive income for the year $ 80,780 $ 25,392 Total comprehensive income attributable to: Owners of the parent Non-controlling interests Total Earnings per share ($ per share) $ 80,849 $ 25,081 (69) 311 $ 80,780 $ 25,392 - 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 $ 0.16 $ 0.09 0.15 0.09 The consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 34 | AUSTAL LIMITED ANNUAL REPORT 2015 Consolidated statement of financial position as at 30 June 2015 Assets Current Assets Cash and cash equivalents Restricted cash Trade and other receivables Inventories Prepayments Derivatives Total Non - Current Assets Collateral 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 Notes 10 10 14 16 23 & 24 20 14 23 & 24 18 19 9 17 23 & 24 11 21 13 9 15 2015 ’000 2014 ’000 $ 138,413 $ 74,428 10,055 104,342 339,703 6,321 106 9,532 95,753 328,142 4,054 2,701 $ 598,940 $ 514,610 $ 3,600 $ 2,917 157 1,925 9 442,522 9,637 14,089 1,020 1,968 5,787 366,500 9,473 9,022 $ 471,939 $ 396,687 $ 1,070,879 $ 911,297 $ (223,497) $ (183,570) (21,337) (146,904) (33,830) (3,244) (7,493) (26,177) (1,972) (13,192) (33,704) (3,550) (10,980) (29,062) Total $ (462,482) $ (276,030) Non - Current Liabilities Derivatives 23 & 24 $ (14,737) $ (2,229) Interest-bearing loans and borrowings Provisions Government grants Deferred tax liabilities Total 11 21 13 9 (7,658) (1,139) (63,722) (8,742) (142,264) (1,023) (49,892) (6,627) $ (95,998) $ (202,035) Total Liabilities $ (558,480) $ (478,065) Net Assets Equity Contributed equity Reserves Retained earnings $ 512,399 $ 433,232 12 $ 112,523 $ 111,598 55,846 343,798 27,292 294,041 Equity attributable to owners of the parent $ 512,167 $ 432,931 Non - controlling interests $ 232 $ 301 Total Equity $ 512,399 $ 433,232 The consolidated statement of financial position should be read in conjunction with the accompanying notes. 35 | AUSTAL LIMITED ANNUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED Consolidated statement of changes in equity for the year ended 30 June 2015 Foreign Currency Employee Cash flow Common Asset Issued Capital ’000 Reserved Retained Translation Benefits Hedge Control Revaluation Shares 1 Earnings Reserve Reserve Reserve Reserve Reserve ’000 ’000 ’000 ’000 ’000 ’000 ’000 Non Controlling Interest ’000 Total Equity ’000 Total ’000 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 1 July 2014 $ 121,210 $ (9,612) $ 294,041 $ 7,605 $ 5,086 $ 8,769 $ (15,925) $ 21,757 $ 432,931 $ 301 $ 433,232 Comprehensive Income Profit for the year $ - $ - $ 53,225 $ - $ - $ - $ - $ - $ 53,225 $ (69) $ 53,156 Other Comprehensive Income - - - 56,071 - (28,447) - - 27,624 - 27,624 Total $ - $ - $ 53,225 $ 56,071 $ - $ (28,447) $ - $ - $ 80,849 $ (69) $ 80,780 Other equity transactions Shares issued Dividends Cost of share-based payments $ 543 $ 382 $ - $ - $ (443) $ - $ - $ - $ 482 $ - $ 482 - - - - (3,468) - - - - 1,373 - - - - - - (3,468) 1,373 - - (3,468) 1,373 Total $ 543 $ 382 $ (3,468) $ - $ 930 $ - $ - $ - $ (1,613) $ - $ (1,613) Equity at 30 June 2015 $ 121,753 $ (9,230) $ 343,798 $ 63,676 $ 6,016 $ (19,678) $ (15,925) $ 21,757 $ 512,167 $ 232 $ 512,399 1. Reserved shares are in relation to the Austal Group Management Share Plan The consolidated statement of changes in equity should be read in conjunction with the accompanying notes. . 36 | AUSTAL LIMITED ANNUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED Consolidated statement of cash flows for the year ended 30 June 2015 Cash flows from operating activities Notes 2015 ’000 2014 ’000 Receipts from customers Payments to suppliers and employees Interest received Interest paid Income tax received / (paid) Net cash from / (used in) operating activities $ 1,420,738 $ 1,112,844 (1,287,677) (1,046,868) 882 (4,992) (18,517) 321 (8,742) (15,927) $ 110,434 $ 41,628 4 5 7 Cash flows from investing activities Receipts of infrastructure government grants $ 4,986 $ 4,506 Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Purchase of intangible assets Proceeds from sale of intangible assets 2,355 (28,126) (1,053) - 24,611 (11,884) (1,263) 3,002 Net cash from / (used in) investing activities $ (21,838) $ 18,972 Cash flows from financing activities Repayment of borrowings Loans received Equity dividends paid $ (40,575) $ (114,238) 9,449 (3,468) 24,917 - Net cash from / (used in) financing activities $ (34,594) $ (89,321) Net increase / (decrease) in cash and cash equivalents $ 54,002 $ (28,721) Cash and cash equivalents Cash and cash equivalents at beginning of year $ 83,960 $ 107,703 Net foreign exchange differences Net increase / (decrease) in cash and cash equivalents 10,506 54,002 4,978 (28,721) Cash and cash equivalents at end of year 10 $ 148,468 $ 83,960 The consolidated statement of cash flows should be read in conjunction with the accompanying notes. 37 | AUSTAL LIMITED ANNUAL REPORT 2015 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 ctors on 25 Au or the year en ugust 2015. nded 30 June e 2015 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 / 0 inancial repor rs ($’000) unle 0100. The Gr rt is presente ess otherwise roup is an ent d in Australia e stated unde tity to which t an dollars and er the option a the class orde d all values ar available to th er 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 are Curre ent year perf formance This s and c section focus cash generatio es on the res on, and the re sults and perfo eturn of cash formance of th to sharehold he Group, inc ders via divide cluding profita ends. ability, earnin gs per share 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 and fut ure warranty costs. 38 | AUSTA AL LIMITED ANN NUAL REPORT 2015 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 (the Group) for the year ended 30 June 2015. Subsidiaries are all of 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 adjusted to comply with Group policy and generally accepted accounting principles in Australia for consolidation purposes. All intercompany balances, transactions, unrealised gains and losses resulting from intra-Group transactions and dividends have been eliminated in full in preparing the consolidated financial statements. 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. The parent will assess whether any indicators of impairment of the carrying value of the investment in the subsidiary exist upon receipt of dividend payments from subsidiaries. An impairment loss is recognised to the extent that the carrying value of the investment exceeds its recoverable amount where such indicators exist. iv. Foreign currency transactions and translation Both the functional and presentation currency of Austal Limited and its Australian subsidiaries are Australian dollars (AUD). The Company determines the functional currency for each entity within the Group 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 (USD). 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 reporting 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. 39 | AUSTAL LIMITED ANNUAL REPORT 2015 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 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 2014: AASB 2012-3 AASB 2012-3 Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities adds application guidance to AASB 132 Financial Instruments: Presentation to address inconsistencies identified in applying some of the offsetting criteria of AASB 132, including clarifying the meaning of "currently has a legally enforceable right of set-off" and that some gross settlement systems may be considered equivalent to net settlement. Interpretation 21 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. 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. 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. 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 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 B makes amendments to particular Australian Accounting Standards to delete references to AASB 1031 and also makes minor editorial amendments to various other standards. AASB 2014-1 Part A -Annual Improvements 2010–2012 Cycle AASB 2014-1 Part A: This standard sets out amendments to Australian Accounting Standards arising from the issuance by the International Accounting Standards Board (IASB) of International Financial Reporting Standards (IFRSs) Annual Improvements to IFRSs 2010–2012 Cycle and Annual Improvements to IFRSs 2011– 2013 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'. 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. 40 | AUSTAL LIMITED ANNUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED 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. Amendments to Australian Accounting Standards - Part B AASB 2014-Part B makes amendments in relation to the requirements for contributions from employees or third parties that are set out in the formal terms of the benefit plan and linked to service. Defined Benefit Plans: Employee Contributions (Amendments to AASB 119) The amendments clarify that if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognise such contributions as a reduction in the service cost in the period in which the related service is rendered, instead of attributing the contributions to the periods of service. Amendments to AASB 1053 – Transition to and between Tiers, and related Tier 2 Disclosure Requirements [AASB 1053] The Standard makes amendments to AASB 1053 Application of Tiers of Australian Accounting Standards to: clarify that AASB 1053 relates only to general purpose financial statements; make AASB 1053 consistent with the availability of the AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors option in AASB 1 First-time Adoption of Australian Accounting Standards; clarify certain circumstances in which an entity applying Tier 2 reporting requirements can apply the AASB 108 option in AASB 1; permit an entity applying Tier 2 reporting requirements for the first time to do so directly using the requirements in AASB 108 (rather that applying AASB 1) when, and only when, the entity had not applied, or only selectively applied, applicable recognition and measurement requirements in its most recent previous annual special purpose financial statements; and specify certain disclosure requirements when an entity resumes the application of Tier 2 reporting requirements. 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 9: Financial Instruments: AASB 9 (December 2014) is a new Principal standard which replaces AASB 139. This new Principal version supersedes AASB 9 issued in December 2009 (as amended) and AASB 9 (issued in December 2010) and includes a model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. AASB 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. The final version of AASB 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. Amendments to AASB 9 (December 2009 & 2010 editions and AASB 2013-9) issued in December 2013 included the new hedge accounting requirements, including changes to hedge effectiveness testing, treatment of hedging costs, risk components that can be hedged and disclosures. 41 | AUSTAL LIMITED ANNUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED AASB 9 includes requirements for a simpler 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. Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010-7, AASB 2010-10 and AASB 2014-1 – Part E. AASB 2014-7 incorporates the consequential amendments arising from the issuance of AASB 9 in Dec 2014. AASB 2014-8 limits the application of the existing versions of AASB 9 (AASB 9 (December 2009) and AASB 9 (December 2010)) from 1 February 2015 and applies to annual reporting periods beginning on after 1 January 2015. AASB 2014-3 Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint Operations [AASB 1 & AASB 11] (effective 1 July 2016): AASB 2014-3 amends AASB 11 to provide guidance on the accounting for acquisitions of interests in joint operations in which the activity constitutes a business. The amendments require: (a) the acquirer of an interest in a joint operation in which the activity constitutes a business, as defined in AASB 3 Business Combinations, to apply all of the principles on business combinations accounting in AASB 3 and other Australian Accounting Standards except for those principles that conflict with the guidance in AASB 11; and (b) the acquirer to disclose the information required by AASB 3 and other Australian Accounting Standards for business combinations. This Standard also makes an editorial correction to AASB 11. AASB 2014-4 Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to AASB 116 and AASB 138) (effective date 1 July 2016): AASB 116 and AASB 138 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. 42 | AUSTAL LIMITED ANNUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED The amendment 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. AASB 15 Revenue from Contracts with Customers (effective date 1 July 2017): 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 Early application of this standard is permitted. AASB 2014-5 incorporates the consequential amendments to a number Australian Accounting Standards (including Interpretations) arising from the issuance of AASB 15. AASB 2014-9 Amendments to Australian Accounting Standards – Equity Method in Separate Financial Statements: AASB 2014-9 amends AASB 127 Separate Financial Statements, and consequentially amends AASB 1 First-time Adoption of Australian Accounting Standards and AASB 128 Investments in Associates and Joint Ventures, to allow entities to use the equity method of accounting for investments in subsidiaries, joint ventures and associates in their separate financial statements. AASB 2014-9 also makes editorial corrections to AASB 127. AASB 2014-9 applies to annual reporting periods beginning on or after 1 January 2016. Early adoption permitted. AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture: AASB 2014-10 amends AASB 10 Consolidated Financial Statements and AASB 128 to address an inconsistency between the requirements in AASB 10 and those in AASB 128 (August 2011), in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require: (a) a full gain or loss to be recognised when a transaction involves a business (whether it is housed in a subsidiary or not); and (b) a partial gain or loss to be recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. AASB 2014-10 also makes an editorial correction to AASB 10. AASB 2014-10 applies to annual reporting periods beginning on or after 1 January 2016. Early adoption permitted. 43 | AUSTAL LIMITED ANNUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED AASB 2015-1 Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012–2014 Cycle (effective date 1 July 2016): The subjects of the principal amendments to the Standards are set out below: AASB 5 Non-current Assets Held for Sale and Discontinued Operations: Changes in methods of disposal – where an entity reclassifies an asset (or disposal group) directly from being held for distribution to being held for sale (or vice versa), an entity shall not follow the guidance in paragraphs 27–29 to account for this change. AASB 7 Financial Instruments: Disclosures Servicing contracts - clarifies how an entity should apply the guidance in paragraph 42C of AASB 7 to a servicing contract to decide whether a servicing contract is ‘continuing involvement’ for the purposes of applying the disclosure requirements in paragraphs 42E–42H of AASB 7. Applicability of the amendments to AASB 7 to condensed interim financial statements - clarify that the additional disclosure required by the amendments to AASB 7 Disclosure–Offsetting Financial Assets and Financial Liabilities is not specifically required for all interim periods. However, the additional disclosure is required to be given in condensed interim financial statements that are prepared in accordance with AASB 134 Interim Financial Reporting when its inclusion would be required by the requirements of AASB 134. AASB 119 Employee Benefits Discount rate: regional market issue - clarifies that the high quality corporate bonds used to estimate the discount rate for post-employment benefit obligations should be denominated in the same currency as the liability. Further it clarifies that the depth of the market for high quality corporate bonds should be assessed at the currency level. AASB 134 Interim Financial Reporting Disclosure of information ‘elsewhere in the interim financial report’ - amends AASB 134 to clarify the meaning of disclosure of information ‘elsewhere in the interim financial report’ and to require the inclusion of a cross-reference from the interim financial statements to the location of this information. AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101 (effective date 1 January 2016) The Standard makes amendments to AASB 101 Presentation of Financial Statements arising from the IASB’s Disclosure Initiative project. The amendments are designed to further encourage companies to apply professional judgment in determining what information to disclose in the financial statements. For example, the amendments make clear that materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures. The amendments also clarify that companies should use professional judgment in determining where and in what order information is presented in the financial disclosures. AASB 2015-3 Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality (effective date 1 July 2015) The Standard completes the AASB’s project to remove Australian guidance on materiality from Australian Accounting Standards. 44 | AUSTAL LIMITED ANNUAL REPORT 2015 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 ’000 Philipp pines Unallocated Adjustments 0 ’000 ’000 ’000 Total ’000 Elimination / Year ended 30 Jun ne 2015 Revenues External cust tomers $ 191,373 $ 1,119,703 $ 30 0,584 $ 9 72,189 $ 157 $ 1,414,006 nt Inter-segmen Finance inco me Total Segment result t EBIT Finance inco me Finance expe enses Total 20,435 - - - 8,159 8 - - 2 882 (28,594) - - 882 $ 211,808 $ 1,119,703 $ 38 8,743 $ 73,071 $ (28,437) $ 1,414,888 $ 31,774 $ 58,429 $ 992 $ (4,106 6) $ (2,286) $ 84,803 - - - - - - 2 882 2) (4,992 - - 882 (4,992) $ 31,774 $ 58,429 $ 992 $ 6) (8,216 $ (2,286) $ 80,693 Depreciation and amortisation $ (1,057) $ (18,692) $ ( 1,449) $ 8) (3,068 $ - $ (24,266) Balance sheet Segment ass sets Segment liab bilities Year ended 30 Jun ne 2014 Revenues $ 130,101 $ 818,670 $ 42 2,376 $ 0 108,960 $ (29,228) $ 1,070,879 (78,731) (438,942) (2 1,435) 2) (58,322 38,950 (558,480) Australia ’000 USA ’000 Philipp pines Unallocated Adjustments 0 ’000 ’000 ’000 Total ’000 Elimination / External cust tomers $ 153,886 $ 933,615 $ 32 2,758 $ 9 2,609 $ (326) $ 1,122,542 nt Inter-segmen Finance inco me 88,026 - - - 1,009 - - 321 (89,035) - - 321 Total $ 241,912 $ 933,615 $ 33 3,767 $ 0 2,930 $ (89,361) $ 1,122,863 t Segment result EBIT Finance inco me Finance expe enses $ 16,684 $ 61,682 2,703 2 $ $ (27,211 ) $ 1,707 $ 55,565 - - - - - - 321 2) (8,742 - - 321 (8,742) Total $ 16,684 $ 61,682 2,703 2 $ $ 2) (35,632 $ 1,707 $ 47,144 Depreciation and amortisation $ (1,606) $ (17,937) $ (972) $ 8) (3,258 $ - $ (23,773) Balance sheet Segment ass sets Segment liab bilities $ 192,119 $ 662,948 $ 22 2,261 $ 7 151,467 $ (117,498) $ 911,297 (174,198) (456,424) (15 5,263) 9) (43,809 211,629 (478,065) Inter-segment re evenues, investments, , receivables and paya ables are eliminated o on consolidation. 45 | AUSTA AL LIMITED ANN NUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED Analysis of Unallocated Revenue Construction and service Sale of stock vessel H270 Charter vessel revenue Finance income Other Total Segment result Profit / (loss) on foreign exchange Net profit / (loss) on sale of shipyard Write down of inventory Corporate overheads Sales & marketing costs Charter vessel profit Finance income Finance expenses Total Segment assets Cash and restricted cash Property, plant and equipment Inventories Derivatives Deferred tax assets Other Total Segment liabilities 2015 ’000 2014 ’000 $ 8,606 $ - 61,500 2,083 882 - - 2,419 321 190 $ 73,071 $ 2,930 $ 13,461 $ (1,888) - - (10,654) (7,156) 243 882 (4,992) 3,582 (13,361) (8,618) (7,312) 386 321 (8,742) $ (8,216) $ (35,632) $ 48,312 $ 26,777 44,057 181 741 14,162 1,507 45,914 59,159 8,388 9,293 1,936 $ 108,960 $ 151,467 Deferred tax liabilities and income tax payable $ (16,210) $ (17,203) Interest bearing loans Derivatives Intercompany payables Deferred Income Creditors & provisions Total - (36,074) - - (6,038) (12,062) (4,201) 282 (6,490) (4,135) $ (58,322) $ (43,809) One customer in the USA segment generated revenue of $1,119.703 million during FY2015 (FY2014: $933.615 million) and one customer in the Australia segment generated revenue of $97.485 million during FY2015 (FY2014: $100.814 million). Revenue from external customers by geographical location of customers North America Europe Asia Australia Middle East Other Total 2015 $’000 2014 $’000 $ 1,141,457 $ 938,618 69,701 - 112,375 85,251 5,222 20,150 15,034 124,842 - 23,898 $ 1,414,006 $ 1,122,542 46 | AUSTAL LIMITED ANNUAL REPORT 2015 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 2015 $’000 2014 $’000 $ 375,450 $ 300,842 22,237 13,296 41,175 17,744 15,187 42,200 $ 452,158 $ 375,973 $ 442,521 $ 366,500 9,637 9,473 $ 452,158 $ 375,973 i. Identification of reportable segments The Group is organised into three business segments for management purposes based on the location of the production facilities, related sales regions and types of activity. The Chief Executive Officer who is the Chief Operating Decision Maker (CODM) monitors the performance of the business segments separately for the purpose of making decisions about the allocation of resources and 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 Group’s reportable segments are USA, Philippines and Australia: 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. The Philippines segment also provides support to other segments not just manufacturing for external buyers. iii. Aggregation of segments No operating segments are aggregated. iv. 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. 47 | AUSTAL LIMITED ANNUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED v. 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 Finance revenue and costs Taxation Assets held for sale Derivatives Commercial vessel charter contracts The Group sold Hull 270, a 102 metre trimaran ferry to Condor Ferries during the period. The vessel was sold for $61.500 million and is presented in the Unallocated segment. The vessel was included in Unallocated segment assets at 30 June 2014. 48 | AUSTAL LIMITED ANNUAL REPORT 2015 Note 4. Revenue Revenue Construction c contract revenue Charter revenu ue Interest from o other unrelated partie s REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED 2015 ’000 2014 ’000 $ 1,390,326 $ 1,105,089 23,680 882 17,453 321 $ 1,414,888 $ 1,122,863 Total i. ii. Reco ognition and measureme nt 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 and d service con ntract revenu ue Const is calc truction and s culated based service contra d on actual co act revenue is osts incurred s brought to a as a proport account base ion of estimat d on percenta ted total cont tage of compl tract costs. etion which Contr the co meas ract costs are osts incurred sured reliably e recognised a where it is pr during the te as an expens robable that t rm of the con se as incurred the costs will ntract. d and revenue be recovered e is recognise d and the con ed only to the tract outcome e extent of e cannot be The e therea adjus recog estimated tota after for the p ted in the eve gnised for the al contract co purposes of re ent of a chang remaining lif sts are determ ecognising co ge to the cos fe of the contr mined prior to onstruction co t of completio ract based up o commencem ontract revenu on during the pon the adjus ment and re-e ue. Construct life of the con ted value. evaluated eve tion contract ntract and rev ery month revenue is venue is 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 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 Signi ificant accou unting judge ments and e estimates Cons struction con ntract revenu ue and expec cted constru uction profits s at completi ion. The a requir perce assessment o res certain es entage of com of construction stimates to be mpletion. n contract rev e made of tota venue in acco al contract re ordance with venues, total the Group’s a contract cos accounting po sts and the cu olicies urrent Contr the st metho recog const ract revenue a tage of comp od”) when the gnised to the e truction contra and contract letion of the c e outcome of extent of con act cannot be costs are rec contract activi a constructio tract costs inc e estimated re cognised as re ity at the bala on contract ca curred that a eliably. evenue and e ance sheet da an be estimat re likely to be expenses res ate (“percenta ed reliably. C e recoverable spectively by r age-of-compl Contract reven when the ou reference to etion nue is tcome of a Mana reven agement have nue recognise e made estim ed in the Cons ates in this a solidated Sta rea, which if atement of Co ultimately ina omprehensive accurate will im e Income of F mpact the lev FY2015 and b vel of beyond. The p costs percentage of to complete f completion i the contract a s calculated o and profit is r on actual cos recognised fro sts over the s om commenc um of actual cement of the e project. costs plus pr rojected 49 | AUSTA AL LIMITED ANN NUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL LLIMITED Note 5. Other inco me and expe enses Other income and d expenses Government in nfrastructure grants Training reimb bursement grants (Loss) / gain o on disposal of propert ty, plant and equipme ent Gain on dispos sal of intangible asse ets Net foreign exc change gains Sale of scrap Rental income e Other income Total Finance costs Interest paid to o unrelated parties Total Depreciation and amortisation Depreciation e excluding impairment Amortisation Total Employee benefits s Wages and sa alaries Superannuatio on Share based p payments Workers’ comp pensation costs Annual leave e expense Long service le eave expense Total Employee ben efits listed above inc cludes expenses that are disclosed in cost t of sales Auditor's remuner ration 2015 ’000 2014 ’000 $ 3,373 $ 3,643 3 7,915 (371) - 12,994 5,167 - 2,426 8,079 9 3,582 2 903 3 (495 5) 3,802 2 198 8 2,20 1 $ 31,504 $ 21,913 3 $ (4,992) $ (8,742 2) $ (4,992) $ (8,742 2) $ (22,736) $ (21,593 3) (1,530) (2,180 0) $ (24,266) $ (23,773 3) $ (337,501) $ (284,218 8) (4,822) (1,373) (10,085) (14,553) (45) (3,840 0) (383 3) (7,640 0) (8,294 4) (239 9) $ (368,379) $ (304,614 4) 2015 $ 2014 $ Amounts recei ived or due and recei ivable by Ernst & You ung Australia for: An audit or rev view of the financial r report of the entity an d any other entity in t the Group $ (293,409) $ (317,270 0) Total $ (293,409) $ (317,270 0) Amounts recei ived or due and recei ivable by related prac ctices of Ernst & You ng for: An audit or rev view of the financial r report of the entity an d any other entity in t the Group $ (550,900) $ (320,220 0) - (1,302 2) $ (550,900) $ (321,522 2) Other services s in relation to the ent tity and any other ent tity in the Group Total 50 | AUSTA AL LIMITED ANN NUAL REPORT 2015 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 accounting policies related to amortisation of intangible assets in Note 19. Employee benefits Refer to accounting policies for employee benefits in Note 21. 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. Sale of goods and scrap Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer. Risk and rewards of ownership are considered passed to the buyer at the time of delivery of the goods to the customer. ii. Foreign exchange gains & losses included in profit and loss Foreign exchange gains and losses included in profit and loss includes: Fair value adjustments on non-derivative financial assets such as foreign currency denominated loans. Fair value 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. 51 | AUSTAL LIMITED ANNUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Note 6. Earnings p per share x Net profit after tax Net profit attribu utable to ordinary equ uity holders of the pa rent from continuing 2015 2014 operations $’000 $ 53,225 $ 31,548 Weighted average e number of ordinary y shares Weighted avera age number of ordina ary shares (excluding n Effect of dilution Options Performan ce Rights reserved shares) for r basic earnings per s share Weighted avera age number of ordina ary shares (excluding reserved shares) ad justed for the effect o of dilution Earnings per shar re Basic earnings per share Diluted earnings s per share i. Meas surement Number 342,383,958 342,042,581 Number Number Number 310,571 1,831,326 294,589 399,105 344,525,855 342,736,275 $ / share $ / share $ 0.16 $ 0.09 $ 0.15 $ 0.09 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 30. Share rmination of ed in the 5,870 earnin could 0,500 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 Y2014: 9,097 calculation o 7,740). These f diluted e options Perfo ormance righ hts Perfo calcu rights perfor rmance rights lation of dilute s are not inclu rmance rights s granted to e ed earnings p uded in the de s is provided executives un per share as t etermination o in Note 30. nder the Grou the condition of basic earni up’s Long Ter s would have ings per shar rm Incentive P e been met at e. Further inf Plan are inclu t balance she formation abo uded in the eet date. The out the 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 52 | AUSTA AL LIMITED ANN NUAL REPORT 2015 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 2015 ’000 2014 ’000 $ 53,156 $ 31,859 Note 7. x Net profit after tax Adjustments for: Depreciation an nd amortisation $ 24,266 $ 23,776 Net (gain) / loss s on disposal of prope erty, plant and equipm ment Net (gain) / loss s on disposal of intan gible assets Share based pa ayments Net exchange d differences Government gra ants income Total Changes in assets s and liabilities: (Decrease) / inc crease in provisions f for: Income tax (c current and deferred) Workers’ com e mpensation insurance Warranty Employee ben nefits Other provisio ons (Increase) / dec crease in trade & othe er receivables (Increase) / dec crease in inventories (Increase) / dec ts crease in prepayment (Increase) / dec crease in other financ cial assets (Decrease) / inc crease in trade and o other payables (Decrease) / inc crease in progress pa ayments in advance (Decrease) / inc crease in derivative a assets & liabilities (Decrease) / inc crease in governmen t grants 457 - 1,373 (15,067) (4,986) (3,582) (903) 383 254 - $ 6,043 $ 19,928 $ 5,753 $ (7,905) 6,225 (1,863) (1,015) (3,105) 4,483 (11,561) (2,224) - 56,506 (2,885) (393) 1,314 (1,222) 65 2,530 3,092 5,970 (58,646) 2,703 4,141 49,757 7,272 (17,916) - Total $ 51,235 $ (10,159) Net cash (outflow ) / inflow from opera ating activities $ 110,434 $ 41,628 53 | AUSTA AL LIMITED ANN NUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Note 8. Dividends paid and pro oposed 201 5 ’00 0 201 14 ’00 00 $ (3,468) $ - $ 10,408) (1 $ - 201 5 ’00 0 201 14 ’00 00 $ 933 $ 583 $ 6,425 $ 350 (1,487) - $ 4,938 $ 350 $ 5,871 $ 933 i. ii. Divid dends on ord s dinary shares Dividen ds on Ordinary Sha ares Decl ared and paid during g the year (Fully frank ked dividend (1 cents per share)) Prop posed and not recogn nised as a liability (Fu ully franked dividend ( (3 cents per share)) Frank king credit b balance Opening g Balance Fran king credits that aros se from the payment of income tax instalm r ments during the year Fran king credits distribute ed Move ement Closing g Balance 54 | AUSTA AL LIMITED ANN NUAL REPORT 2015 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 ex xpense for the years s ended 30 June 201 15 and 2014 are: Consoli s idated Profit & Loss Curr rent Income Tax Current income tax ch C harge Adjustments in respec A ct of current income ta ax of the previous ye ar Total T Defe erred Income Tax Relating to origination R n and reversal of temp porary differences Adjustments in respec A ct of deferred income tax of the previous y year Total T Tota al income tax (expen nse) / benefit Other C Comprehensive Inco me (OCI) Curr rent and deferred inc come tax related ite ems charged or cred dited directly to OCI Current and deferred g C gains and losses on f foreign currency cont tracts and consolidati ion adjustments Tota al (expense) / benefit t charged to OCI Other eq quity items Curr rent and deferred inc come tax related ite ems charged or cred dited directly to othe er equity items Capital raising costs C Deferred gains on rev D valuation of property, plant and equipment Tota al (expense) / benefit t charged to other e equity 2015 ’000 2014 ’000 $ (22,912) $ (13,224) 4,047 7,863 $ (18,865) $ (5,361) $ (3,916) $ (1,549) (4,756) (8,375) $ (8,672) $ (9,924) $ (27,537) $ (15,285) $ 10,771 $ 1,082 $ 10,771 $ 1,082 $ - $ - - - $ - $ - A recon nciliation between ta ax expense and the product of accounti ing profit before inc ome tax multiplied b by the Group’s appl icable income tax ra ate is as follows: Acco ounting profit / (loss s) before income tax x from continuing op perations Inco ome tax at the Group p’s statutory income e tax rate of 30% (20 014: 30%) $ 80,693 $ 47,144 $ (24,208) $ (14,142) Adjustment for Austal A USA statutory incom me tax rate of 36.9% ( 2014: 36.9%) $ (2,876) $ (2,289) (462) 2 351 227 (83) (709) 220 1,145 (865) 1,313 543 306 (513) (783) $ (3,329) $ (1,143) $ (27,537) $ (15,285) Other foreign tax rate O differences Branch (profit) / loss B US section 199 dome U stic manufacturing de eduction Utilisation of research U and development an nd other tax offsets an nd credits Unrealised foreign exc U change losses on inte ercompany loans Adjustments in respec A ct of current and defe erred income tax of th e previous year Other non-assessable O e or non-deductible ite ems Total Adjustments T Inco ome tax (expense) / b benefit reported in t he statement of com e mprehensive income 55 | AUSTA AL LIMITED ANN NUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED ii. Analysis of temporary differences Deferred income tax - USA Deferred tax assets Trade & other receivables Payables Provisions Grant liabilities Losses available for offset against future taxable income Research and development tax credits Work Opportunity tax credits Charitable donations Inventories Total Deferred tax liabilities Property, plant and equipment Inventories Total Statement of Financial Position Consolidated Profit & Loss 2015 ’000 2014 ’000 2015 ’000 2014 ’000 $ 585 $ 477 $ - $ (150) 7,418 3,317 21,150 - - 1,558 40 168 17,205 5,014 18,374 5,092 19 - 33 - 12,393 2,568 1,264 5,655 23 (1,410) - (168) 8,518 (865) 2,027 3,771 3,879 413 - - $ 34,236 $ 46,214 $ 20,325 $ 17,593 $ (42,978) $ (36,916) $ (2,113) $ (2,291) - (276) (276) (1,571) $ (42,978) $ (37,192) $ (2,389) $ (3,862) Deferred tax assets / (liabilities) - Net $ (8,742) $ 9,022 $ 17,936 $ 13,731 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 Losses available for offset against future taxable income Research and development and other tax offsets $ 1,774 $ 3,827 $ 2,055 $ (581) 800 3,918 10,609 358 231 - 284 4,859 - 539 218 - (515) 938 - 176 (13) - (176) (915) 2,306 (83) (218) 204 Total $ 17,690 $ 9,727 $ 2,641 $ 537 Deferred tax liabilities Property, plant and equipment Inventories Deferred gains and losses on foreign currency contracts $ (3,350) $ (3,404) $ (53) $ (318) - (251) (11,655) (1,295) (11,660) (192) (3,644) (382) Total $ (3,601) $ (16,354) $ (11,905) $ (4,344) Deferred tax assets / (liabilities) - Net $ 14,089 $ (6,627) $ (9,264) $ (3,807) Deferred tax expense / (income) booked to Consolidated Profit & Loss $ 8,672 $ 9,924 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 56 | AUSTAL LIMITED ANNUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED when the taxable temporary differences associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised except: when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or when the deductible temporary differences is associated with investments in subsidiaries, associates and interests in joint ventures in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary The carrying amount of deferred income tax assets is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance date. 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. The possibility of default was assessed to be remote at the balance date. 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. 57 | AUSTAL LIMITED ANNUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED 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. 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. 58 | AUSTAL LIMITED ANNUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Capital s structure Cash and c cash equival ents Note 10. Current Cash at bank a nd in hand 1 Restricted cash h 2015 ’000 2014 ’000 $ 138,413 $ 74,428 10,055 9,532 Total Cash per Ca ash Flow Statement $ 148,468 $ 83,960 1. Unutilised Go Z Zone Bond funds may y only be spent on tho ose capital works pro ojects that were speci ifically identified in th e documentation issu ued to investors. 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 Cash guara and cash eq antee for the p uivalents con purposes of t nsist of cash a he Cash Flow and cash equ w Statement. uivalents as d efined above e, net of cash held as a 59 | AUSTA AL LIMITED ANN NUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Note 11. Interest be aring loans and borrowi ngs 2015 ’000 2014 ’000 Current Revolving Cred dit Facility Finance Lease es (3) Bank Loan (un secured) (1) Go Zone Bond s (2) Total Non - Current Go Zone Bond s (2) Finance Lease es (3) Total Total $ - (1,7 91) - (145,1 13) $ (12,0 000) - (1,1 92) - $ (146,9 04) $ (13,1 92) $ - $ (142,2 264) (7,6 58) - $ (7,6 58) $ (154,5 62) $ (142,2 264) $ (155,4 456) 1. The Bank loa 2. The Go Zone Bonds matur rate of appro 3. The Finance rate of 1.7% an was payable by e Bonds of US$111 re on 1 May 2041 w oximately 2.8% in FY leases are used to in FY2015. instalments until O .740 million are va whilst the Letters of Y2015. o fund mobile equip ctober 2014, with a riable rate demand Credit mature on 3 an average variable bonds that are wra 31 December 2015. e interest rate of 4.3 apped by Letters of The Bonds are pa 3% in FY2015. f Credit that are pro yable in US dollars ovided under the SF s with an average e FA. The Go Zone ffective interest ment and a plot of land in Austal USA A. The leases have a term of 5 years a and incurred interes st at an average 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 by the were matur FY20 Gulf Opportun e US Federal affected by H rity to invest i 13. nity Zone Bon Government Hurricane Kat n the develop nds (Go Zone t to incentivis trina in 2005. pment of ship e Bonds or GZ e private inve Austal qualif pbuilding infra ZB) are a form estment in inf fied to borrow astructure in A m of indebted frastructure in w US$225.000 Austal USA b dness that wa n geographica 0 million with between FY20 as authorised al areas that a 30 year 008 & Go Zo of 0.0 syndi have was 2 one Bonds ar 043% in FY20 cate with a m been disclos 2.30%. re tax-exemp 015. GZB bon maturity date o ed as current t municipal bo ndholders are of 31 Decemb t at the report onds in the U e secured by l ber 2015 and ting date. The United States letters of cred hence all liab e average cos and attracted dit issued by A bilities relatin st of the lette d an average Austal’s bank g to the SFA rs of credit in coupon rate king agreement FY2015 Austa US$1 al has redeem 11.740 millio med (repaid) a on at 30 June a cumulative 2015. amount of ~ US$112 millio on of GZB fun s nds and owes 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 Austa letters appoi expec al is in the pro s of credit sec inted and a te cted to occur ocess of re-fin curing the GZ erm sheet has early in FY20 nancing the S ZB by a minim s been signed 016. Syndicated Fa mum term of t d. Full docum acility with the three years. A mentation is b e intention of A mandated le eing prepared extending / re ead arranger d and financi enewing the r has been al close is 60 | AUSTA AL LIMITED ANN NUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED iii. Banking facilities Facilities used at reporting date Revolving Credit Facility (1) Finance Leases (2) Bank Loan (unsecured) (3) Go Zone Bonds (4) Contingent Instrument Facility (5) Total Facilities unused at reporting date Revolving Credit Facility (1) Finance Leases (2) Bank Loan (unsecured) (3) Go Zone Bonds (4) Contingent Instrument Facility (5) Total Total Facilities Available Revolving Credit Facility (1) Finance Leases (2) Bank Loan (unsecured) (3) Go Zone Bonds (4) Contingent Instrument Facility (5) Total 2015 ’000 2014 ’000 $ - (9,449) - (145,113) (79,965) $ (12,000) - (1,192) (142,264) (41,605) $ (234,527) $ (197,061) $ (50,000) (3,220) - - (20,035) $ (38,000) - - - (58,395) $ (73,255) $ (96,395) $ (50,000) (12,669) - (145,113) (100,000) $ (50,000) - (1,192) (142,264) (100,000) $ (307,782) $ (293,456) 1. The Revolving Credit Facility is provided under a Syndicated Facility Agreement (SFA) which was executed on 19 July 2013. The maturity of the SFA is 31 December 2015. Funds borrowed under the Revolving Credit Facility in FY2015 incurred an average variable interest rate of 4.5%. 2. The Finance leases are used to fund mobile equipment and a plot of land in Austal USA. The leases have a term of 5 years and incurred interest at an average rate of 1.7% in FY2015 3. The Bank loan was payable by instalments until October 2014, with an average variable interest rate of 4.3% in FY2015 4. The Go Zone Bonds of US$111.740 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 2.8% in FY2015. 5. 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 25). 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. 61 | AUSTAL LIMITED ANNUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Note 12. Contribute d equity and d reserves Ordinary Shares o n Issue 1 July Shares ’000 201 15 201 14 2015 2014 346,54 44,933 346,17 73,195 $ 121,210 $ 120,940 Shares issued d during the year 3 78,518 37 71,738 $ 543 $ 270 30 June 346,92 23,451 346,54 44,933 $ 121,753 $ 121,210 Reserved Shares 1 July (4,35 50,601) (4,35 50,601) $ (9,612) $ (9,612) Movement in Re eserved shares 33 35,062 - $ 382 $ - 30 June (4,0 15,539) (4,35 50,601) $ (9,230) $ (9,612) Net i. ii. 342,90 07,912 342,19 94,332 $ 112,523 $ 111,598 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 30 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 Ordinary y Shares on Issue 1 Jul y CEO y O - Mr Andrew Bellamy Divid dend reinvestment pla n 30 Ju une Shares 2015 2014 346,544,933 3 5 346,173,195 6 320,236 2 58,282 8 371,738 - 346,923,451 1 3 346,544,933 The m Mr An movement in ndrew Bellam ordinary shar my’s contract o res during yea of employmen ar ended 30 J nt as well as June 2015 is a Dividend R comprised of Reinvestment f shares issue plan. ed as part of Mr An H1 sh weigh for 92 share ndrew Bellam hares were is hted average 2,602 shares. es were issue my’s FY2014 e sued on 2 Fe price (VWAP A dividend re ed under the D employment c ebruary 2015. P) on which th einvestment p DRP during F contract shar . (Refer to the he shares we plan (DRP) w FY2015 at a p es were issue e Remunerati re issued was was introduce price of $1.72 ed on 17 Nov on Report on s $1.04 for 22 d during FY2 per share. vember 2014 n page 15). T 27,634 share 2015. 58,282 and FY2015 he volume s and $1.31 additional 62 | AUSTA AL LIMITED ANN NUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED iii. Nature & purpose of reserves Foreign currency translation reserve (FCTR) This reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. Employee benefits reserve This reserve is used to record the value of equity benefits provided to employees and Directors as part of their remuneration. Refer to Note 30 for further details of share based payment plans for the Group. Cash flow hedge reserve This reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge. Common control reserve This reserve represents the premium paid on the acquisition of the minority interest in a controlled entity. Asset revaluation reserve This reserve is used to record increases in the fair value of land and buildings. 63 | AUSTAL LIMITED ANNUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Note 13. Governmen nt grants rel ating to asse ets Deferred Grant Inc come Current 2015 ’000 2014 ’000 Infrastructur re Development $ $ (3,244) $ $ (3,550) Total Non - Current $ $ (3,244) $ $ (3,550) Infrastructur re Development $ $ (63,722) $ $ (49,892) Total Total Movements in Grants Opening Balanc ce Grants rece ived during the year Amortised to o the P&L Exchange ra ate adjustment $ $ (63,722) $ $ (49,892) $ $ (66,966) $ $ (53,442) $ $ (53,442) $ $ (57,015) $ $ (4,986) $ $ - 3,673 (12,210) 3,643 (70) e Closing Balance $ $ (66,966) $ $ (53,442) 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 The fa to pro air value of g ofit and loss o rants related over the expe to assets are cted useful lif e credited to a fe of the relev a deferred inc vant asset. come liability account and is released The fa match air value of g h the grant on rant related to n a systemati o expense ite c basis to the ems, are reco e costs that it ognised as inc is intended to come over the o compensate e periods nec te. cessary to 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 is reasonabl or when there h. complied with e assurance that the 64 | AUSTA AL LIMITED ANN NUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Working g capital Trade and other receiv ables Note 14. Current Trade amounts owing by unrelated e entities Allowance for d doubtful debts Total Non - Current Trade amounts owing by unrelated e entities Total Total i. Reco ognition and measureme nt 2015 ’000 2014 ’000 $ 104,431 $ 95,842 (89) (89) $ 104,342 $ 95,753 $ $ 157 157 $ $ 1,020 1,020 $ 104,499 $ 96,773 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 there dual receivab tly. The other an impairmen rment losses is evidence o bles which are receivables a t has been in are recognis of impairment e known to be are assessed curred but no sed in a separ t if any of the e uncollectibl d collectively t ot yet been id rate impairme following ind e are written to determine dentified. For t ent allowance dicators are p off by reducin whether ther these receiva e account. Th resent: ng the carryin re is objective ables the esti he Group con ng amount e evidence mated siders that 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 65 | AUSTA AL LIMITED ANN NUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED iii. Allowance account for doubtful debts Trade receivables of an initial value of $0.089 million (FY2014: $0.089 million) were impaired and fully provided for at 30 June 2015. Movements in impairment allowance account are detailed below: Provision for Doubtful Debts 1 July Charge for the Year Utilised Movement 30 June 2015 $’000 2014 $’000 $ (89) $ (1,387) $ (60) $ (89) 60 1,387 $ - $ 1,298 $ (89) $ (89) 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 2015 2014 ’000 $ 99,155 $ 1,623 $ 177 $ 3,633 $ (89) $ 104,499 ’000 $ 89,580 $ 4,430 $ 435 $ 2,417 $ (89) $ 96,773 Receivable balances are monitored on an ongoing basis. A major percentage of the trade and other receivables comprises Government institutions and the credit quality is deemed to be of a high quality. The full trade and other receivables excluding the impairment is deemed to be recovered within the next 12 months. v. Fair values of current trade and other receivables The carrying amount of the receivables is assumed to be the same as their fair value due to their short term nature. 66 | AUSTAL LIMITED ANNUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Constructi on contracts s s in progress Note 15. Work in Progress Construction re venue recognised to date less Progress p payments received & receivable 2015 ’000 2014 ’000 $ 5,636,779 $ 3,603,494 (5,299,051) (3,275,969) Total due from c customers $ 337,728 $ 327,525 Progress Paymen ts Received in Adva ance Construction re venue recognised to date less Progress p payments received & receivable $ 266,437 $ 204,322 (292,614) (233,384) Total due to cus stomers $ (26,177) $ (29,062) Total due from / (t to) customers $ 311,551 $ 298,463 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 progres ss Other stock Total Inventories s and work in n progress Not tes 5 2015 0 ’000 4 2014 0 ’000 5 15 $ 33 7,728 $ 32 7,525 1,975 617 $ 33 9,703 $ 32 8,142 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 67 | AUSTA AL LIMITED ANN NUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Trade and other payab les No otes 2015 ’000 2014 ’000 Note 17. Current Trade & other p payables owed to unre elated entities 1 Total $ (223, ,497) $ (223, ,497) $ (183 ,570) $ (183 ,570) 1. Trade payabl les are unsecured, no on-interest bearing an nd are normally settle ed 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 68 | AUSTA AL LIMITED ANN NUAL REPORT 2015 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 2014 Gros s carrying amount at fai r value at co ost Accu umulated Depreciation n & Impairment Net C Carrying Amount Balance e 30 June 2015 Gros s carrying amount at fai r Value at co ost Accu umulated Depreciation n & Impairment Net C Carrying Amount Reco onciliation of f movement f for the year Balance e 1 July 2013 Addit tions Trans sfer in / (out) Dispo osals Depr reciation charge for th he year Exch hange Adjustment l Total Balance e 1 July 2014 Addit tions Trans sfer in / (out) Dispo osals Depr reciation charge for th he year Exch hange Adjustment l Total Balance e 30 June 2015 69 | AUSTA AL LIMITED ANN NUAL REPORT 2015 d Freehold Land & Plant & Capital Buildings s Equipment ’000 ’000 WIP ’000 T otal 000 ’0 $ 316,78 86 $ - $ - 316,786 3 $ 16,40 04 122,974 (29,37 70) (61,114) 822 - 1 40,200 (90,486) ( $ 303,81 19 $ 389,02 26 $ 61,859 $ 822 366,500 3 $ $ - $ - 389,025 3 $ 13,83 38 155,590 11,704 (45,17 73) (82,461) - 1 81,132 (1 27,635) $ 357,69 90 $ 73,128 $ 11,704 442,522 4 $ d Freehold Land & Plant & Capital Buildings s Equipment ’000 ’000 WIP ’000 T otal 000 ’0 $ 323,87 78 $ 2,26 69 $ 71,894 $ 4,145 399,917 3 $ $ 5,230 $ 4,385 $ 11,884 7,93 30 (16,76 66) (8,70 07) (4,78 85) (205) (1,611) (12,886) (563) (7,725) - - 17 - (18,377) ( (21,593) ( (5,331) $ (20,05 59) $ 303,81 19 $ 4,95 55 $ (10,035) $ (3,323) (33,417) ( $ $ 61,859 $ 822 366,500 3 $ $ 12,816 $ 10,355 $ 28,126 (1,15 54) (2,13 39) (9,46 65) 61,67 74 2,118 (658) (13,271) 10,264 (964) (15) - 1,506 - (2,812) (22,736) ( 73,444 $ 53,87 71 $ 357,69 90 $ 11,269 $ 10,882 $ 76,022 $ 73,128 $ 11,704 442,522 4 $ 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. The carrying amount would be as follows if land and buildings were measured using the cost model. Land & Buildings valued using cost model Cost Accumulated Depreciation & Impairment Net Carrying Amount 2015 ’000 2014 ’000 $ 379,023 $ 297,012 (57,933) (40,311) $ 321,090 $ 256,701 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 at the end of each financial year if appropriate. 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. 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 in assessing value in use. 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-generating unit exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount. Impairment losses on plant and equipment are recognised in the statement of comprehensive income. The asset or cash-generating unit that suffered an impairment is tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have reversed. 70 | AUSTAL LIMITED ANNUAL REPORT 2015 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 Impairment of non-financial assets The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. As part of the assessment, the Group considered impairment triggers including observable indications, significant market, technological, economic or legal changes that have occurred, significant decreases in market interest rates or market rates of return, the market capitalisation of the Group compared to the net assets of the Group, evidence that any major asset or process is obsolete or damaged and other evidence from internal reporting. There were no impairment triggers which were identified and therefore no specific impairment test was required for assets excluding goodwill. Goodwill is tested annually for impairment regardless of whether impairment triggers are identified. The key assumptions used to determine the recoverable amount for the Australia cash-generating unit (CGU) are disclosed and further explained in Note 19. viii. 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 22. 71 | AUSTAL LIMITED ANNUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Note 19. Intangible assets Computer Software G oodwill ’000 ’000 Total T ’000 Balance 1 July 201 14 $ $ 3,010 $ 6,463 $ 9,473 Additions Amortisation for r the year Disposals Exchange Adjus stment Total $ $ 1,053 $ (1,530) - 641 $ $ 164 $ - - - - - $ 1,053 (1,530) - 641 $ 164 Balance 30 June 2 2015 $ $ 3,174 $ 6,463 $ 9,637 Balance 1 July 201 14 Cost Accumulated Am mortisation & Impairm ment $ $ 13,195 $ 6,463 $ 19,658 (10,185) - (10,185) Net Carrying Am mount $ $ 3,010 $ 6,463 $ 9,473 Balance 30 June 2 2015 Cost Accumulated Am mortisation & Impairm ment $ $ 15,767 $ 6,463 $ 22,230 (12,593) - (12,593) Net Carrying Am mount $ $ 3,174 $ 6,463 $ 9,637 i. Reco ognition and measureme nt Intang any a asset profit gible assets a accumulated a ts, excluding c or loss in the acquired sepa amortisation a capitalised de e year in whic arately are ini and any accu evelopment c ch the expend itially measur umulated imp costs, are not diture is incurr red at cost an airment losse capitalised a red. nd subsequen es. Internally and expenditu ntly carried at y generated in ure is charged t cost less ntangible d against The u useful lives of finite lives are amo that th he intangible intang gible asset wi expec cted useful lif asset t are accounte in acc counting estim ment of comp statem 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 once per ion of future e riod or metho tangible asset gory consiste r indefinite. In ment wheneve nd the amortis financial year economic ben od, as approp ts with finite l ent with the fu ntangible ass er there is an sation metho r. Changes i nefits embodi priate, which is ives is recog unction of the sets with indication d for an n 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 as an arch costs ar n intangible as re expensed a sset when the as incurred. D e Group can d Development demonstrate: expenditure on an individ ual project is recognised the technical t feasibility of c completing th he intangible asset so that it will be ava ailable for use e or sale its intention to i o complete an nd its ability t to use or sell the asset how the asse h et will generat te future econ nomic benefit s the availabilit t y of resource es to complete e the asset the ability to m t measure relia ably the expe nditure during g developme nt 72 | AUSTA AL LIMITED ANN NUAL REPORT 2015 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. 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 for the purpose of impairment testing, 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. An impairment loss is recognised when the recoverable amount of the CGU is less than its carrying amount. Impairment losses relating to goodwill cannot be reversed in future periods. Goodwill allocated to a cash-generating unit that has a partial disposal of the operation within that unit is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances 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 Australia segment (refer to Note 3 for details). The Group tests whether goodwill is recoverable on an annual basis. The recoverable amount of Austal Australia 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. Management has concluded that no impairment charge is required as a result of this analysis. 73 | AUSTAL LIMITED ANNUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED iii. Significant accounting judgement and estimates Recoverable amount of the Australia CGU The recoverable amount of the Australia CGU is determined based on value in use calculations using five year cash projections from financial budgets that are approved by senior management. The following table sets out the key assumptions: Budget period gross margins 1 Growth rate beyond budget period 2 Discount rate 3 Australia 17-20% 10-15% 2015 2014 2015 0.0% 2014 5.0% 2015 13.0% 2014 15.0% 1. Budgeted gross margin 2. Weighted average growth rate used to extrapolate cash flows beyond the budget period 3. The Group has applied post-tax discount rates to discount the forecast future attributable post-tax cash flows in performing the value-in-use calculations for the Australia CGU. 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 Austal Australia 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. 74 | AUSTAL LIMITED ANNUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Note 20. Collateral Collateral Collateral 1 2015 ’000 2014 ’000 $ 3,600 $ 2,917 1. Legal requireme ent in the USA to pro vide cash collateral t o ensure that worker rs' compensation claim ms will be paid if they y eventuate. i. Reco ognition and measureme nt Collat month teral in the st hs or more. atement of fin nancial positio on comprises s cash at ban k with an orig ginal maturity of twelve ii. Prior year restate ement The $ $2.917 million n was disclose ed as cash an nd cash equiv valents in the e FY2014 ann nual report. 75 | AUSTA AL LIMITED ANN NUAL REPORT 2015 Other lia abilities Note 21. s Provisions Provisions at 30 Ju une 2014 Arising during th he year Utilised Unused amount s reversed Effects of foreig n exchange Movement Provisions at 30 Ju une 2015 2014 Current Non-Current Total 2015 Current Non-Current Total REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Employee Workers' Benefits Compensation Warranty ’000 ’000 ’000 Ot ther 000 ’0 To otal ’0 00 $ (13,72 23) $ (8,144) $ (6,575) $ (6,285) (34,727) ( $ $ (59,20 04) $ (14,604) $ (4,924) 132,368) ( $ $ (2 11,100) 56,62 27 68 88 2,90 04 19,799 942 (12,362) 4,829 2,010 (52) 129,403 710 5,360 2 10,658 4,350 (4,150) $ 1,01 5 $ (12,70 08) $ (6,225) $ 1,863 $ 3,105 $ (242) $ (14,369) $ (4,712) $ (3,180) (34,969) ( $ Employee Workers' Benefits Compensation Warranty ’000 ’000 ’000 Ot ther 000 ’0 To otal ’0 00 $ (12,70 00) $ (8,144) $ (6,575) $ (6,285) $ (33,704) ( (1,02 23) - - - (1,023) $ (13,72 23) $ (11,56 69) $ (8,144) $ (6,575) $ (6,285) $ (34,727) ( $ (14,369) $ (4,712) $ (3,180) $ (33,830) ( (1,13 39) - - - (1,139) $ (12,70 08) $ (14,369) $ (4,712) $ (3,180) $ (34,969) ( 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 re-tax rate tha g a current pr . 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 wh emplo the lia ities for wage holly settled w oyees’ service abilities are se es and salarie within 12 mon es up to the r ettled. es, including n nths of the rep reporting date non-monetary porting date a e. They are m y benefits and are recognise measured at t d accumulatin d in other pay the amounts e ng sick leave yables in res expected to b expected to pect of n be paid when 76 | AUSTA AL LIMITED ANN NUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED Long service and annual leave The Group does not expect its long service leave and annual leave benefits provision to be settled wholly within 12 months of each reporting date. The Group recognises a liability for long service measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. 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. A dividend of 1 cent per share was issued for the half year 31 December 2014 and a dividend of 3 cents is proposed and not recognised as a liability for the year ended 30 June 2015 (FY2014: 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 that is chartered to the US Military Sealift Command, to return the vessel to a passenger ferry specification. This is consistent with the comparative period. LCS 2 – USS INDEPENDENCE 77 | AUSTAL LIMITED ANNUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Financia al risk ma anagemen nt Note 22. 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 ’000 for hedging at fair value amortised cost ’000 Total ’000 Derivatives used Assets at 5 2015 Cash and cash equiva C alents Restricted cash R Trade & other receivab T bles Forward exchange con F ntracts Total T 4 2014 Cash and cash equiva C alents Restricted cash R Trade & other receivab T bles Forward exchange con F ntracts 10 10 14 23 10 10 14 23 $ - $ $ 138,413 $ 138,413 - - 115 10,055 104,499 - 10,055 104,499 115 $ 115 $ $ 252,967 $ 253,082 $ - $ $ 74,428 $ 74,428 - - 8,488 9,532 96,773 - 9,532 96,773 8,488 Total T $ 8,488 $ $ 180,733 $ 189,221 Financia al Liabilities Derivatives used Assets at for hedging at fair value Notes ’000 amortised cost ’000 Total ’000 5 2015 es Trade & other payable T Forward exchange con F ntracts I nterest bearing borrow wings Total T 4 2014 es Trade & other payable T Forward exchange con F ntracts I nterest bearing borrow wings 17 23 11 17 23 11 $ - $ $ (223,497) $ (223,497) (36,074) - - (154,562) (36,074) (154,562) $ (36,074) $ $ (378,059) $ (414,133) $ - $ $ (183,570) $ (183,570) (4,201) - - (155,456) (4,201) (155,456) Total T $ (4,201) $ $ (339,026) $ (343,227) The G The m of fina Group’s expos maximum exp ancial asset m sure to variou posure to cred mentioned ab us risks assoc dit risk at the bove. ciated with th end of the re he financial ins eporting perio struments is d d is the carry discussed in ying amount o Note 23. of each class The fa in the ssets and liab air value of a . e table above. bilities held a t amortised c cost is describ bed in the ass sociated note e referenced 78 | AUSTA AL LIMITED ANN NUAL REPORT 2015 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. The Group has classified its financial instruments into the three levels prescribed under the accounting standards to provide an indication about the reliability of the inputs used in determining fair value. An explanation of each level follows underneath the table. Recurring fair value measurement Balance 30 June 2015 Notes Level 1 ’000 Level 2 ’000 Level 3 ’000 Total ’000 Financial assets Derivatives used for hedging 23 $ - $ 115 $ - $ 115 Financial liabilities Derivatives used for hedging 23 $ - $ (36,074) $ - $ (36,074) Balance 30 June 2014 Financial assets Derivatives used for hedging 23 $ - $ 8,488 $ - $ 8,488 Financial liabilities Derivatives used for hedging 23 $ - $ (4,201) $ - $ (4,201) 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. The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. Foreign exchange forward contracts are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis spreads between the respective currencies, interest rate curves and forward rate curves of the underlying commodity. All derivative contracts are fully cash collateralised, thereby eliminating both counterparty and the Group’s own non- performance risk. The fair value of derivative asset positions at 30 June 2015 is net of a credit valuation adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments recognised at fair value. 79 | AUSTAL LIMITED ANNUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED 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. 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 for financial instruments that are recognised at fair value on a recurring basis. All of the resulting fair value estimates are included in level 2. 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. The reversal is recognised in profit or loss for financial assets measured at amortised cost. 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. The Group has classified its assets and liabilities measured at fair value into the three levels prescribed under the accounting standards to provide an indication about the reliability of the inputs used in determining fair value. Balance 30 June 2015 Notes Level 1 ’000 Level 2 ’000 Level 3 ’000 Total ’000 Land & buildings 18 $ - $ - $ 357,690 $ 357,690 Balance 30 June 2014 Land & buildings 18 $ - $ - $ 303,819 $ 303,819 There were no transfers between any of the levels for recurring fair value measurements during the year. 80 | AUSTAL LIMITED ANNUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED 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. For the revaluation of Land & Buildings in June 2012, the Group changed its accounting policy for the measurement of land and buildings to the revaluation model. The Group engaged CB Richard Ellis and Knight Frank to determine the fair value of its land and buildings for USA and Australia respectively. Both firms are accredited independent valuers. The last independent revaluation was performed on 29 June 2012. 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-Jun-15 '000 Unobservable inputs Range of inputs (probability- weighted average) Relationship of unobservable inputs to fair value Land - Mobile US$11,000 Selection of land with similar approximate utility 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. Cost per square foot floor area (ft2) US$100 - $211 ($185) per ft2 Higher cost per ft2 increases fair value. Land - Henderson A$8,800 Selection of land with similar approximate utility $200-220 ($210) per m2 Higher value of similar land increases estimated fair value Buildings - Henderson 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. The recoverable amount of an asset is determined if an impairment trigger exists. The recoverable amount of the asset is the higher of fair value less costs to sell and 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 in assessing value in use. The recoverable amount is determined for the cash-generating unit to which an asset belongs for an asset that does not generate largely independent cash inflows, 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. 81 | AUSTAL LIMITED ANNUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Note 23. Financial r isk managem ment This note ex financial per context. 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 Risk Exposure aris sing from g Monitoring nt Managemen Market risk - in nterest rate Long-term bor rrowings at varia ble rates Sensitivity analysis Interest rate swaps Market risk - in nterest rate Cash Sensitivity analysis Interest rate swaps Future comme recognised fin denominated i ercial transaction ancial assets an in functional curr ns, nd liabilities not rency Cash, short te and derivative erm deposits, trad financial instrum de receivables ments Borrowings, tra financial instru ade payables an uments nd derivative Cash flow Sensitivity forecast, analysis Ageing ana ratings alysis, credit Rolling cas s sh flow forecasts Forward fore contracts, Fo options eign exchange orward currency Monitoring cr redit allowances Availability o lines and bor f committed cred d rrowing facilities Market risk - fo oreign currency Credit risk Liquidity Objectives and policy Ultimate res reviews and currency, cre ponsibility for agrees polic edit allowanc r identification ies for manag es, and future n and control ging each of t e cash flow fo of financial r the risks iden orecast projec isks rests wit ntified below, ctions. h the Board o including hed of Directors. dging cover o The Board of foreign 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 ii. Intere est rate risk exposure The G and in Group’s expos nvestment in sure to marke cash funds. et interest rat tes relates pri imarily to the Group’s long g-term debt ob bligations The G existin Group consta ng positions a ntly analyses and alternativ s its interest ra ve financing s ate exposure structures. . Considerat ion is given to o potential re enewals of The G end o Group had the of the reportin e following va ng period. ariable rate bo orrowings and d interest rate e swap contra acts outstand ding at the 82 | AUSTA AL LIMITED ANN NUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED 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 2015 ’000 2014 ’000 $ 54,909 93,559 $ 35,325 48,635 $ 148,468 $ 83,960 $ - (154,562) $ (13,192) (142,264) $ (154,562) $ (155,456) $ (6,094) $ (71,496) 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 material impact on other components of equity as a result of changes in interest rates. The sensitivity analysis below 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 FY2015 observations. Post tax gain / (loss) +1% (100 basis points) -1% (100 basis points) 2015 ’000 2014 ’000 $ (198) $ (686) 198 686 iii. Interest rate risk strategies, policies and procedures The cash, debt, bank covenants and interest cover ratio of the Group are forecasted and monitored on a monthly basis in order to forecast and monitor the interest rate risk. A variable interest rate is maintained because repayments are carried out as soon as practicable, where a fixed interest rate is less flexible. The interest rate movement is currently immaterial. iv. Foreign currency risk Refer to Note 24 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 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 and EUR. 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 the functional currency of each cash generating unit. 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 using financial instruments (refer to Note 24). Sales contracts are negotiated based at the current market rate on the contract signing date. The Group seeks to mitigate significant foreign currency exposures in contract tenders by incorporating rise and fall clauses for exchange rate movements between the date of price calculation to the date the contract becomes effective. 83 | AUSTAL LIMITED ANNUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED Known foreign exchange transaction exposures, which result from normal operational business activities, are hedged utilising financial instruments. Tax profit and equity would have been affected as illustrated in the table below had the AUD, USD and EUR 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) 2015 ’000 2014 ’000 2015 ’000 2014 ’000 USD / AUD +10% -10% EUR / AUD +10% -10% EUR / USD +10% -10% $ (854) $ (4,727) $ 3,679 $ 17,106 854 4,727 (5,011) (17,106) $ 1 $ 2 $ 868 $ (1,769) (1) (2) (1,061) 1,769 $ - $ 4,515 $ 5,420 $ 4,515 - (4,515) (5,420) (4,515) Derivative financial instruments such as forward currency contracts and currency options are utilised to eliminate foreign currency exposures. 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 24. v. 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. 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 to manage this risk. The Group undertakes investments in short term deposits, term deposits or negotiable certificates of deposit in order to achieve this objective. 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. 84 | AUSTAL LIMITED ANNUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED The Group’s exposure to counter party credit default risk arising from the other financial assets of the Group, which comprise cash and cash equivalents and certain derivative instruments, is 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 24. Cash and term deposits are predominantly held with two tier one Australian financial institutions, which are considered to be low concentrations of credit risk. vi. Liquidity risk The liquidity position of the Group is managed to ensure sufficient liquid funds are available to meet 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 is in the process of finalising a new syndicated banking facility. The Syndicated Facility Agreement (SFA) matures 31 December 2015 and hence all liabilities relating to the SFA agreement have been disclosed as current at the reporting date. The contractual maturities of financial liabilities, including interest payments are as follows: Balance 30 June 2015 Derivative financial assets / (liabilities) Carrying Amount ’000 Years to maturity 0 - 1 ’000 1 - 2 ’000 2 - 5 ’000 > 5 ’000 Contractual Cash Flows ’000 Outflow Inflow $ (251,112) $ (160,799) $ (76,004) $ (21,362) $ - $ (258,165) 215,243 139,341 63,872 17,957 - 221,170 Net derivative financial assets / (liabilities) $ (35,869) $ (21,458) $ (12,132) $ (3,405) $ - $ (36,995) Non Derivative financial liabilities Trade & other payables Go Zone Bond facility (i) Finance lease Total $ (223,497) $ (223,497) $ - $ - $ - $ (223,497) (145,113) (9,449) (145,525) (1,785) - - (3,597) (3,297) - - (145,525) (8,679) $ (378,059) $ (370,807) $ (3,597) $ (3,297) $ - $ (377,701) (i) Go Zone Bonds are classified with 0 to 1 year to maturity because the letters of credit wrapping the bonds mature on 31 December 2015. Balance 30 June 2014 Derivative financial assets / (liabilities) Carrying Amount ’000 Years to maturity 0 - 1 ’000 1 - 2 ’000 2 - 5 ’000 > 5 ’000 Contractual Cash Flows ’000 Outflow Inflow $ (377,752) $ (154,468) $ (161,766) $ (81,962) $ (172) $ (398,368) 381,863 155,193 165,183 82,129 172 402,677 Net derivative financial assets / (liabilities) $ 4,111 $ 725 $ 3,417 $ 167 $ - $ 4,309 Non Derivative financial liabilities Trade & other payables Bank loan (unsecured) Go Zone Bond facility 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) The Group had $50.000 million (FY2014: $38.000 million) of unused credit facilities available for its immediate use at balance date (refer to Note 11). The Group also has a total of $138.413 million (FY2014: $74.427 million) in cash and cash equivalents, which it is able to use to meet its liquidity needs. 85 | AUSTAL LIMITED ANNUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Note 24. 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 Deriva into a positiv ative financia and are subse ve and as liab al instruments equently reme bilities when s are stated a easured at fai the fair value at fair value on ir value. Der e is negative. n the date on ivatives are c which a deriv carried as ass vative contra sets when the ct is entered e fair value is Any g and lo other gains or losse oss, except fo comprehens es arising from or those that q sive income. m changes in qualify as cas the fair value sh flow hedge e of derivative es, which are es are taken t taken to cas to the statem sh flow hedge ent of profit e reserve in 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 been are di Group’s deriva calculated us irectly or indir atives are cat sing valuation rectly based o tegorised in le n techniques w on market ob evel 2 of the where the inp bservable data valuation hie puts that have a. rarchy, becau e a significan use their fair v nt effect on the value has e valuation 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 p particular risk 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 The G hedge incep Group formall e accounting tion of a hedg y designates and the risk ge relationsh and docume management ip. ents the hedg t objective an e relationship nd strategy for p to which the r undertaking e Group wishe g the hedge a es to apply t the 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. hedge statem value hedges ty or an unrec an asset, liab The carrying ed, the deriva ment of comp are hedges o cognised firm bility or firm co g amount of a ative is remea prehensive inc of the Group’s m commitment ommitment th hedged item asured to fair come. s exposure to t other than fo hat is attributa m is adjusted f value and ga o changes in oreign exchan able to a part for gains and ains and losse the fair value nge rate risk, icular risk and losses attribu es from both e of a recognis or an identifi d could affec utable to the are taken to t sed asset or f ied portion of t profit or risk being the 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 86 | AUSTA AL LIMITED ANN NUAL REPORT 2015 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. The amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability when the hedged item is the cost of a 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 the AUD value of the significant forward foreign exchange agreements and forward currency options by currency. 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. USD / AUD less than 3 months 3 - 12 months > 12 months Total EUR / AUD less than 3 months 3 - 12 months > 12 months Total USD / EUR less than 3 months 3 - 12 months > 12 months Total GBP / AUD less than 3 months 3-12 months > 12 months Total 2015 2014 Average Forward Rate 0.8398 0.8847 0.8661 0.7343 0.6904 - Buy '000 $ 2,843 85,792 29,081 $ 117,716 $ 477 445 - $ 922 - - - $ - - - $ - Average Forward Rate 0.8286 0.7720 0.7644 0.6664 0.6111 0.5933 1.2313 1.3407 1.3772 Sell '000 $ (607) (1,008) (262) $ (1,877) $ (424) (10,850) (5,069) $ (16,343) $ (1,138) (30,913) (45,486) $ (77,537) Average Forward Rate 0.9603 0.9167 0.8775 Buy '000 $ 897 80,868 131,794 $ 213,559 Average Forward Rate 1.0012 0.9599 0.9713 Sell '000 $ (249) (3,436) (86) $ (3,771) 0.6608 0.7403 0.7343 $ 1,809 - $ - 203 477 0.6400 0.6089 (1,382) (22,285) $ 2,489 $ (23,667) - - - $ - - - $ - 1.3322 1.3709 1.3941 $ (782) (59,448) (85,849) $ (146,079) - $ - 0.5263 0.5533 1,820 1,580 0.5223 0.5563 0.5056 $ (74) - $ - (165) (77) 0.5640 0.5511 1,637 3,265 0.6222 0.6126 0.5548 $ (36) (115) (552) $ 3,400 $ (316) $ 4,902 $ (703) 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. All outstanding transactions under an ISDA agreement are terminated in certain circumstances, for example, when a credit event such as a default occurs. 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. 87 | AUSTAL LIMITED ANNUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Unrecog gnised ite ems Note 25. 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 Directo bilities. otential finan re anticipated rs’ best estim cial liabilities d in respect o mate of amoun that could ar of any of those nts that would ise from histo e contingenci d be payable orical comme ies. The fair v by the Group ercial value p to settle Operatin ng lease commitme ents Futu ure minimum rentals s payable under non n-cancellable leases s as at 30 June are a as follows With hin one year After r one year but not mo ore than five years Tota l Capital leases With hin one year After r one year but not mo ore than five years Tota l Capital commitments Mob ile Equipment - USA Tota l Guarant tees Bank k performance guaran ntees (i) 2015 ’000 2014 ’000 $ (2,153) $ (1,395) (478) (1,744) $ (2,631) $ (3,139) $ (1,792) $ (7,658) $ (9,450) $ - - - (2,088) $ $ (2,088) $ (72) (72) $ (79,965) $ (41,605) (i) The bank performa floating charges ov ance guarantees ar ver cash, receivable re secured by a mort s, work in progress tgage over the land and plant and equip and buildings and pment. 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 26. Events afte er the balanc ce date A fully franke ed dividend o of 3 cents per share (FY20 014: Nil) has b been propose ed. 88 | AUSTA AL LIMITED ANN NUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED The Grou up, mana agement a and relate s ed parties Note 27. 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 c Austal Holdings Inc Austal Hull 130 Cha artering LLC C Austal Muscat LLC Austal Philippines P Pty Ltd Austal Service Darw win Pty Ltd Austal Service Pty Ltd Austal Ships Pty Lt td Austal Systems Pty y Ltd Austal UK Ltd Austal USA LLC Hydraulink (NT) Pty y Ltd* Austal Middle East Pty Ltd KM Engineering (N NT) Pty Ltd* Oceanfast Luxury Y Yachts Pty Ltd Oceanfast Pty Ltd Seastate Pty Ltd Country of n Incorporation Eq quity Interest 5 2015 2014 Cyprus Egypt USA USA Oman Australia Australia Australia Australia Australia United Kingd om USA Australia Australia Australia Australia Australia Australia 1 00% 1 00% 1 00% 1 00% 1 00% 1 00% 80% 1 00% 1 00% 1 00% 1 00% 1 00% 80% 1 00% 80% 1 00% 1 00% 1 00% 100% 100% 100% 100% 100% 100% 80% 100% 100% 100% 100% 100% 80% 100% 80% 100% 100% 100% *100% owned by A Austal Service Darw win Pty Ltd, which itself is 80% owned d by Austal Service Pty Ltd. Note 28. 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 Key Manage party transact ement Person ions occurred nnel and the m d with the con matters disclo nsolidated en osed in this re tity other than eport. n the remune eration of Dire ectors and Note 29. Key manag gement pers onnel compe ensation 2015 ’000 2014 ’000 Short-term employe ee benefits Post-employment b benefits Termination benefi ts Long term benefits Share-based paym ment Total $ 3,5 566 240 2 78 120 1 460 4 $ 4,4 464 $ 3, 309 164 - - 125 442 $ 4, 040 Detailed rem muneration dis sclosures are e provided in t the Remuner ration Report commencing g on page 15. 89 | AUSTA AL LIMITED ANN NUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Note 30. Share base s ed payments i. Long g Term Incen tive Plan The lo execu execu ong term ince utives should utives hold a entive plan po be at-risk an stake in the C olicy of the Co d based on e Company and ompany is tha equity in the C d to align thei at an annual Company. Th r interests wit component o his is intended th those of sh of remuneratio d to ensure th hareholders. on of hat The b was to indus below chang board also un o ensure that try practice. w in this sectio ged from an a dertook a rev t the scheme A number of on. In additio absolute TSR view of the LT continued to changes wer on, following s R to a relative TI scheme fol drive long te re implement significant ma TSR or iTSR lowing its init erm executive ed most nota arket feedbac R. ial 2 years of e performance ably to the aw ck, the TSR aw f operation. T e as well as m ward levels as ward measur he purpose meet normal shown re has been Purpo ose The p to sus purpose of the stainable sup e LTI Plan is perior returns to incentivise for sharehold e Senior Exec ders and to m cutives to deli modulate the c ver Group pe cost of employ erformance th ying Senior E hat will lead Executives. Form e m of incentive The L objec LTI should be ctives e based on Pe erformance R Rights that ves st based on a an assessmen nt of performa ance against Meas surement per riod The C expla Company inst ined in the FY tituted a trans Y2014 Annua sitional arrang al Report. gement for th e LTI scheme e for FY2014 and FY2015 5 which was The s standard mea asurement pe riod from FY2 2016 onward s will be three e years. Meas sures of long g term perfor rmance The C Company will use two long g term perform mance measu ures: TSR which the board be lieves best re eflects interna al measures o of performanc ce ROIC which h the board b elieves best r reflects exter nal measures s of performa ance 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 ghts is tied ex odically by th rmance in ord t unless these d by the Board xclusively to o he Board. The der to maximi e hurdles, are d. 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 an nd FY2015 ar re as follows: Retur rn on Investe ed Capital (R ROIC) measu ure Senio challe lead t perfor or Executives enges, therefo to value creat rmance from are faced wi ore the LTI sh tion for share an internal p th significant hould also be holders. This erspective by and long term e linked to the s measure is y the Board a m business d e achievemen considered t nd by major s and project b evelopment a owth objectiv nt of ROIC gro he best meas sure of long t . stakeholders. ased es that will erm ROIC Debt, C is calculated Derivatives a d by dividing t and Tax Acco the Net opera ounts). ating profit aft ter tax exclus ive / Net Ass sets (excludin g Cash, Actua al ROIC resul ts are compa ared against in nternal target ts. 90 | AUSTA AL LIMITED ANN NUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED Total Shareholder Return (TSR) measure TSR has the strongest alignment with shareholders is TSR, however it is recognised that absolute TSR is influenced by overall economic movements, therefore future grants of LTI will be offered to executives that vest based on indexed TSR (iTSR). iTSR determines the performance of the Group relative to the entire market rather than capturing the absolute performance of the Group. A relative TSR was considered however it was not possible to identify a comparator group of companies that was statistically robust enough to be meaningful and the Board was concerned that this would undermine the link between executive performance and reward outcomes. iTSR will apply to future grants of LTI from FY2016 based on a comparison of Austal’s TSR against the S&P All Ordinaries Accumulation index “XAOAI” Vesting of Performance Rights The Performance Rights for each employee 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. Performance rights that do not vest will lapse. Holding period A one year holding period applies to shares that are awarded as a result of Performance Rights vesting. Rights issued and valuation 1,173,456 (FY2014: 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) Fair value of right at grant date FY2015 Tranche FY2014 Tranche 1 2 1 2 30 Oct 2014 21 Oct 2014 18 Nov 2013 13 Dec 2013 $ 1.04 $ 1.04 $ 0.70 $ 0.84 40% 2.60% Nil Nil 3 0.70 40% 2.60% Nil Nil 3 0.65 40% 2.90% Nil Nil 3 0.34 40% 2.80% Nil Nil 3 0.44 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 ESOP 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. 91 | AUSTAL LIMITED ANNUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED 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 ESOP Number WAEP Number WAEP 2015 2014 Outstanding at the beginning of the year 6,531,736 $ 2.52 7,190,486 $ 2.49 Exercised during the year Forfeited during the year - (210,000) $ - 2.15 - (658,750) $ - 2.23 Outstanding at the end of the year 6,321,736 $ 2.53 6,531,736 $ 2.52 Exercisable at the end of the year 6,321,736 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 Total 13-Sep-07 24-Oct-07 10-Sep-08 03-Nov-09 27-Sep-10 21-Oct-11 13-Sep-14 24-Oct-14 10-Sep-15 03-Nov-16 27-Sep-17 21-Oct-18 $ 3.60 3.60 2.40 2.95 2.34 2.15 311,236 140,000 725,500 1,505,000 1,925,000 1,715,000 6,321,736 311,236 140,000 725,500 1,505,000 1,925,000 1,715,000 6,321,736 iii. Austal Group Management Share Plans (AGMSP) The trustee holds a total of 4,015,539 shares at balance date on behalf of the plans represented by: 398,539 shares allocated under Plan 1 and Plan 2 with a weighted average price of $1.33 each, with no contractual life, and 3,617,000 shares 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. 20% of a participant’s shares will become eligible to be transferred after this period provided that 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. The shares must be sold and the loan (if any) repaid upon termination of employment or contract arrangements. 92 | AUSTAL LIMITED ANNUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED 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: 2015 ’000 2014 ’000 Summary of options granted under AGMSP Outstanding at the beginning of the year 1,066 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 exercisable throughout the year - (335) - 731 - - (285) 1,066 iv. CEO fixed remuneration share rights issue The structure of Base Remuneration for the CEO has been changed post balance date. The previous structure provided for the following base remuneration for the CEO: Fixed cash remuneration Fixed share based remuneration equal to 30% of the fixed cash remuneration. The number of shares are based on the volume weighted average closing price of ASB shares in each 6 month period. The fair value of the share rights has been determined based on the Company share price at the grant date of 30 October 2014, being the date of the 2014 annual general meeting at which the share rights were approved. Name Period earned Grant date Granted Fair value per share Fair value Andrew Bellamy Andrew Bellamy FY2015 H1 FY2015 H2 30 Oct 2014 30 Oct 2014 Total 92,602 68,598 161,200 $ 1.30 1.30 $ 120,383 89,177 $ 209,560 The Board resolved to amend and simplify the fixed remuneration structure subsequent to the year end, to reflect general market practice. A new base remuneration consisting solely of cash was set post balance date for the period 1 January 2015 to 30 June 2015. The fixed cash remuneration was increased by 30% of the previous fixed cash remuneration. The increase in the fixed cash remuneration was equal to the previous share based fixed remuneration. The FY2015 H1 share rights provided as fixed remuneration have been converted into shares. The FY2015 H2 share rights will not be converted into shares due to the cash settlement subsequent to the year end. 93 | AUSTAL LIMITED ANNUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED 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). Equity settled benefits have been provided to senior management and Directors under the following plans in the current and prior years: The Austal Group Management Share Plan (AGMSP) Employee Share Option Plan (ESOP) The Long Term Incentive Plan (LTI Plan) CEO shares 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. 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 in valuing equity-settled transactions. The number of entitlements included in expense recognition is adjusted to an estimate of the ultimate number of entitlements expected to vest where non-market performance conditions must be satisfied. 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 because 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. An expense is recognised as if the terms had not been modified. An expense also 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. An equity settled award that is cancelled 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, cancelled awards and new awards are treated as if they were a modification of the original award if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, 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. vi. Recognised share-based payment expenses The expense recognised for share based payments during the year is shown in the table below: Share Based Payments Expense Expense arising from equity-settled share-based payment transactions $ (1,373) $ (383) 2015 ’000 2014 ’000 94 | AUSTAL LIMITED ANNUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Note 31. 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 Equity Employee b enefits reserve Asset revalu uation reserve Cash flow h edge reserve Retained ea arnings Total Income 2015 ’000 2014 ’000 $ $ 108,498 $ $ 239,735 297,056 176,776 $ $ 405,554 $ $ 416,511 $ $ (46,392) $ $ (28,135) (18,307) (19,980) $ $ (64,699) $ $ (48,115) $ $ 340,855 $ $ 368,396 $ $ 112,523 $ $ 111,598 7,685 8,246 (20,184) 232,585 6,750 8,247 8,675 233,126 $ $ 340,855 $ $ 368,396 Net Profit / ( (Loss) after tax Total Compr rehensive Income $ $ 2,928 $ $ 39,563 (25,519) 39,563 95 | AUSTA AL LIMITED ANN NUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED Directors’ declaration I state in accordance with a resolution of the Directors of Austal Limited, 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 at 30 June 2015 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, 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 at the date of this declaration. 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 2015. On behalf of the Board. John Rothwell AO Chairman 25 August 2015 LCS 2 – USS INDEPENDENCE 96 | AUSTAL LIMITED ANNUAL REPORT 2015 REPORT TO THE MEMBERS OF AUSTAL LIMITED Independent audit report to the members of Austal Limited Ernst & Young 11 Mounts Bay Road Perth WA 6000 Australia GPO Box M939 Perth WA 6843 Tel: +61 8 9429 2222 Fax: +61 8 9429 2436 ey.com/au Independent audit report to members of Austal Limited Report on the financial report We have audited the accompanying financial report of Austal Limited, which comprises the consolidated statement of financial position as at 30 June 2015, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the year's end or from time to time during the financial year. Directors' responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor's responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity's preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 97 | AUSTAL LIMITED ANNUAL REPORT 2015 REPOR RT TO THE M MEMBERS O OF AUSTAL L LIMITED Opinion In our opinion : a. b. the finan ncial report of A Austal Limited i s in accordance e with the Corp porations Act 20 001, including: i. ii. giv the ving a true and e year ended on fair view of the consolidated e d n that date; and entity's financia al position as at t 30 June 2015 and of its perfo ormance for co omplying with A Australian Acco unting Standar rds and the Corp rporations Regu ulations 2001; a and the finan ncial report also o complies with h International F Financial Repo orting Standards ds as disclosed i in Note 2. Report on th We have audit company are r Corporations A accordance wi he remunerat ted the Remune responsible for Act 2001. Our r ith Australian A tion report eration Report i the preparation responsibility is Auditing Standa ncluded in the n and presentat s to express an o ards. directors' repo tion of the Rem opinion on the ort for the year e muneration Repo Remuneration R ended 30 June 2 ort in accordan Report, based o 2015. The direc ce with section on our audit co ctors of the 300A of the nducted in Opinion In our opinion, Corporations A , the Remunera Act 2001. ation Report of A Austal Limited f for the year end ded 30 June 20 15, complies w with section 300 0A of the g Ernst & Young by Robert A Kirkb Partner Perth 25 August 201 15 A member firm of Er Liability limited by a rnst & Young Global Limit a scheme approved unde ted r Professional Standards Legislation 98 | AUSTA AL LIMITED ANN NUAL REPORT 2015 SHAREHOLDER INFORMATION Shareholder information The following information was extracted from the Company’s register at 13 August 2015. 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 shares issued capital 1,566 1,915 700 755 69 750,375 5,182,203 5,344,876 19,735,927 315,910,070 0.22% 1.49% 1.54% 5.69% 91.06% 5,005 346,923,451 100.00% Twenty largest shareholders Rank Shareholder Number of % of Total holders issued capital Substantial shareholder 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 RBC Investor Services Australia Nominees Pty Limited Onyx (WA) Pty Ltd BNP Paribas Noms Pty Ltd Mr Vincent Michael O’Sullivan Austal Group Management Share Plan Pty Ltd Garry Heys & Dorothy Heys RBC Investor Services Australia Nominees Pty Limited UBS Nominees Pty Ltd Mr William Robert Chambers Mirrabooka Investments Limited Lavinia Shipping Ltd Mossisberg Pty Ltd Bond Street Custodians Limited Navigator Australia Ltd Warbont Nominees Total Yes Yes Yes Yes Yes 82,088,257 60,697,725 37,347,233 34,937,510 32,200,745 12,779,593 8,317,570 5,807,717 4,164,000 4,015,818 2,844,670 2,730,973 2,644,953 2,325,650 2,000,000 2,000,000 1,922,000 1,594,718 1,517,257 1,374,717 23.66% 17.50% 10.77% 10.07% 9.28% 3.68% 2.40% 1.67% 1.20% 1.16% 0.82% 0.79% 0.76% 0.67% 0.58% 0.58% 0.55% 0.46% 0.43% 0.40% 303,311,106 87.42% Voting rights All ordinary shares issued by Austal Limited carry one vote per share without restriction. Corporate governance statement The Company has elected to post its Corporate Governance Statement on its website in accordance with ASX Listing Rule 4.10.3. The Corporate Governance Statement can be found at the following URL: www.austal.com/corporategovernance. 99 | AUSTAL LIMITED ANNUAL REPORT 2015 CORPORATE DIRECTORY Corporate Directory Directors Executive Directors Andrew Bellamy Non-Executive Directors Giles Everist Jim McDowell John Rothwell David Singleton Auditors Ernst & Young The Ernst & Young Building 11 Mounts Bay Road Perth 6000 Western Australia Company Secretary Adrian Strang Registered office 100 Clarence Beach 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 JHSV 1 - USNS Spearhead JHSV 2 - USNS Choctaw County JHSV 3 - USNS Millinocket JHSV 4 - USNS Fall River 100 | AUSTAL LIMITED ANNUAL REPORT 2015
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