Associated Banc-Corp Annual Report 2015

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FY2015 Annual Report · Associated Banc-Corp

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AUUSTAL 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

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1 | AUSTAL LIMITED ANNUAL REPORT 2015

HIEF EXECU

UTIVE OFFICE

ER’S REPOR

Index to

the notes

s to the f

financial s

statemen

nts

Basis of prep

paration .......

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Corpor
Basis o

rate Informatio
of preparation

on ...................
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Current year

r performance

e ...................

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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 ................

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x to net cash f
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flows from ope
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erations .........
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Capital struc

cture .............

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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

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ings ...............
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sets ................

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Working cap

pital ..............

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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 .............

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s ....................
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Infrastructur

re & other ass

sets ...............

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Propert
Intangi
Collate

ty, plant and e
ble assets .....
eral ................

equipment ......
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Other liabiliti

ies ...............

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Provisio

ons ...............

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Financial ris

k manageme

ent .................

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....................

Fair va
Financ
Derivat

lue measurem
ial risk manag
tive financial in

ments .............
gement ...........
nstruments an

......................
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nd hedging ....

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......................
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Unrecognise

ed items .......

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....................

Commi
Events

itments and co
after the bala

ontingencies ..
ance date .......

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The Group,

management

t and related

parties .........

....................

.....................

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Parent
Related
Key ma
Share b
Parent

interests in su
d party disclos
anagement pe
based paymen
entity ...........

ubsidiaries .....
sure ...............
ersonnel comp
nts .................
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pensation .......
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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
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9
................ 59
9
................. 59
0
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2
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4
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5
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5
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7
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7
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8
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9
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9
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2
................. 72
5
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6
................ 76
6
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8
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8
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2
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6
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8
................ 88
8
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8
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9
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9
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9
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9
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0
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5
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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
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ram to replace
ubstantial opp

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sustain Austra
rough continu
t and accelera
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portunities for

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uture
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Austal’s dem
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approximate
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tor for two ma
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ralian conten

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A weaker AU
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UD also impro
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rom the USA
s.

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and

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continue to p

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Austal has c
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rther
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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

2.10

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

Number of meetings held

Number of meetings attended:

John Rothwell

Andrew Bellamy

Dario Amara

David Singleton

Giles Everist

Jim McDowell

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:

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 .................
......................
......................
......................
......................
......................
......................

.....................
.....................
.....................
.....................
.....................
.....................
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......................
......................
......................
......................
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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

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:

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

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.

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

Consumer

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

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

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.

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%

20.0%

10.0%

100.0%

66.7%

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%

50%

30%

60%

45%

30%

45%

27%

30%

55%

41%

22%

50%

30%

N/A

15%

100%

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%.

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

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%

50.0%

35.0%

50.0%

35.0%

20.0%

N/A

20.0%

100.0%

70.0%

40.0%

N/A

40.0%

24 | AUSTAL LIMITED ANNUAL REPORT 2015

5. Non-Executive Director remuneration

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

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

Based

Performance

Leave

Benefits

Fixed

Incentive

Total

Payments

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

FY2012 Options vesting during the period

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

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%

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

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%

70%

30%

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

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%

At or below Threshold

15% < TSR < 25%

>= 25%

6.9%

7.8%

8.8%

Pro-rata

50%

Pro-rata

100%

Target

Stretch or Above

At or below Threshold

Pro-rata

50%

Pro-rata

100%

Target

Stretch or Above

IV.

FY2016 Performance Rights Grant

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%

At or below Threshold

Pro-rata

100% < iTSR < 200%

50%

Target

>= 200%

Pro-rata

100%

Stretch or Above

ROIC

60%

8.0%

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

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

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

$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

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 USA LLC

Contract

Duration

Unlimited

Termination Notice Period

Company

Executive

3 months

12 weeks

0 months

3 months

12 weeks

0 months

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.

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

Robert A Kirkb
Partner
25 August 201

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

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

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

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

23 & 24

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

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

(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

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

’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

311

31,859

Other Comprehensive Income

(3,858)

(2,609)

(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

Cost of share-based payments

383

Total

270

383

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

(69)

53,156

Other Comprehensive Income

56,071

(28,447)

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

(3,468)

1,373

(3,468)

1,373

(3,468)

1,373

Total

543

382

(3,468)

930

(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

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

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

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.

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

(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

Total

’000

Elimination /

Year ended 30 Jun

ne 2015

Revenues

External cust

tomers

191,373

1,119,703

0,584

9
72,189

157

1,414,006

nt
Inter-segmen

Finance inco

Total

Segment result
t

EBIT

Finance inco

Finance expe

enses

Total

20,435

8,159
8

2
882

(28,594)

882

211,808

1,119,703

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

2,376

0
108,960

(29,228)

1,070,879

(78,731)

(438,942)

1,435)

2)
(58,322

38,950

(558,480)

Australia

’000

USA

’000

Philipp

pines

Unallocated

Adjustments

0
’000

’000

Total

’000

Elimination /

External cust

tomers

153,886

933,615

2,758

9
2,609

(326)

1,122,542

nt
Inter-segmen

Finance inco

88,026

1,009

321

(89,035)

321

Total

241,912

933,615

3,767

0
2,930

(89,361)

1,122,863

t
Segment result

EBIT

Finance inco

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

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

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

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

Construction c

contract revenue

Charter revenu

Interest from o

other unrelated partie

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

ii.

Reco

ognition and

measureme

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

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

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

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

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

Weighted avera

age number of ordina

ary shares (excluding

reserved shares) ad

justed for the effect o

of dilution

Earnings per shar

Basic earnings

per share

Diluted earnings

s per share

Meas

surement

Number

342,383,958

342,042,581

Number

310,571

1,831,326

294,589

399,105

344,525,855

342,736,275

$ / 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

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)

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

’00

201

’00

(3,468)

10,408)
(1

201

’00

201

’00

933

583

6,425

350

(1,487)

4,938

350

5,871

933

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

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

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

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)

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

168

17,205

5,014

18,374

5,092

12,393

2,568

1,264

5,655

(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)

(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.

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.

Reco

ognition and

measureme

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

(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

Reco

ognition and

measureme

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

’000

201

2015

2014

346,54

44,933

346,17

73,195

121,210

120,940

Shares issued d

during the year

78,518

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)

Movement in Re

eserved shares

35,062

382

30 June

(4,0

15,539)

(4,35

50,601)

(9,230)

(9,612)

Net

ii.

342,90

07,912

342,19

94,332

112,523

111,598

Reco

ognition and

measureme

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

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

CEO

y
O - Mr Andrew Bellamy

Divid

dend reinvestment pla

30 Ju

une

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

Movements in

Grants

Opening Balanc

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)

Reco

ognition and

measureme

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

Reco

ognition and

measureme

2015

’000

2014

’000

104,431

95,842

(89)

104,342

95,753

157

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)

1,387

1,298

(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.

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

ii.

Reco

ognition and

measureme

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

Other stock

Total

Inventories

s and work in

n progress

Not

tes

5
2015

0
’000

4
2014

0
’000

5
15

7,728

7,525

1,975

617

9,703

8,142

Reco

ognition and

measureme

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

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.

Reco

ognition and

measureme

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

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

WIP

’000

otal

000
’0

316,78

316,786
3
$

16,40

122,974

(29,37

70)

(61,114)

822

40,200

(90,486)
(

303,81

389,02

61,859

822

366,500
3
$

389,025
3
$

13,83

155,590

11,704

(45,17

73)

(82,461)

81,132

27,635)

357,69

73,128

11,704

442,522
4
$

d
Freehold

Land &

Plant &

Capital

Buildings
s

Equipment

’000

WIP

’000

otal

000
’0

323,87

2,26

71,894

4,145

399,917
3
$

5,230

4,385

11,884

7,93

(16,76

66)

(8,70

07)

(4,78

85)

(205)

(1,611)

(12,886)

(563)

(7,725)

(18,377)
(

(21,593)
(

(5,331)

(20,05

59)

303,81

4,95

(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

2,118

(658)

(13,271)

10,264

(964)

(15)

1,506

(2,812)

(22,736)
(

73,444

53,87

357,69

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.

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

oodwill

’000

Total
T

’000

Balance 1 July 201

$
$

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

Cost

Accumulated Am

mortisation & Impairm

ment

$
$

13,195

6,463

19,658

(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)

Net Carrying Am

mount

$
$

3,174

6,463

9,637

Reco

ognition and

measureme

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

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

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 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.

Reco

ognition and

measureme

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

ther

000
’0

otal

’0

(13,72

23)

(8,144)

(6,575)

(6,285)

(34,727)
(
$

(59,20

04)

(14,604)

(4,924)

132,368)
(
$

11,100)

56,62

2,90

19,799

942

(12,362)

4,829

2,010

(52)

129,403

710

5,360

10,658

4,350

(4,150)

1,01

(12,70

08)

(6,225)

1,863

3,105

(242)

(14,369)

(4,712)

(3,180)

(34,969)
(
$

Employee

Workers'

Benefits

Compensation

Warranty

’000

ther

000
’0

otal

’0

(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)
(

ii.

Reco

ognition and

measureme

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

Note 22.

Fair value m

measuremen

nts

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

$
$

138,413

115

10,055

104,499

10,055

104,499

115

$
$

252,967

253,082

$
$

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

nterest bearing borrow

wings

Total
T

4
2014

es
Trade & other payable
T

Forward exchange con
F

ntracts

nterest bearing borrow

wings

$
$

(223,497)

(36,074)

(154,562)

(36,074)

(154,562)

(36,074)

$
$

(378,059)

(414,133)

$
$

(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

115

Financial liabilities

Derivatives used for hedging

(36,074)

Balance 30 June 2014

Financial assets

Derivatives used for hedging

8,488

Financial liabilities

Derivatives used for hedging

(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

357,690

Balance 30 June 2014

Land & buildings

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

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.

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)

(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)

(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

ii.

Reco

ognition and

measureme

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

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.

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

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

Capital

leases

With

hin one year

After

r one year but not mo

ore than five years

Tota

Capital

commitments

Mob

ile Equipment - USA

Tota

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)

(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

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

quity Interest

5
2015

2014

Cyprus

Egypt

USA

Oman

Australia

United Kingd

USA

Australia

00%

80%

00%

80%

00%

80%

00%

100%

80%

100%

80%

100%

80%

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

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

Long term benefits

Share-based paym

ment

Total

3,5

566

240
2

120
1

460
4

4,4

464

309

164

-
-

125

442

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

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

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

30 Oct 2014

21 Oct 2014

18 Nov 2013

13 Dec 2013

1.04

0.70

0.84

40%

2.60%

Nil

0.70

40%

2.60%

Nil

0.65

40%

2.90%

Nil

0.34

40%

2.80%

Nil

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

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

the finan

ncial report of A

Austal Limited i

s in accordance

e with the Corp

porations Act 20

001, including:

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

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

Robert A Kirkb
Partner
Perth
25 August 201

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

% of Total

holders

issued capital

1,566

1,915

700

755

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

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

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

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%

0.55%

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