AUSTAL LIMITED
2016
ANNUAL REPORT
HIEF EXECUTIVE OFFICER’S REPORT
Contents
Contents ..................................................................................................................................................................... 1
Index to the notes to the financial statements .......................................................................................................... 3
Chairman’s report ...................................................................................................................................................... 4
Chief Executive Officer’s report ................................................................................................................................. 6
Review of operations ................................................................................................................................................. 9
Directors’ report ....................................................................................................................................................... 12
Remuneration report (audited) ................................................................................................................................ 18
Auditor independence ............................................................................................................................................. 42
Consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2016 ..... 43
Consolidated statement of financial position as at 30 June 2016 ........................................................................... 44
Consolidated statement of changes in equity for the year ended 30 June 2016 ..................................................... 45
Consolidated statement of cash flows for the year ended 30 June 2016 ................................................................ 46
Notes to the financial statements ............................................................................................................................ 47
Directors’ declaration ............................................................................................................................................. 119
Independent audit report to the members of Austal Limited ................................................................................ 120
Shareholder information ....................................................................................................................................... 122
Corporate governance statement .......................................................................................................................... 123
Corporate directory ................................................................................................................................................ 123
1 | AUSTAL LIMITED ANNUAL REPORT 2016
HIEF EXECUTIVE OFFICER’S REPORT
Independence variant Littoral Combat Ship USS Jackson (LCS 6) completing the first of three full-ship shock trials in 2016.
(U.S. Navy photo by Mass Communication Specialist 2nd Class Michael Bevan/Released)
2 | AUSTAL LIMITED ANNUAL REPORT 2016
HIEF EXECUTIVE OFFICER’S REPORT
Index to the notes to the financial statements
Basis of preparation ............................................................................................................................................... 47
Current year performance ..................................................................................................................................... 57
Capital structure ..................................................................................................................................................... 75
Working capital ...................................................................................................................................................... 81
Infrastructure & other assets ................................................................................................................................. 86
Other liabilities ....................................................................................................................................................... 94
Financial risk management ................................................................................................................................... 96
Unrecognised items ............................................................................................................................................. 109
The Group, management and related parties ................................................................................................... 110
3 | AUSTAL LIMITED ANNUAL REPORT 2016
HIEF EXECUTIVE OFFICER’S REPORT
Chairman’s report
It is my pleasure to present the 2016 Annual
Report to you on behalf of the Board of Austal
Limited.
2016 has been a mixed year for the Company.
On the one hand, we had to make substantial
adjustments to previously recognised profits
(and some forecast costs) out of the LCS
program in relation to meeting the US Naval
Vessel Rules and the related physical shock tests
that were completed on those vessels in July
2016. This was unfortunate, however I am
pleased at how the executive team has
developed its response into measures that will
prevent similar issues from arising in future.
On the other hand, there was a substantial
number of highlights during the year – these
include:
$1.3 billion Group Revenue.
A contract to construct two additional Cape
Class Patrol Boats for charter to the Royal
Australian Navy was received from the
National Australia Bank in December 2015.
Littoral Combat Ship (LCS) 6 - USS Jackson
- was delivered to the US Navy and
successfully completed ‘Full Ship Shock
Trials’ post year end.
LCS 8 – USS Montgomery – was delivered
to the US Navy in June 2016.
Two Expeditionary Fast Transport (EPF)
ships were delivered to the US Navy; EPF6,
USNS Brunswick and EPF7, USNS Carson
City.
Long-lead procurement items were
awarded for an eleventh and twelfth
Expeditionary Fast Transport (EPF) from the
US Navy
The Commonwealth of Australia awarded a
$305 million contract to design and
construct the Pacific Patrol Boat
Replacement fleet of 19 metre vessels, to be
gifted to 12 Pacific Island nations from
2018.
The first of two 72 metre High Speed
Support Vessels (HSSV) designed and
constructed by Austal Australia for the
Royal Navy of Oman was delivered.
4 | AUSTAL LIMITED ANNUAL REPORT 2016
Securing new commercial passenger ferry
shipbuilding contracts with 2Go of the
Philippines, Seaspovill of South Korea and
Mols Linien of Denmark.
Establishment of a joint venture company,
Aulong Shipbuilding Co. Ltd, with
Jianglong Shipbuilding Co. Ltd of China –
to actively target and win new commercial
ferry and non-military vessel contracts in
mainland China.
Chief Executive Officer, David Singleton 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 loss after tax of
$(84.182) million in FY2016, compared to a
net profit of $53.156 million in FY2015.
FY2016 earnings (loss) before interest, tax,
depreciation and amortisation (EBITDA)
was $(90.966) million for the year compared
to $109.539 million in FY2015.
Revenue for the year decreased by 5 per
cent from $1,414.888 million in FY2015 to
$1,339.970 million.
USA operations were the largest
contributor to revenue, delivering
$1,133.024 million (FY2015: $1,119.703
million) and $(90.457) million loss before
interest and tax (FY2015: $58.524 million)
after recognising the write down to LCS
work in progress.
Australian operations contracted in FY2016
following the completion of the original
eight Cape Class Patrol Boats for the
Australian Border Force with $187.054
million in revenue (FY2015: $211.808
million) and $6.756 million EBIT (FY2015:
$32.149 million). The two additional CCPB 9
& 10 supported construction activity during
the year without making a contribution to
revenue nor profit because of their
accounting treatment as a financing
arrangement.
HIEF EXECUTIVE OFFICER’S REPORT
Philippines operations reported a
$(3.766) million EBIT (FY2015: $0.992
million). Senior management changes have
been executed to address the disappointing
result from the Philippines shipyard and the
focus will be on restoring productivity and
cost efficiency during FY2017.
Group net cash at year end was
$51.707 million (FY2015: net debt $(4.169)
million), after generating operating cash
flow of $102.066 million (FY2015: 110.434
million).
Financial summary
Year ended 30 June
Revenue 1
EBITDA
Depreciation
Amortisation
EBIT
Finance income
Finance cost
2016
’000
2015
’000
$
1,339,970
$
1,414,888
$
(90,966)
$
109,539
$
(28,461)
(1,438)
$
(22,736)
(1,530)
$
(120,865)
$
85,273
$
1,106
(6,605)
882
(4,992)
Profit / (loss) before income tax
$
(126,364)
$
81,163
Income tax benefit / (expense)
$
42,182
$
(28,007)
Profit / (loss) after tax
$
(84,182)
$
53,156
% EBIT 2 / Revenue
Basic earnings per share ($ per share)
Net assets
Return on invested capital (%)
$
$
(9.0%)
(0.24)
457,552
(16.2%)
$
$
6.0%
0.16
512,399
10.8%
1. Excludes other income
2. Earnings before interest and tax (EBIT)
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.
Board and Executive management
David Singleton was appointed Chief Executive
Officer in April 2016, following Andrew
Bellamy’s resignation after 7 years with the
company, including 5 years as Chief Executive
Officer.
5 | AUSTAL LIMITED ANNUAL REPORT 2016
The Executive management team was
strengthened with several key appointments
bringing added expertise to our operations in
Australia and Philippines. Ben Marland joined us
in February 2016 as Vice President Sales and
Marketing and Wayne Murray was promoted
from within Austal to President, Austal
Philippines, after 17 years with the company.
Collectively, the Executive Leadership Team
(ELT) continues to implement strategic initiatives
that are delivering against our key objectives.
Strategy and governance
The Board has continued its active engagement
in reviewing the development of the 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.
People
After a significant year, with many achievements
to be proud of, I wish to thank and acknowledge
our hardworking employees for their consistent
efforts and ongoing loyalty. My sincere thanks
also, to our shareholders for your ongoing
support of Austal.
John Rothwell AO
Chairman
USS Montgomery (LCS 8) delivered June 2016
Chief Executive Officer’s report
It is to be regretted that in a year when Austal
has seen progress on many fronts, it has been
necessary to reset the overall profit
expectations of the Littoral Combat Ship (LCS)
program in the USA. Whilst LCS remains
Austal’s most important and prestigious
single project, the vessel modification
program has increased costs beyond the
allowances that the company had previously
anticipated although these costs are now fully
reflected in this year’s results. LCS does
remain profitable however, and we believe
will continue to be one of the major
contributors to our company for many years
to come.
The importance of LCS to Austal cannot be
over emphasised. It has taken the Company to
a new level in warship design and production
capability at a time when the Australian Navy
has announced plans for its future navy ship
requirements which are of a similar size and
construction complexity. The US ships were
designed in Australia and much of the early
production activity was led by personnel from
Austal’s Australian operations. This
experience means that Austal is ready to play
its part in the Royal Australian Navy’s
continuous shipbuilding plans which will see
Offshore Patrol Vessels and Frigates built in
Australia for the next decade and more.
Austal has been a highly successful
shipbuilder predominantly in exports and to
the Royal Australian Navy and involvement in
these new programs, if successful, would
further enhance the Austal brand overseas
further facilitating us to continue to produce
innovative and differentiated ships for our
customers.
The Expeditionary Fast Transport (EPF) vessel
was our first program in the USA and is now
delivering in a consistent and reliable fashion
and demonstrates the capability of our people
and facilities in Alabama as they seek to
replicate this with the LCS program. The EPF
is now being used extensively by the US Navy
and we continue to receive positive reports
about the vessel itself and its utility in
operations. This has undoubtedly supported
an extension to the original block buy of 10
vessels, with long lead time material
procurement contracts being received during
the year for two additional vessels, EPF 11
and EPF 12.
6 | AUSTAL LIMITED ANNUAL REPORT 2016
The on-schedule completion of the eight
vessel Cape Class Patrol Boat (CCPB) fleet for
the Australian Border Force in August 2015
and subsequent successful operation of the
vessels across Northern Australia, led to a $63
million contract for an additional two CCPB
being awarded in December 2015. The two
vessels will be chartered to the Royal
Australian Navy in 2017 in an innovative
contract structure with the Commonwealth.
Our Australian operations continued to
demonstrate the company’s leadership in
delivering customised solutions based on
proven platforms when the first of two 72
metre High Speed Support Vessels (HSSV)
was delivered to the Royal Navy of Oman.
A key foundation of the company’s ongoing
Australian defence business was secured in
April 2016 when Austal won the competitive
tender to design, construct and sustain the
Pacific Patrol Boat (PPB) program for the
Commonwealth of Australia.
The PPB contract, comprising nineteen 40
metre steel vessels and valued at $305
million, is significant because it represents an
opportunity to further demonstrate Austal’s
capability and capacity to deliver multiple
steel vessels. This is a valuable demonstration
of our steel shipbuilding capability in the lead
up to both the Offshore Patrol Vessel and
Future Frigate programs both of which will be
steel hulled.
Our dominant position in the global high
speed commercial vessel market was further
enhanced through solid progress on two very
sophisticated offshore crew boats for the
discerning Oil and Gas sector. The larger of
these ships was Austal’s first ‘hybrid’ build
with the forward end of the ship being
produced in Austal’s Philippine yard and the
aft section, integration and commissioning
being completed successfully in Henderson.
New contracts for commercial ferries received
from operators in South Korea, the
Philippines and Denmark reflect continued
confidence in Austal as the world’s leading
high speed ferry builder. Austal also won a
ferry contract as part of its joint venture in
China post the end of the year.
Strategy
The single biggest strategic opportunity
immediately ahead of Austal, is our potential
involvement in the Australian government’s
continuous shipbuilding program through
which we can reinforce its position as “The
Australian Shipbuilder”. A stable and reliable
order book from these programs will also
create the base on which Austal will continue
to grow its already considerable export
strength providing careers of certainty for our
people and our, predominantly Australian,
supplier network. Austal’s credentials are
strong having repeatedly proven its on cost
on time delivery to the Royal Australian Navy
in previous programs. In addition Austal has
built a world class shipyard in the USA, put
two ship classes into production there and
employed more people than will be required
for the entire Australian surface ship program.
Make no mistake, this was done by
Australians in the world’s most sophisticated
defence market, and if we can do that on the
other side of the planet we can, for sure, do
that at home.
The USA continues to be a core market for
Austal and the US Navy’s satisfaction with
and commitment to both the LCS and the EPF
programs was highlighted by the funding of
another ship, LCS 26, in addition to funding
the long lead time materials for EPF 11 and
EPF 12. These programs are already the
largest export of defence capability by any
Australian company and they are likely to
continue well into the next decade. The halo
effect of these programs is also very
important to the company and has already led
to the export of two HSSV ships to Oman
which are similar in concept to EPF and with
further potential exports being actively
pursued.
Our ability as an Original Equipment
Manufacturer (OEM) to support our vessels,
particularly in the defence sector, is important
to our reputation and provides the potential
for a long tail of income stretching 20 or 30
years through the life of the vessels. Support
in defence is highly sophisticated however,
requiring people with a deep knowledge not
only of the ships but also of the complex
requirements of our customers. We have
invested heavily in these people, in the
necessary computer based systems and in a
presence in new support locations and will
continue to do so. We have set ourselves the
target to become the benchmark for service
7 | AUSTAL LIMITED ANNUAL REPORT 2016
delivery of ship support in Australia and we
will not rest until we are recognized for that.
Our next key strategic initiative is operational
excellence with an absolute focus on Austal
becoming the world’s lowest cost producer
for the type of ships we produce, in the
markets in which we operate. We are already
cost competitive as demonstrated by our
remarkable export track record, but
shipbuilding is a tough market and we need
to get further ahead. It is our absolute
determination to drive waste out of our
business to reduce cost, reduce production
lead times and eliminate rework. This will
ensure that Austal endures and prospers,
offering lifetime opportunities to our
employees to develop and grow with the
company.
Providing shareholder value is not a strategy
in itself for us, but rather the product of high
achievement in the areas described above
coupled with active and sound management
of our financial investments in a disciplined
way. We are mindful of the need to continue
to reduce debt even when we are in a net
cash position so that future profits can be
used to pay dividends and to invest in further
developing our business as new opportunities
arise.
People
There is something about the people of Austal
in that they have achieved things that no
other Australian company has done and what
no other company in the world has done
before in the USA. Unyielding and visionary
leadership has been part of that but so too
have Austal’s values of Excellence, Customer,
Integrity and Teamwork which are unchanged
and remain the basis for many tangible and
sustainable business successes. You can see
these values at work every day in Austal and
even when sometimes we get it wrong we
always fix it. These are the people that built
the US business from scratch, have designed
and built ships for the Australian Navy from
humble recent beginnings and who are
focused on our strategic objectives today.
Today our Alabama based operations are
manned by equally committed US citizens
who know they are doing great work for
Austal, the US Navy and the society in which
they operate.
Bet against these people at your peril.
I thank all of our employees and key
stakeholders for their hard work, devotion to
excellence, commitment and loyalty. We
would be nothing without them, and we are a
world class shipbuilder with them.
Outlook
FY2017 will be a transition year in Australia as
we move from series production of the final
two of the Cape Class Patrol Boats (CCPB 9 &
10) to the 109 metre Mols Linien ferry for
which we start cutting metal in May 2017 and
the nineteen Pacific Patrol Boats the first of
which is due for delivery in late 2018. We do
not intend to recognise profit on these vessels
during the year whilst we fully define the cost.
This approach reflects our more conservative
profit recognition intent for complex
programs however, workload in Henderson
should stay similar to its current level, thereby
maintaining a strong platform for the
Offshore Patrol Vessel (OPV) program should
it come to Austal.
We will continue to conservatively recognise
profit on LCS in the USA during the year and
focus on manufacturing stability. We also
expect to undertake significant levels of
activity in bidding for additional ships of both
classes if they are funded by Congress. We
further expect that the design work to convert
LCS into a lethal Frigate class will continue as
the US Navy transitions to this concept over
the next few years.
Austal is actively pursuing a number of new
opportunities in Australia in the long term
product support area which could provide the
next big step for us in this market, including
the Armidale Class Patrol Boat (ACPB)
Integrated Support Services (ISS) contract
with the Commonwealth of Australia, a vessel
for which we are the OEM. We also continue
to build support momentum for our ships in
the USA as they are deployed by the US
Navy.
We have seen a clear change in the new build
international ferry market after several poor
years as lower oil prices and higher
passenger numbers have increased operator
profitability and also the commencement of
new routes. We have already won contracts
for five new vessels in CY2016 and we believe
the pipeline will continue to be strong during
the coming year. We are investing in
Research and Development again to ensure
that we can continue to design and build the
best high speed aluminium vessels in the
8 | AUSTAL LIMITED ANNUAL REPORT 2016
world from either Australia or the Philippines,
based on the merits of the two yards. Some
additional capital may be required to support
the growing volume, especially in the
Philippines but we will maintain our usual
disciplined approach to investment.
The Middle East continues to be a region of
particular interest for both commercial and
defence vessels and Austal’s local team, who
have a history of success in the region, are
pursuing a number of high value
opportunities for absolutely core products.
Defence contracts are notoriously difficult to
predict in terms of timing so our approach is
to invest where we think there are genuine
programs for products in which Austal excels.
Finally, the establishment of a new joint
venture company, Aulong Shipbuilding Co.
Ltd, between Austal and Guandong Jianglong
Shipbuilding Co. Ltd of Zhuhai, China in June
2016 supports re-entry into a large market
that has been lucrative for Austal in the past.
Aulong will benefit from Austal’s proven
commercial ferry designs and Jianglong’s
established shipbuilding facilities and
expertise to exclusively target commercial
customers in mainland China.
David Singleton
Managing Director and Chief Executive Officer
MV Rashid Behbudov (Hull 392) constructed for Caspian Marine
Services of Azerbaijan
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
2016
$’000
2015
$’000
$
1,133,024
$
1,119,703
(90,457)
N/A
58,524
5.2%
A segment EBIT loss of $(90.457) million was
driven by a $156 million write down of work in
progress after a change of estimate for the costs
to completion of the LCS (6 – 26) program. The
change of estimate was determined following the
completion of a comprehensive review which was
announced on 4 July 2016.
The USA operations had 17 vessels under
construction during the year and delivered four
vessels to the US Navy in FY2016 – two Littoral
Combat Ships (LCS 6 and 8) and two
Expeditionary Fast Transport (EPF) vessels (EPF 6
and 7).
The total USA workforce was maintained within
the target range of 4,100 – 4,200 with continued
focus on skills development and identifying and
exploiting opportunities for productivity
improvements a process which is continuing to
drive Austal down the learning curve of the two
vessel programs.
The order book was replenished when an option
to fund LCS 26 was exercised by the US Navy,
representing Austal’s eleventh LCS as prime
contractor (Austal constructs the Independence
variant, being the even-numbered vessels) and
Austal was also awarded contracts to procure
long-lead items for an eleventh and twelfth
Expeditionary Fast Transport (EPF) from the US
Navy, providing confidence that Austal will be
awarded contracts to construct the vessels.
There was significant progress in both major
programs during the year from a construction
perspective.
EPF 6, USNS Brunswick was delivered in January
2016 after successfully completing acceptance
9 | AUSTAL LIMITED ANNUAL REPORT 2016
trials in November 2015 and EPF 7, USNS Carson
City, was delivered in June 2016. Construction of
EPF 8 (the future USNS Yuma) commenced in
March 2016.
The EPF program continues to mature and is
progressing well with a proven vessel design and
a stabilised bill of materials. Exploiting
productivity initiatives is the major focus to drive
the business down the learning curve which will
thereby take cost out of the program.
Six additional LCS are at various stages of
construction at balance date; the future USS
Gabrielle Giffords (LCS 10) is undergoing final fit
out and preparing for sea trials, the future
USS Omaha (LCS 12) was launched in November
2015 and USS Manchester (LCS 14) was launched
in May 2016. Assembly is well underway on the
future USS Tulsa (LCS 16) and USS Charleston
(LCS 18), whilst modules for the future USS
Cincinnati (LCS 20) are under construction in the
modular manufacturing facility (MMF).
Austal continues to explore opportunities to
further develop its LCS and EPF Sustainment
business, within the United States and elsewhere
around the world. Austal is identifying ways to
deliver effective support as and where it is needed
with EPF deployed to regions as diverse as South
America, Western Africa and the Middle East.
Austal USA operations in Mobile, Alabama
Australia operations
Year ended 30 June
Revenue
EBIT
EBIT Margin
2016
$’000
2015
$’000
$
187,054
$
211,808
6,756
3.6%
32,149
15.2%
Austal’s Australia operations were impacted by a
contraction in production activity and profit
generation following the conclusion of the
original 8-vessel Cape Class Patrol Boat block-buy
contract in August 2015 as well as a reduction in
profit share associated with components supplied
to Austal USA as a result of the LCS downgrade.
CCPB 8, (Cape York), the final CCPB of the original
contract was delivered in August 2015 and the
entire fleet is now operating across Northern
Australia, supported by Austal’s service centres in
Darwin, Cairns and Henderson. The efficiencies
extracted over the four year construction period
(from FY2012 – FY2016) demonstrate the clear
benefits of continuous shipbuilding with a mature
vessel design.
Austal received a new order (valued at $63
million) to construct a further two CCPB (9 & 10)
for the Royal Australian Navy (RAN) in December
2015. The RAN will charter the vessels from the
National Australia Bank, from late FY2017.
Austal won a major competitive tender to design
construct and sustain nineteen 40 metre steel
Pacific Patrol Boat (PPB) vessels for the
Commonwealth of Australia (CoA) in May 2016.
The CoA is gifting the vessels to 12 Pacific Island
nations from 2018.
The $305 million PPB contract is a significant win
and a major enhancement to the company’s
capability going forward; positioning Austal well
to bid for the upcoming Offshore Patrol Vessel
(SEA1180) program, comprising 12 vessels to be
built in South Australia and Western Australia.
Construction of the PPBR will commence in late
FY2017.
The first of two 72 metre High Speed Support
Vessels (HSSV) for the Royal Navy of Oman, the
Al Mubshir, was delivered in May 2016, following
a naming ceremony held at Henderson for both
vessels in April 2016. Final fit out alongside at
Henderson and sea trials continue for the second
vessel, the Al Naasir, which is on schedule for
delivery in September 2016. Sustainment of both
vessels will be performed by Austal’s Oman
service centre in Muscat.
Construction of a 70 metre fast crew boat for
Caspian Marine Services of Azerbaijan
commenced in October 2015, the forward hull
module was fabricated in the Austal Philippines
shipyard and the aft hull module and
superstructure were constructed concurrently in
Australia. The forward hull was transported to
Henderson in March 2016 for integration with the
superstructure and aft hull modules, achieving a
10 | AUSTAL LIMITED ANNUAL REPORT 2016
construction period to launch of just eight
months.
The vessel is scheduled for delivery in September
2016 and represents Austal’s first ‘hybrid’ build,
further integrating the Australian and Philippines
shipyards and the company’s global supply
chain,.
Austal was successful in securing a contract
(valued at approx. $100 million) to design and
construct a new 109 metre high speed aluminium
ferry for Mols Linien of Denmark in June 2016.
Philippines operations
Year ended 30 June
Revenue
EBIT
EBIT Margin
2016
$’000
2015
$’000
$
33,899
$
38,743
(3,766)
N/A
992
2.6%
Austal Philippines delivered two 45 metre high
speed crew transfer vessels to the Abu Dhabi
National Oil Company (ADNOC) of the United
Arab Emirates, in August 2015 and commenced
construction on a further two offshore crew
transfer vessels.
Austal Philippines constructed the forward hull
section for a 70 metre large crew transfer vessel
for Caspian Marine Services and shipped it to
Austal Australia, where the complete vessel has
been assembled as described in the “Australia”
section.
The Philippines commenced construction of a
57 metre offshore crew transfer vessel in FY2016
and is preparing to deliver the vessel in FY2017
H1.
Austal Philippines secured new contracts for the
construction of three new high speed passenger
ferries in June 2016 consisting of two 30 metre
ferries for Philippines operator ‘2Go’ and one 50
metre ferry for Seaspovill of South Korea. These
two contracts, valued collectively at
approximately $30 million, extend the Philippines
order book through to the beginning of FY2018.
The Philippines shipyard continues to play a
pivotal role in cost optimisation of manufacturing
activities within the Group by supplying sub-
assemblies and components to Australia, for
programs such as the High Speed Support
Vessels.
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. Our businesses
typically operate at accident and injury rates well
below the local average which is testament to our
focus on the wellbeing of all staff.
Regrettably we had a death in our US operations
during the night shift in the module
manufacturing facility in FY2016. Austal and the
relevant authorities have been unable to identify
the cause at the time of publishing this report but
we will continue to do what we can to determine
this and take whatever action, if any, which may
be required as a result.
107.0
65.8
60.1
38.9
17.8
14.3
16.0
19.7
21.7
14.1
14.2
FY06
FY07
FY08
FY09
FY10
FY11
Medical Treatment Injury Frequency Rate
(per million hours worked)
FY12
FY13
FY14
FY15
FY16
6.35
5.38
6.05
5.90
3.92
3.90
2.20
2.30
2.30
2.10
1.75
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
Lost Time Injury Frequency Rate
(per million hours worked)
11 | AUSTAL LIMITED ANNUAL REPORT 2016
Directors’ report
The Board of Directors of Austal Limited submit their report for the year ended 30 June 2016.
Directors
The names and details of the Company’s Directors in office during the financial year and until the date of
this report are detailed below. Directors were in office for the entire financial year unless otherwise stated.
John Rothwell AO – Non-Executive Chairman
John has played a major role in the development of the Australian aluminium
shipbuilding industry with over 40 years of experience in boat and shipbuilding. 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. He saw the potential for US Defense
contracts for high speed aluminium naval ships and he led the formation of a new
shipyard in Mobile, Alabama in 1998.
John was appointed as 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 Western Australia Citizen
of the Year in the category of Industry and Commerce in 1999.
John stepped down as Executive Chairman and Chief Executive Officer in 2008 to continue as
Non-Executive Chairman after managing the Company for 20 years.
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 of the University of South Australia.
Jim holds a Bachelor of Laws from the University of Warwick in England.
12 | AUSTAL LIMITED ANNUAL REPORT 2016
Giles Everist – Independent Director
Giles has a breadth of experience with project and service based businesses gained
over more than 27 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 Corporation during his career.
Giles is currently a Non-Executive Director of Decmil Group Limited, Norwood
Systems Ltd and Macmahon Holdings Limited.
David Singleton – Chief Executive Officer
David has spent much of his career in the defence industry around the world in roles
encompassing design, heavy manufacturing, customer support and international
sales. He was a Non Executive Director of Austal for four years before becoming CEO
in April 2016.
David has held numerous senior roles with BAE Systems, one of the world’s largest
defence companies, including Group Head of Strategy and Mergers & Acquisitions in
London from 1997 to 1998 and again in 2003.
In the intervening years, David was the Chief Executive Officer of Alenia Marconi
Systems (AMS); a joint venture between BAE Systems and Finmeccanica that had
turnover of circa Euro1.4 billion and employed 7,500 people across the UK, Italy, the
USA and Germany. 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.
With an Honours degree in Mechanical Engineering from University College London, 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 was eventually sold to 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.
Most recently, David was the CEO and Managing Director of Perth-based mining company Poseidon Nickel
Limited. Prior to this role, he served as CEO and Managing Director of Clough Limited between 2003 and
2007.
Andrew Bellamy – Chief Executive Officer (Resigned)
Mr Bellamy commenced as CEO in February 2011, and resigned in April 2016.
Mr Bellamy has been instrumental in Austal’s emergence as a global defence prime
contractor. Mr Bellamy was responsible for the Group’s worldwide operations and
was a member of the Board of Austal Limited and the Board of Austal USA.
13 | AUSTAL LIMITED ANNUAL REPORT 2016
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
Share Rights^
Number
John Rothwell
Jim McDowell
Giles Everist
David Singleton
32,500,745
33,751
10,000
28,600
-
-
-
97,360
^ This represents share rights that form part of David Singleton’s Total Fixed Remuneration subject to shareholder approval at the 2016 Annual General
Meeting. (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 vessels. These activities are unchanged from the previous
year.
Results
The net loss after tax of the consolidated entity for the financial year was $(84.182) million after income tax
(FY2015: net profit after tax of $53.156 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 9.
Dividends
A dividend of 2 cents per share was paid after the FY2016 H1 results (FY2015 H1: 1 cent per share) and a
further dividend of 2 cents per share has been proposed for FY2016 (FY2015 final: 3 cents per share).
Significant events after the balance date
The Directors have declared a fully franked dividend in respect of the year ended 30 June 2016. More
information is available in the Dividends section above.
Likely developments and future results
A general discussion of the Group’s outlook is included in the Chairman’s Report on page 4 and the Review
of Operations on page 9.
Significant changes in the state of the affairs
There were no significant changes to structure or operations of the Group during the financial year.
14 | AUSTAL LIMITED ANNUAL REPORT 2016
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 2016.
Share options and performance rights
There were 1,374,196 un-issued ordinary shares under options and 1,665,407 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 during the year. There were 497,184 performance rights which vested on 8 September
2015, and 97,360 share rights granted as part of the CEO remuneration during FY2016.
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. The company has agreed to indemnify those Directors against any claim for any expenses
or costs which may arise as a result of work performed in their respective capacities to the extent allowed
by the law.
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, against claims by third parties
arising from the audit (for an unspecified amount) to the extent permitted by law, as part of the terms of its
audit engagement agreement. No payment has been made to indemnify Ernst & Young during or since the
financial year.
Directors’ meetings
The number of meetings of Directors (including meetings of committees of Directors) held during the year
and the number of meetings attended by each Director was as follows:
Meeting
Nomination &
Austal Limited
Audit & Risk
Remuneration
Board
Committee
Committee
Number of meetings held
Number of meetings attended:
John Rothwell
Jim McDowell
Giles Everist
David Singleton 1
Andrew Bellamy 2
7
6
7
7
7
6
4
1 3
4
4
4
3 3
5
4
1
5
5
4 3
1. Mr David Singleton was appointed Chief Executive Officer on 4 April 2016
2. Andrew Bellamy retired as a director of the Company (and Chief Executive Officer) on 4 April
3. Attended as a guest
15 | AUSTAL LIMITED ANNUAL REPORT 2016
Committee membership
The Company has an Audit & Risk Committee and a Nomination & Remuneration Committee of the Board
of Directors.
Members acting on the committees of the Board during the year were:
Audit & Risk
Nomination & Remuneration
Jim McDowell
Giles Everist 1
David Singleton
John Rothwell
Jim McDowell 1
Giles Everist
David Singleton 2
1. Designates the Chairman of the committee
2. Chairman of Nomination & Remuneration Committee until April 2016
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 Corporations
(Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Company is an entity to which the
instrument applies.
Render of 40 metre Pacific Patrol Boat Replacement (PPB-R) --- 19 steel vessels to be constructed by Austal Australia for 12
Pacific Island nations from 2018 - 2023
16 | AUSTAL LIMITED ANNUAL REPORT 2016
Message from the Nomination & Remuneration Committee (NRC)
Dear Shareholder,
Last year you received this letter from the Chair of the Nomination and Remuneration Committee,
Mr David Singleton. Mr Singleton became Chief Executive Officer of Austal in April, 2016 and I was
appointed as the new Chair of the Nomination and Remuneration Committee in May 2016.
The remarks in Mr Singleton’s letter of last year with regard to the journey to fully review, recalibrate and
align key management personnel remuneration governance, policies and practices remain pertinent as we
worked our way through the second year of that process. The changes required have now been
implemented although it may take somewhat longer for all of the changes to be evident as old practices
are phased out.
As shareholders are aware from last year’s letter Austal have used the services of the Godfrey
Remuneration Group (GRG) to assist in the redesign of our remuneration governance practices.
We will re-engage with GRG for FY2017 in order to review the changes and their effects and to assist me as
incoming Chair of the Committee.
Mr Andrew Bellamy resigned as Chief Executive Officer during FY2016 after 5 years of service in which we
saw significant growth in the business, and Mr David Singleton was appointed to replace him. Mr
Singleton is an experienced Chief Executive Officer across a number of industries (defence, engineering,
resources) and has deep understanding and experience of complex systems engineering in the defence
maritime domain in addition to having been a non-Executive Director of Austal since December 2011.
Another significant event in the past year was the write-back of profits from previous years, on one of the
contracts in our US business. This was associated with the costs needed for additional testing required by
the U.S. Navy on the Littoral Combat Ship. These physical shock tests have been successfully passed by
the LCS and although the costs of making the vessel test ready have been shared with our U.S. Navy
customer, and the necessary modifications planned into future ship builds, the profit write-back had a
significant effect on our FY2016 results.
Consequently, the Board of Directors exercised its discretion not to pay any Short Term Incentive (STI) to
KMP for FY2016 and has extended the measurement period of two tranches of Long Term Incentive (LTI)
performance right grants that were due to vest after completion of FY2016. The extension of the
measurement period will incorporate the impact of the reduction in share price that occurred after the
announcement regarding LCS which was post year end.
It is pleasing to see the new remuneration practices in effect and I look forward to meeting with
shareholders at the Annual General Meeting in October.
Yours sincerely,
Jim McDowell
Chairman, Nomination & Remuneration Committee
17 | AUSTAL LIMITED ANNUAL REPORT 2016
Remuneration report (audited)
This Remuneration Report for the year ended 30 June 2016 outlines the remuneration arrangements of the
Company and the Group in accordance with the requirements of the Corporations Act 2001 (the Act) and
its regulations. This information has been audited as required by section 308(3C) of the Act.
The Remuneration Report is presented under the following sections:
1.
Persons covered by this report .................................................................................................................. 19
2.
Remuneration governance framework and strategy ............................................................................... 20
3.
Executive KMP remuneration policy ......................................................................................................... 22
4.
Non-Executive Director remuneration ....................................................................................................... 30
5.
6.
7.
8.
Remuneration of KMP ................................................................................................................................. 31
Equity instruments held by KMP................................................................................................................ 33
Group performance ..................................................................................................................................... 40
Other related matters .................................................................................................................................. 41
18 | AUSTAL LIMITED ANNUAL REPORT 2016
Remuneration report (audited)
1. 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 2016 were:
Executive Directors
Mr David Singleton
Chief Executive Officer and Managing Director since April 2016
The following person ceased to be an executive director during FY2016:
Mr Andrew Bellamy
Chief Executive Officer and Managing Director until April 2016
Executives with no Director duties
Mr Greg Jason
Group Chief Financial Officer since January 2013
Mr Craig Perciavalle
President USA since November 2012
Mr Joselito Turano
President Philippines until July 2016
The following person ceased to be an executive KMP of Austal during FY2016:
Mr Brian Leathers
Chief Financial Officer USA until March 2016
Non-Executive Directors
Mr John Rothwell
Chairman since 1998
Member of the Nomination & Remuneration Committee since December 1998
Mr Jim McDowell
Independent non-executive director since December 2014
Chairman of the Nomination & Remuneration Committee since May 2016
Member of the Audit & Risk Committee since February 2015
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
The following person ceased to be a non-executive director during FY2016:
Mr David Singleton
Independent non-executive director from December 2011 until April 2016
Chairman of Nomination & Remuneration Committee until April 2016
19 | AUSTAL LIMITED ANNUAL REPORT 2016
I.
Change of CEO during the year
Mr Andrew Bellamy resigned as Chief Executive Officer (CEO) of Austal with effect from 4 April
2016. The Board oversaw a successful handover between Mr Bellamy and the incoming CEO
during a period of intense activity both in the USA and Australia. In recognition of Mr Bellamy’s
service and effective transition, the Board approved a termination payment of $697,160 to Mr
Bellamy in lieu of potential pro-rata Short Term Incentives (STI) and Long Term Incentive (LTI)
payments based on projected company performance at the time of transition.
Mr David Singleton commenced in a full time executive role from February 2016 in order to
ensure an effective transition and was appointed CEO and Managing Director with effect from 4
April 2016.
Mr Singleton’s package was similar to that paid to Mr Bellamy, consisting of:
A Base Remuneration as identified in this report.
An STI and LTI package as identified in this report.
No other one-off or continuing payments were made to Mr Singleton on his commencement.
2. Remuneration governance framework and strategy
I.
Nomination & Remuneration Committee Charter
The role and responsibilities of the committee are outlined in the 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
which was reviewed by the Board again in FY2016.
The Committee initiated a search for a new CEO and subsequently appointed Mr David
Singleton as CEO and Managing Director. The Committee has also initiated a search for a new
non-executive Director after David Singleton was appointed to the role of CEO and Managing
Director. Andrew Bellamy resigned from the Board in April 2016.
The Charter specifies that the NRC 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. The Policy 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. The Policy
specifies “Closed Periods” during which Directors and related parties, KMP, Senior Executives,
and any employee in possession of inside information 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.
20 | AUSTAL LIMITED ANNUAL REPORT 2016
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 ERC. The policy 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 ERC 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.).
IV.
Remuneration framework
Austal is committed to responsible remuneration practices. The need to reward the Group’s
employees fairly and competitively based on performance needs to be balanced with the
requirement to do so within the context of principled behaviour and action, particularly in the
area of safety, risk, compliance and control.
Remuneration should contribute to the Group’s achievements in a way that supports the
Group’s culture and goals. The Remuneration Policy Framework set out below summarises the
key features of the Group’s remuneration approach.
Our Vision:
Maintain a responsible, performance-based Remuneration Policy that is aligned with the long-term interests of our shareholders.
Our Goal:
Strike the right balance between meeting shareholders' expectations, paying our employees competitively, and responding appropriately to the regulatory environment.
Our Approach:
Governance
Individual Remuneration
Individual Remuneration
Determination
Remuneration Structure
and Instruments
Principles:
Principles:
Principles:
Principles:
Clearly defined and documented
governance procedure
Independent NRC
Independent ERC
Annual assessment of
Remuneration Policy
Reward Group annual
performance measured relative to
its planned key performance
indicators
Business performance aligned
Recognise 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
recognising 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
21 | AUSTAL LIMITED ANNUAL REPORT 2016
3. Executive KMP remuneration policy
I.
Structure
The following policy applies to executive KMP and executive directors:
Total Remuneration Packages (TRP) should be composed of:
Base Package (inclusive of superannuation, allowances, social security, benefits and
any applicable fringe benefits tax (FBT) as well as any salary sacrifice arrangements)
STI which provides a reward for performance against annual objectives
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
TRP should be structured with reference to market practices and the particular
circumstances of the Group where appropriate.
II.
Base remuneration KMP
Base Packages should be set with reference to the market practice of ASX listed companies
at the P50* level, where 50% of the comparator group are above the level and 50% are
below.
TRP 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 Remuneration of the KMP executives fall within or below the P50 +/- 20% of the
Base Remuneration policy range.
i.
Total Fixed Remuneration (TFR) – CEO
Mr David Singleton’s TFR is to be paid in cash, whilst the CEO and the Board may agree
at the commencement of each year for up to 30% of TFR to be unconditionally payable in
share rights. The number of share rights will be based upon the volume weighted
average closing price of Austal Limited (ASX Ticker: ASB) shares in the last 5 trading days
of each month.
Mr Singleton and the Board of Directors agreed that 30% of Mr Singleton’s TFR will be
paid in share rights for his first year of employment which commenced on 8 February
2016.
22 | AUSTAL LIMITED ANNUAL REPORT 2016
ii.
Peer group benchmarking
The NRC undertook a detailed benchmarking of its KMP remuneration levels and
structure during FY2015 against a relevant benchmark group with the assistance of its
NRC:
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 were
preferentially included.
iii.
Peer group list of companies
Company
Industry Group
McMillan Shakespeare Limited
Monadelphous Group Limited
APN News and Media Limited
Transfield Services Limited
GWA Group Limited
iSentia Group Limited
Bega Cheese Limited
Industrials
Industrials
Consumer
Industrials
Industrials
Information Technology
Consumer
Amcom Telecommunications Limited
Telecommunication Services
ERM Power Limited
Utilities
Vocus Communications Limited
Telecommunication Services
Credit Corp Group Limited
Tassal Group Limited
NEXTDC Limited
Tox Free Solutions Limited
UGL Limited
Bradken Limited
Skilled Group Limited
Programmed Maintenance Services Ltd
Collection House Limited
Ruralco Holdings Limited
Industrials
Consumer Discretionary
Information Technology
Industrials
Industrials
Industrials
Industrials
Industrials
Industrials
Consumer Discretionary
A peer group analysis for CEO remuneration was performed during FY2015, and is still
considered relevant for FY2016. The FY2015 results are depicted in the table below and
compared to the annualised remuneration of the Austal CEO.
23 | AUSTAL LIMITED ANNUAL REPORT 2016
Component
Peer Group Results (FY2015)
Percentile
Austal CEO 1
25
50
75
FY2016
Base Remuneration
$
628,000
$
906,000
$
1,316,000
$
1,051,340
Total Remuneration Package (TRP) 1
$
1,259,000
$
1,654,000
$
2,102,000
$
2,102,679
1. TRP is total fixed remuneration plus STI and LTI at Target
The NRC formed the following conclusions from the assessment of Base Packages
undertaken in FY2015:
The CEO's Base Remuneration (inclusive of salary sacrificed equity) fell within the
Company's policy range of P50 +/- 20%, based on the benchmark described above.
No change was made to the CEO's Base Remuneration in FY2016 on the basis that
the Base Remuneration is at the upper end of the P50 + 20% of Base Remuneration.
III.
Short Term Incentive (STI) Plan Policy
The STI policy of the Group 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, and the 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 after the end of the financial year and the full year accounts
have been approved by the Board.
The Board undertook a review of the Austal STI policy during FY2015 through the NRC by
requesting a benchmarking review to be undertaken by its NRC. The report recommended that
the STI Plan should become a bigger component of both the CEO’s and KMPs’ annual
remuneration but that performance targets at the threshold pay out level should become more
challenging. These recommendations were based on rigorous benchmarking against similar
companies and were adopted by the Board and are outlined in this report below.
i.
Purpose
The purpose of the STI Plan is to incentivise KMP, Senior Executives and Managers 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 KMP, Senior Executives and Managers such that the cost of
employment reflects the performance of the company.
24 | AUSTAL LIMITED ANNUAL REPORT 2016
ii. Measurement Period
The measurement period for STI awards is aligned with the financial year of the Group.
iii.
Key Performance Indicators (KPI)
KPI are customised for each KMP, Senior Executive and Managers and reflect the nature
of their roles, whilst creating shared objectives where appropriate.
Weightings are applied to the KPI selected for each participant to reflect the relative
importance of each KPI.
KPI set for the KMP in FY2016 were as follows:
David Singleton - CEO
Key Performance Indicator
Group EBIT
Group New Vessel Orders
Group Strategy Development & Execution
Implementation of Business Improvement Initiatives
Total
Greg Jason - CFO
Key Performance Indicator
Group EBIT
Group New Vessel Orders
Employee Development and Retention
Group Strategy Development & Execution
Implementation of Business Improvement Initiatives
Refinancing of Syndicated Debt Facility
Total
Craig Perciavalle - President USA
Key Performance Indicator
USA EBIT
USA New Vessel Orders
Group Strategy Development & Execution
Implementation of Business Improvement Initiatives
Total
Joselito Turano - President Philippines 1
Key Performance Indicator
Philippines EBIT
Group EBIT
Employee Engagement
Cost reduction
Labour productivity
Grow service orders
Total
1. Mr Joselito Turano resigned effective 13 July 2016
Relative
Weight
40.0%
10.0%
30.0%
20.0%
100.0%
Relative
Weight
40.0%
10.0%
10.0%
20.0%
10.0%
10.0%
100.0%
Relative
Weight
40.0%
10.0%
30.0%
20.0%
100.0%
Relative
Weight
40.0%
20.0%
10.0%
10.0%
10.0%
10.0%
100.0%
25 | AUSTAL LIMITED ANNUAL REPORT 2016
KPI set for the KMP in FY2017 are as follows:
David Singleton - CEO
Key Performance Indicator
Group financial performance1
Group New Vessel Orders
- New EPF orders in USA1
- Additional LCS appropriation in USA1
- New commercial vessels to keep Austal Philippines at greater than 75% load
Group Strategy Development & Execution
- Down selection for the CoA, OPV contract as shipbuilder
- US LCS program to plan
- Increase value of support activities in USA & Australia defence
Implementation of Business Improvement Initiatives
- Achieve Key Defence Supplier status in Australia
- Target and reduce procurement & shipbuilding costs by 3% to 5% respectively
- Drive people development plan
Total
Greg Jason - CFO
Key Performance Indicator
Group financial performance1
Deliver IT strategy to support KDS and business improvement
Group cash
Group Strategy Development & Execution
Implementation of Business Improvement Initiatives
Total
Craig Perciavalle - President USA
Key Performance Indicator
USA financial performance
USA New Vessel and support Orders
Sign new EPF contracts 1
Increase support contracts 1
Down select additional LCS contracts 1
Implementation of Business Improvement Initiatives
- LCS shipbuilding and profitability, predictability in 1
- Reduce vessel shipbuilding and procurement costs 1
Total
Wayne Murray - President Philippines
Key Performance Indicator
Philippines financial performance
Cost reduction
- Procurement and labour cost reductions 1
Ontime vessel delivery for 3 ferries
Total
1. Figures not released due to commercial confidentiality.
Relative
Weight
40.0%
20.0%
20.0%
20.0%
100.0%
Relative
Weight
40.0%
10.0%
30.0%
10.0%
10.0%
100.0%
Relative
Weight
40.0%
10.0%
10.0%
10.0%
10.0%
20.0%
100.0%
Relative
Weight
40.0%
30.0%
30.0%
100.0%
26 | AUSTAL LIMITED ANNUAL REPORT 2016
iv.
Determination of award
The Board reviews and approves performance targets and objectives annually for the
CEO and the executive management team. The final STI award is determined subsequent
to year end, with the payment made in September of the following financial year.
The Board has the discretion to not grant STI performance awards in the event of
substandard Group performance, notwithstanding that individuals may have achieved
their agreed performance targets. The board exercised its discretion and no STI was
payable to KMP in FY2016, in light of the unfavourable profit performance.
v.
Target and maximum award
Target and maximum awards are applied to base remuneration.
Incumbent
Target
FY2016
Maximum
Estimated1
Target
Maximum
FY2017
Position
CEO
Mr David Singleton 2
Chief Financial Officer
Mr Greg Jason
President USA
President Philippines
President Philippines
Mr Craig Perciavalle
Mr Joselito Turano 3
Mr Wayne Murray 4
50%
30%
30%
15%
0%
100%
60%
60%
30%
0%
-
-
-
-
-
50%
30%
30%
-
15%
100%
60%
60%
-
30%
1. The Board exercised its discretion and no STI was deemed payable to KMP for FY2016
2. Mr David Singleton was appointed as Chief Executive Officer on 4 April 2016,
upon Mr Andrew Bellamy's resignation on that same date and will be issued performance rights for 15 months.
Performance rights relating to the FY2016 service period as CEO will form part of the FY2017 grant and are subject to shareholder approval at the 2016 Annual General Meeting.
3. Mr Joselito Turano resigned effective 13 July 2016
4. Mr Wayne Murray was appointed as President Philippines on 13 July 2016, upon the resignation of Mr Joselito Turano
IV.
Long Term Incentive (LTI) Plan Policy
The long term incentive plan policy of the Company is for a component of annual remuneration
of executives to be at-risk and based on equity in the Company.
The board implemented a number changes in FY2016 after undertaking a review of the LTI plan
during FY2015 that were described in the FY2015 Annual Report. These changes have been
maintained in the FY2017 plan. The purpose of the changes was to ensure that the scheme
continued to drive long term executive performance as well as meet normal industry practice.
i.
Purpose
The purpose of the LTI Plan is to incentivise Senior Executives to deliver Group
performance that will lead to sustainable superior returns for shareholders and to
modulate the cost of employing Senior Executives.
ii.
Form of incentive
The LTI should be based on Performance Rights that vest based on an assessment of
performance against objectives. No dividends are payable or accrued on Performance
Rights which are unvested.
27 | AUSTAL LIMITED ANNUAL REPORT 2016
iii. Measurement period
The standard measurement period is three years from FY2016 onwards, however the
Board has discretion to modify the duration of the measurement period if it deems an
extension to be appropriate.
iv. Measures of long term performance
The Company uses two long term performance measures:
iTSR which the Board believes best reflects an external measure of performance
Return on Invested Capital (ROIC) which the Board believes best reflects an internal
measure of performance
v.
Total Shareholder Return Measure (TSR)
The Board believes that TSR is the measure that has the strongest alignment with
shareholders. It is recognised that absolute TSR is influenced by overall economic
movements, and therefore the FY2016 grant of LTI was offered to executives based on
iTSR.
iTSR determines the shareholders returns of Austal relative to the market rather than
capturing the absolute performance of the Group.
A relative peer group TSR was considered however it was not possible to identify a
comparator group of companies that was statistically significant 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 applies to all grants of LTI from FY2016 based on a comparison of Austal’s TSR
against the S&P All Ordinaries Accumulation index “XAOA”.
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 to be 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, but are not
stated here for confidentiality reasons.
28 | AUSTAL LIMITED ANNUAL REPORT 2016
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, unless the Board exercises its discretion to
extend the original measurement period.
Participants are not required to make any payments in respect of Performance Rights at
grant or at vesting.
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 David Singleton 1
Chief Financial Officer
Mr Greg Jason
President USA
President Philippines
President Philippines
Mr Craig Perciavalle
Mr Joselito Turano 2
Mr Wayne Murray 3
FY2016 Grant Vesting
Target
Maximum
FY2017 Grant Vesting
Target
Maximum
50%
35%
35%
20%
-
100%
70%
70%
40%
-
50%
35%
35%
-
20%
100%
70%
70%
-
40%
1. Mr David Singleton was appointed as Chief Executive Officer on 4 April 2016, upon Mr Andrew Bellamy's resignation on that same date,
and will be issued performance rights for 15 months. Performance rights relating to the FY2016 service period as CEO will form part of
the FY2017 grant and are subject to shareholder approval at the 2016 Annual General Meeting.
2. Mr Joselito Turano resigned effective 13 July 2016
3. Mr Wayne Murray was appointed as President Philippines on 13 July 2016, upon Mr Joselito Turano's resignation
29 | AUSTAL LIMITED ANNUAL REPORT 2016
4. Non-Executive Director remuneration
I.
Application
The Non-executive Director Remuneration Policy applies to non-executive directors (NED) of the
Company in their capacity as directors and as members of committees.
II.
Remuneration structure
Remuneration is composed of:
Board fees
Committee fees
III.
Fees
i.
Fee cap
The Remuneration for both Executive and Non-Executive Directors will be managed
within the aggregate fee limit (AFL) of $3,000,000 approved by shareholders of the
Company. Remuneration of Non-Executive Directors will be managed within the AFL ,
less the Remuneration of the CEO. The cap has remained unchanged since listing on the
ASX in 1998.
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 by $50,000 to $200,000 per annum from 1 August 2016.
iii.
Non-executive director fees
Board fees paid for membership of the Board, inclusive of superannuation and exclusive
of committee fees have been set with reference to the 50th percentile of the market of
comparable ASX listed companies (as previously described for executive remuneration).
No changes to Non-executive Director fees are planned for FY2017.
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 NED by the Company.
30 | AUSTAL LIMITED ANNUAL REPORT 2016
5. Remuneration of KMP
Year ended 30 June 2016
Short-Term Benefits
Post
Employment
Benefits
Super-
Long
Term
Benefits
FY2016
Other
annuation /
Salary &
STI
Monetary
Fees
Accrued
Benefits
Social
Security
Leave
Termination
Share Based
Payments Expense
Long
Term
%
%
Share Based
Payments
Performance
STI
FY2015
STI
Paid 5
FY2016
Unpaid
STI
Accrued
Benefits
Fixed
Incentive
Total
Expense
Related
Non-executive directors
John Rothwell
Giles Everist
Jim McDowell
Executive directors
David Singleton 1
Andrew Bellamy 2
$
250,000
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
250,000
122,500
107,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
122,500
107,500
$
327,333
$
-
$
-
$
13,712
$
27,387
$
-
$
108,070
$
86,628
$
563,130
798,176
-
-
19,308
74,725
697,160
-
(44,005)
1,545,364
Other key management personnel
Greg Jason
Craig Perciavalle
Brian Leathers 3
Joselito Turano 4
$
364,091
$
-
$
-
$
19,308
$
41,356
$
-
$
-
$
50,682
$
475,437
639,662
319,010
287,107
-
-
-
27,451
27,946
31,211
83,294
50,715
5,091
-
-
-
-
141,969
-
-
-
-
84,207
(11,099)
32,274
834,614
528,541
355,683
-
-
-
34.6
(2.8)
10.7
10.1
(2.1)
9.1
-
-
-
$
-
$
-
-
-
-
-
15.4
(2.8)
$
-
$
-
363,922
-
10.7
10.1
(2.1)
9.1
$
96,451
$
-
32,239
15,582
-
-
-
-
$
3,215,379
$
-
$
86,608
$
191,428
$
143,468
$
839,129
$
108,070
$
198,687
$
4,782,769
$
508,194
$
-
1 Mr David Singleton was appointed Chief Executive Officer on 4 April 2016. Salary & Fees include Non-executive Director fees paid up until 4 April 2016
2 Mr Andrew Bellamy resigned on 4 April 2016
3 Mr Brian Leathers resigned on 11 March 2016
4 Mr Joselito Turano resigned on 13 July 2016
5 Final STI paid is based on whether the KMP is still in employement at the end of the financial year, and have met their respective KPI
31 | AUSTAL LIMITED ANNUAL REPORT 2016
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
Salary &
Fees
FY2015
STI
Accrued
Other
Monetary
Benefits
Post
Employment
Benefits
Super-
annuation /
Social
Security
Long
Term
Benefits
Share Based
Payments Expense
Leave
Termination
Accrued
Benefits
Fixed
Long
Term
Incentive
Total
%
Share Based
Payments
Expense
%
Performance
related
STI
FY2014
STI
Paid
FY2015
Unpaid
STI
$
279,167
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
279,167
31,000
90,000
98,300
42,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
$
263,040
$
363,922
Other key management personnel
Greg Jason
Craig Perciavalle
Brian Leathers
Graham Backhouse 4
Joselito 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
1,692
-
-
16,742
-
-
-
77,992
-
-
-
-
-
57,748
46,939
-
15,827
711,668
470,382
401,735
320,170
12.6
8.1
10.0
-
4.9
30.8
12.6
13.3
18.5
12.2
$
75,840
$
96,447
54,972
44,454
86,427
27,421
32,239
15,582
74,186
23,379
$
2,917,085
$
605,755
$
56,620
$
195,940
$
120,258
$
77,992
$
209,560
$
250,670
$
4,433,880
$
552,154
$
605,755
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
32 | AUSTAL LIMITED ANNUAL REPORT 2016
6. Equity instruments held by KMP
I.
FY2014 Performance Rights Vesting
i.
FY2014 Performance Rights Grant
193,773 performance rights were granted to KMP in FY2014, who were still employed by
Austal at 30 June 2016 and unvested at 30 June 2016.
Mr Andrew Bellamy forfeited 143,658 performance rights and Mr Brian Leathers forfeited
57,119 performance rights upon resignation.
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
The Board decided post year end to extend the measurement period of performance
rights due to vest at 30 June 2016 by one year. The decision was taken due to the trading
halt that was initiated on 30 June 2016 pending the release of the FY2016 earnings
guidance, and the subsequent reduction in share price on 4 July 2016 which was outside
of the original measurement period. The vesting criteria for the performance rights have
been adjusted pro-rata for the one year extension in the measurement period. No further
extensions to the validity of these rights will be considered.
iii.
FY2014 Grant Performance Criteria
The original ROIC and TSR performance criteria relating to the FY2014 grant of
performance rights to KMP are detailed below.
Measure
Weight
Threshold
Vesting %
Performance
Austal
30%
<= 15%
0%
At or below Threshold
Absolute TSR
(CAGR)
15% < TSR < 25%
>= 25%
6.0%
8.0%
10.0%
ROIC
70%
Total
100%
Pro-rata
50%
Pro-rata
100%
Target
Stretch or Above
0%
At or below Threshold
Pro-rata
50%
Pro-rata
100%
Target
Stretch or Above
33 | AUSTAL LIMITED ANNUAL REPORT 2016
iv.
Vesting of Performance Rights from the FY2014 Grant
The actual TSR performance for the original measurement period from 1 July 2013 –
30 June 2016 was calculated to be 108%.
The actual ROIC performance for the original measurement period from 1 July 2013 –
30 June 2016 vesting of performance will be calculated using the FY2016 audited
accounts. The estimated ROIC performance for the original measurement period from 1
July 2013 – 30 June 2016 is 1.5%.
The estimated number of performance rights from the second measurement period for
the FY2014 grant that would have vested and lapsed as a result of the actual Group
performance in the original measurement period is detailed below. The final number of
performance rights that will vest and lapse will be calculated at the end of FY2017 as
described earlier.
Measurement Period 2
Rights
Granted
Maximum
Vesting
Estimated Vesting
%
Rights
ROIC
TSR
Total
Actual Result
Award
Weight
Vesting %
Employee
Greg Jason
Craig Perciavalle
Joselito Turano 1
CFO
President USA
President Philippines
125,345
168,675
93,517
50%
50%
50%
62,672
84,337
46,758
Total
387,537
50%
193,767
1. Mr Joselito Turano resigned on 13 July 2016 and forfeited all of his performance rights
2%
108%
-
100%
30%
70%
-
-
-
-
-
30%
30%
100%
30%
18,802
25,301
14,028
18,802
25,301
14,028
58,131
58,131
II.
FY2015 Performance Rights Grant
i.
FY2015 Performance Rights Grant
325,110 performance rights were granted to KMP in FY2015, who were still employed by
Austal at 30 June 2016 and unvested at 30 June 2016. Mr Andrew Bellamy forfeited
379,390 performance rights and Mr Brian Leathers forfeited 99,885 performance rights
upon resignation.
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
34 | AUSTAL LIMITED ANNUAL REPORT 2016
Performance rights can vest in two tranches at the completion of each of the
measurement periods unless extended at the discretion of the Board.
The Board decided post year end to extend the measurement period of performance
rights due to vest at 30 June 2016 by one year. The decision was taken due to the trading
halt that was initiated on 30 June 2016 pending the release of the FY2016 earnings
guidance, and the subsequent reduction in share price on 4 July 2016 which was outside
of the original measurement period. The vesting criteria for the performance rights have
been adjusted pro-rata for the one year extension in the measurement period. No further
extensions to the validity of these rights will be considered.
iii.
FY2015 Grant Performance Criteria
The original ROIC and TSR performance criteria relating to the FY2015 grant of
performance rights to KMP are detailed below.
Measure
Austal
Absolute TSR
(CAGR)
ROIC
70%
Total
100%
Weight
Threshold
Vesting %
Performance
30%
<= 15%
0%
At or below Threshold
15% < TSR < 25%
>= 25%
6.9%
7.8%
8.8%
Pro-rata
50%
Pro-rata
100%
Target
Stretch or Above
0%
At or below Threshold
Pro-rata
50%
Pro-rata
100%
Target
Stretch or Above
iv.
Vesting of Performance Rights from the FY2015 Grant
The actual TSR performance for the original measurement period from 1 July 2014 –
30 June 2016 was calculated to be 32%.
The actual ROIC performance for the original measurement period from 1 July 2014 –
30 June 2016 vesting of performance will be calculated using the FY2016 audited
accounts. The estimated ROIC performance in the original measurement period from 1
July 2014 – 30 June 2016 is (2)%.
The estimated number of performance rights from the first measurement period for the
FY2015 grant that would have vested and lapsed as a result of the actual Group
performance in the original measurement period is detailed below. The final number of
performance rights that will vest and lapse will be calculated at the end of FY2017 as
described earlier.
35 | AUSTAL LIMITED ANNUAL REPORT 2016
Measurement Period 1
Rights
Granted
Maximum
Vesting
Estimated Vesting
%
Rights
ROIC
TSR
Total
Actual Result
Award
Weight
Vesting %
Employee
Greg Jason
Craig Perciavalle
Joselito Turano 1
CFO
President USA
President Philippines
109,288
142,692
73,130
25%
25%
25%
27,322
35,673
18,282
Total
325,110
25%
81,277
1. Mr Joselito Turano resigned on 13 July 2016 and forfeited all of his performance rights
(2%)
32%
-
70%
-
-
-
-
-
-
30%
30%
-
100%
30%
8,196
10,701
5,484
8,196
10,701
5,484
24,381
24,381
III.
FY2016 Performance Rights Grant
Performance rights granted to KMP in FY2016 are depicted in the table below.
Name
Andrew Bellamy 1
Greg Jason
Craig Perciavalle
Brian Leathers 2
Joselito Turano 3
Total
Grant
date
Performance
rights
granted
Fair value per performance
right
TSR
ROIC
Value of
awards at
grant date
30 Oct 2015
13 Oct 2015
23 Sep 2015
23 Sep 2015
13 Oct 2015
594,513
152,244
233,211
85,881
61,921
1,127,770
$
1.71
1.52
1.63
1.63
1.52
$
2.16
2.00
2.06
2.06
2.00
$
1,177,136
275,257
440,302
162,143
111,953
$
2,166,791
1. Mr Andrew Bellamy forfeited 594,513 FY2016 Performance rights upon his resignation in April 2016.
2. Mr Brian Leathers forfeited 85,881 FY2016 Performance rights upon his resignation in March 2016.
3. Mr Joselito Turano forfeited 61,921 FY2016 Performance rights upon his resignation in July 2016.
36 | AUSTAL LIMITED ANNUAL REPORT 2016
i.
FY2016 Grant Performance Criteria
The ROIC and iTSR performance criteria relating to the FY2016 grant of performance
rights to KMP are detailed below.
Measure
Weight
Threshold1
Vesting %
Performance
Indexed TSR
40%
<= 100%
0%
At or below Threshold
Pro-rata
100% < iTSR < 200%
50%
Target
>= 200%
Pro-rata
100%
Stretch or Above
ROIC
60%
<= 8.0%
0%
At or below Threshold
10.0%
>= 12.0%
Pro-rata
50%
Pro-rata
100%
Target
Stretch or Above
Total
100%
1. 100% is equal to the average TSR of companies included in the XAOAI Index as defined above.
ii. Measurement Period
100% of the performance rights granted in FY2016 have a 3 year measurement period,
being
1 July 2015 – 30 June 2018.
IV.
FY2017 Performance Rights Grant
i.
FY2017 Grant Performance Criteria
The ROIC and iTSR performance criteria relating to the prospective FY2017 grant of
performance rights to KMP are detailed below.
Measure
Weight
Threshold1
Vesting %
Performance
Indexed TSR
40%
<= 100%
0%
At or below Threshold
Pro-rata
100% < iTSR < 200%
50%
Target
>= 200%
Pro-rata
100%
Stretch or Above
ROIC
60%
< 6.6%
0%
At or below Threshold
6.6%
7.4%
Pro-rata
25%
Threshold
Pro-rata
50%
Target
Pro-rata
> 8.3%
100%
Stretch or Above
Total
100%
1. 100% is equal to the average TSR of companies included in the XAOAI Index as defined above.
37 | AUSTAL LIMITED ANNUAL REPORT 2016
ii.
Estimated FY2017 CEO Performance Rights Grant for FY2016 Service Period
Name
Grant
date
Performance
rights
granted
Fair value per performance
right
TSR
ROIC
Value of
award at
grant date
David Singleton
28 Oct 2016
88,428
$
0.80
$
1.10
$
86,628
Total
88,428
$
86,628
The CEO is entitled to a grant of performance rights for the service period 4 April 2016 –
30 June 2016. The granting of these performance rights is subject to shareholder
approval at the Annual General Meeting (AGM) The performance rights associated with
the FY2016 service period will form part of the FY2017 performance rights grant. It is
estimated that 88,428 performance rights will be included in the FY2017 grant for the
FY2016 service period.
Share based payments expense relating to the performance rights associated with the
FY2016 service period that will be granted in FY2017 has been recognised in the FY2016
Financial Accounts. All FY2017 performance rights for the CEO will be subject to
shareholder approval at the AGM in October 2016.
V.
Share rights earned 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. These share rights are in lieu of TFR normally paid in
cash and are not bonus or performance based. The share rights are subject to shareholder
approval at the 2016 Annual General Meeting.
Name
Period earned
Measurement
date
Earned
Fair value
per right
Fair value
David Singleton
FY2016
30 Jun 2016
97,360
1.11
$
108,070
38 | AUSTAL LIMITED ANNUAL REPORT 2016
VI.
Rights holdings
Rights holdings
Balance at
Granted as
Other
Balance at
Vested and
30 June 2015
Remuneration
Forfeited
Expired
Exercised Movement 3
30 June 2016
Exercisable
Unvested
30 June 2016
Directors
David Singleton 1
Share Rights
Performance Rights
Andrew Bellamy 2
Share Rights
Performance Rights
Executives
Greg Jason
-
-
68,598
666,703
97,360
-
-
-
-
-
594,513
(1,117,561)
Performance Rights
234,633
152,244
Craig Perciavalle
Performance Rights
311,367
233,211
-
-
Brian Leathers 4
Performance Rights
214,120
85,881
(242,885)
Joselito Turano 5
Performance Rights
166,647
61,921
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(68,598)
(143,655)
-
(62,671)
(84,336)
(57,116)
(46,757)
-
-
-
-
97,360
-
-
-
324,206
460,242
-
181,811
-
-
-
-
-
-
-
-
97,360
-
-
-
324,206
460,242
-
181,811
1 Mr David Singleton was appointed Chief Executive Officer on 4 April 2016, all rights are subject to shareholder approval at the 2016 Annual General Meeting
2 Mr Andrew Bellamy resigned on 4 April 2016
3 Denotes the shares rights held by Mr Andrew Bellamy at the time of his resignation on 4 April 2016
4 Mr Brian Leathers resigned on 11 March 2016
5 Mr Joselito Turano resigned on 13 July 2016
No options were held by KMP in FY2015 and FY2016
VII. Shareholdings
30 June 2016
30 June 2015
Exercised
Balance at
Share
Rights
Performance
FY2016 Movements
rights
vested
Acquired /
(Disposed) Movement 1
Other
Net Movement
30 June 2016
Balance at
Non - Executive Directors
John Rothwell
Jim McDowell
Giles Everist
David Singleton
Executives
Andrew Bellamy
Greg Jason
Craig Perciavalle
Brian Leathers
Joselito Turano
32,200,745
-
20,000
28,600
478,474
-
-
-
-
Total
32,727,819
-
-
-
-
-
-
-
-
-
-
-
-
-
300,000
33,751
(10,000)
-
-
-
-
-
300,000
33,751
(10,000)
-
32,500,745
33,751
10,000
28,600
143,655
(158,238)
(463,891)
(478,474)
62,671
84,336
57,116
46,757
-
-
-
-
-
-
(57,116)
-
394,535
165,513
(521,007)
62,671
84,336
-
46,757
39,041
-
62,671
84,336
-
46,757
32,766,860
1 Denotes the shares held by Mr Andrew Bellamy and Mr Brian Leathers at the time of their resignations, 4 April 2016 and 11 March 2016 respectively
None of the shares held by key management personnel are held nominally.
39 | AUSTAL LIMITED ANNUAL REPORT 2016
7. Group performance
EPS (cents per
share)
Annual Average
Share Price ($)
FY10
FY11
FY12
FY13
FY14
FY15
FY16
4.00
3.00
2.00
1.00
‐
20
15
10
5
‐
(5)
(10)
(15)
(20)
(25)
(30)
Basic EPS
Annual Average Closing Share Price
40 | AUSTAL LIMITED ANNUAL REPORT 2016
8. Other related matters
I.
Board composition
The Nomination & Remuneration 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 NRC has recommended that the current practice of maintaining 3
independent Non-Executive Directors on the Board should remain following the FY2016 review.
The 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
David Singleton
Greg Jason
Austal Limited
Austal Limited
Craig Perciavalle
Austal USA LLC
Joselito Turano
Austal Philippines Pty Limited
Contract
Duration
Unlimited
Unlimited
Unlimited
Unlimited
Termination Notice Period
Group
KMP
3 months
12 weeks
0 months
3 months
3 months
12 weeks
0 months
3 months
1.
2.
Termination provisions – Austal may choose to terminate the contract immediately by making a
payment equal to the Group Notice Period fixed remuneration in lieu of notice. Executives are not
entitled to this termination payment in the event of termination for serious misconduct or other
nominated circumstances.
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 upon termination of employment.
III.
Loans to KMP
There were no loans to Directors or other key management personnel at any time during the
year ended 30 June 2016.
IV. Other transactions with KMP
There were no transactions involving key management personnel other than compensation and
transactions concerning shares and performance rights as discussed in other sections of the
Remuneration Report.
V.
Use of Independent remuneration consultants
The Company established policies and procedures governing engagements with external
remuneration consultants to ensure that KMP remuneration recommendations were free from
undue influence from the KMP to whom they relate.
No remuneration consultants were engaged by the NRC during FY2016.
End of Remuneration Report
41 | AUSTAL LIMITED ANNUAL REPORT 2016
Auditor independence
The Directors received the following declaration from the auditor 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
Auditor’s Independence Declaration to the Directors of Austal Limited
As lead auditor for the audit of Austal Limited for financial year ended 30 June 2016, I declare to the best of my knowledge and
belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Austal Limited and the entities it controlled during the financial period.
Ernst & Young
Robert A Kirkby
Partner
27 August 2016
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
42 | AUSTAL LIMITED ANNUAL REPORT 2016
Consolidated statement of profit or loss and other comprehensive income for
the year ended 30 June 2016
Notes
2016
’000
* Restated
2015
’000
Continuing operations
Revenue
Cost of sales
Gross Profit
Other Income and expenses
Administration expenses
Marketing expenses
Finance costs
Profit / (loss) before income tax
Income tax benefit / (expense)
Profit / (loss) after tax
Profit attributable to:
Owners of the parent
Non-controlling interests
Total
Other comprehensive income (OCI)
4
5
5
5
5
9
Amounts that may subsequently be reclassified to profit and loss:
Cash flow hedges
- Gain / (loss) taken to equity
- (Gain) / loss recycled out of equity
- Income tax benefit / (expense)
- Net
Foreign currency translations
- Gain taken to equity
- Income tax benefit / (expense)
- Net
Other comprehensive income not to be reclassified to profit and loss in subsequent periods
Asset Revaluation Reserve
- Gain taken to equity
- Income tax expense
- Net
$
1,339,970
$
1,414,888
(1,396,921)
(1,296,439)
$
(56,951)
$
118,449
$
13,289
$
31,504
(61,488)
(14,609)
(6,605)
(52,970)
(10,828)
(4,992)
$
(126,364)
$
81,163
$
42,182
$
(28,007)
$
(84,182)
$
53,156
$
(84,281)
$
53,225
99
(69)
$
(84,182)
$
53,156
$
2,829
$
(31,886)
13,789
(3,800)
(9,183)
12,622
$
12,818
$
(28,447)
$
14,323
$
57,922
(21)
(1,851)
$
14,302
$
56,071
$
29,667
$
-
(10,710)
-
$
18,957
$
-
Other comprehensive income net of tax for the period
$
46,077
$
27,624
Total comprehensive income for the year
$
(38,105)
$
80,780
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
Total
Earnings per share ($ per share)
$
(38,204)
$
80,849
99
(69)
$
(38,105)
$
80,780
- basic for profit for the year attributable to ordinary equity holders of the parent
- diluted for profit for the year attributable to ordinary equity holders of the parent
6
6
$
(0.24)
$
0.16
(0.24)
0.15
* Certain amounts shown here do not correspond to the FY2015 financial statements and reflect adjustments made, refer to Note 2.vi.a.
The Consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.
43 | AUSTAL LIMITED ANNUAL REPORT 2016
Consolidated statement of financial position as at 30 June 2016
SHAREHOLDER INFORMATION
Assets
Current Assets
Cash and cash equivalents
Restricted cash
Trade and other receivables
Inventories
Prepayments
Derivatives
Assets held for sale
Total
Non - Current Assets
Other financial assets
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
Deferred grant income
Income tax payable
Progress payments received in advance
Notes
10
10
14
16
23 & 24
20
23 & 24
18
19
9
17
23 & 24
11
21
13
9
15
2016
’000
2015
’000
$
224,318
$
138,413
-
128,340
108,974
5,408
147
2,908
10,055
104,315
339,703
6,321
106
-
$
470,095
$
598,913
$
7,638
$
3,784
340
490,798
9,296
34,959
9
442,522
9,637
14,089
$
543,031
$
470,041
$
1,013,126
$
1,068,954
$
(229,774)
$
(223,497)
(10,690)
(2,545)
(42,291)
(8,543)
(98)
(12,812)
(21,337)
(144,979)
(33,830)
(3,244)
(7,493)
(26,177)
Total
$
(306,753)
$
(460,557)
Non - Current Liabilities
Derivatives
23 & 24
$
(5,712)
$
(14,737)
Interest-bearing loans and borrowings
Provisions
Deferred grant income
Deferred tax liabilities
11
21
13
9
(170,066)
(1,052)
(71,991)
-
(7,658)
(1,139)
(63,722)
(8,742)
$
(248,821)
$
(95,998)
$
(555,574)
$
(556,555)
$
457,552
$
512,399
Total
Total Liabilities
Net Assets
Equity
Contributed equity
Reserves
Retained earnings
12
$
114,738
$
112,523
100,672
242,142
55,846
343,798
Equity attributable to owners of the parent
$
457,552
$
512,167
Non - controlling interests
$
-
$
232
Total Equity
$
457,552
$
512,399
The Consolidated statement of financial position should be read in conjunction with the accompanying notes.
44 | AUSTAL LIMITED ANNUAL REPORT 2016
Consolidated statement of changes in equity for the year ended 30 June 2016
SHAREHOLDER INFORMATION
Foreign
Currency
Employee
Cash flow
Common
Asset
Issued
Capital
’000
Reserved
Shares 1
Retained
Translation
Benefits
Hedge
Control
Revaluation
Earnings
Reserve
Reserve
Reserve
Reserve
Reserve
’000
’000
’000
’000
’000
’000
’000
Non
Controlling
Interest
’000
Total
Equity
’000
Total
’000
Equity at 1 July 2014
$
121,210
$
(9,612)
$
294,041
$
7,605
$
5,086
$
8,769
$
(15,925)
$
21,757
$
432,931
$
301
$
433,232
Comprehensive Income
Profit for the year
$
-
$
-
$
53,225
$
-
$
-
$
-
$
-
$
-
$
53,225
$
(69)
$
53,156
Other Comprehensive Income
-
-
-
56,071
-
(28,447)
-
-
27,624
-
27,624
Total
$
-
$
-
$
53,225
$
56,071
$
-
$
(28,447)
$
-
$
-
$
80,849
$
(69)
$
80,780
Other equity transactions
Shares issued
Dividends declared
Share based payments expense
$
543
$
382
$
-
$
-
$
(443)
$
-
$
-
$
-
$
482
$
-
$
482
-
-
-
-
(3,468)
-
-
-
-
1,373
-
-
-
-
-
-
$
(3,468)
$
-
$
(3,468)
1,373
-
1,373
Total
$
543
$
382
$
(3,468)
$
-
$
930
$
-
$
-
$
-
$
(1,613)
$
-
$
(1,613)
Equity at 1 July 2015
$
121,753
$
(9,230)
$
343,798
$
63,676
$
6,016
$
(19,678)
$
(15,925)
$
21,757
$
512,167
$
232
$
512,399
Comprehensive Income
Loss for the year
$
-
$
-
$
(84,281)
$
-
$
-
$
-
$
-
$
-
$
(84,281)
$
99
$
(84,182)
Other Comprehensive Income
-
-
-
14,302
-
12,818
-
18,957
46,077
-
46,077
Total
$
-
$
-
$
(84,281)
$
14,302
$
-
$
12,818
$
-
$
18,957
$
(38,204)
$
99
$
(38,105)
Other equity transactions
Shares issued
Dividends declared
Repayment of shareholder loans
Acquisition of minority stake
Vesting performance rights
Share based payments expense
$
1,608
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
1,608
$
-
$
1,608
-
-
-
378
-
-
229
-
-
-
(17,375)
-
-
-
-
-
-
-
-
-
-
-
-
(378)
796
-
-
-
-
-
-
-
(1,669)
-
-
-
-
-
-
-
(17,375)
229
(1,669)
-
796
-
-
(331)
-
-
(17,375)
229
(2,000)
-
796
Total
$
1,986
$
229
$
(17,375)
$
-
$
418
$
-
$
(1,669)
$
-
$
(16,411)
$
(331)
$
(16,742)
Equity at 30 June 2016
$
123,739
$
(9,001)
$
242,142
$
77,978
$
6,434
$
(6,860)
$
(17,594)
$
40,714
$
457,552
$
-
$
457,552
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.
.
45 | AUSTAL LIMITED ANNUAL REPORT 2016
Consolidated statement of cash flows for the year ended 30 June 2016
SHAREHOLDER INFORMATION
Cash flows from operating activities
Notes
2016
’000
2015
’000
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Income tax refunded / (paid)
Net cash from / (used in) operating activities
$
1,536,356
$
1,420,738
(1,425,455)
(1,287,677)
1,106
(5,098)
(4,843)
882
(4,992)
(18,517)
$
102,066
$
110,434
4
5
7
Cash flows from investing activities
Receipts of infrastructure government grants
$
14,463
$
4,986
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Purchase of intangible assets
Construction of Cape Class Patrol Boats 9 & 10
Construction of vessel completion yard
2,469
(12,793)
(995)
(18,023)
(10,098)
2,355
(28,126)
(1,053)
-
-
Net cash from / (used in) investing activities
$
(24,977)
$
(21,838)
Cash flows from financing activities
Repayment of borrowings
Loans received
Dividends paid
$
(11,992)
$
(40,575)
23,046
(15,767)
9,449
(3,468)
Net cash from / (used in) financing activities
$
(4,713)
$
(34,594)
Net increase / (decrease) in cash and cash equivalents
$
72,376
$
54,002
Cash and cash equivalents
Cash and cash equivalents at beginning of year
$
148,468
$
83,960
Net foreign exchange differences
Net increase / (decrease) in cash and cash equivalents
3,474
72,376
10,506
54,002
Cash and cash equivalents at end of year
10
$
224,318
$
148,468
The Consolidated statement of cash flows should be read in conjunction with the accompanying notes.
46 | AUSTAL LIMITED ANNUAL REPORT 2016
Notes to the financial statements
SHAREHOLDER INFORMATION
Basis of preparation
Corporate information
The financial report of the Austal Limited Group of Companies (the Group) for the year ended 30 June 2016
was authorised for issue in accordance with a resolution of the Directors on 27 August 2016.
Austal Limited is a limited liability company incorporated and domiciled in Australia whose shares are
publicly traded on the Australian Securities Exchange.
The principal activities of the Group during the year were the design, manufacture and sustainment of high
performance vessels. These activities are unchanged from the previous year.
Basis of preparation
i.
Introduction
The financial report is a general-purpose financial report, which has been prepared in accordance
with the requirements of the Corporations Act 2001 and Australian Accounting Standards (AASB).
The financial report has also been prepared on a historical cost basis, except for derivative financial
instruments and land and buildings that have been measured at fair value.
The financial report is presented in Australian dollars and all values are rounded to the nearest
thousand dollars ($’000) unless otherwise stated under the option available to the Group under ASIC
Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Company is an
entity to which the Instrument applies.
The financial report presents the figures of the consolidated entity, unless otherwise stated.
Austal Limited is a for profit entity.
ii.
Reporting structure
The notes to the consolidated financial statements have been divided into 8 main sections which are
summarised as follows:
Current year performance
This section focuses on the results and performance of the Group, including profitability, earnings
per share, cash generation, and the return of cash to shareholders via dividends.
Capital structure
This section focuses on the long term funding of the Group including cash, interest bearing loans
and borrowings, contributed equity and reserves and government grants.
Working capital
This section focuses on shorter term working capital concepts such as trade and other receivables
and payables, construction contracts in progress, inventories including work in progress.
47 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Infrastructure & other assets
This section focuses on property, plant & equipment as well as intangible assets of the Group.
Other liabilities
This section focuses on provisions such as employee benefits and future warranty costs.
Financial risk management
This section focuses on the Group’s 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 the Group for the year
ended
30 June 2016.
Subsidiaries are all of those entities over which the Group has power over the entity, exposure or
rights to variable returns from its involvement with the entity and the ability to use its power over
the entity to affect its returns. The existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing whether the 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 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.
48 | AUSTAL LIMITED ANNUAL REPORT 2016
iv.
Foreign currency transactions and translation
SHAREHOLDER INFORMATION
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 closing foreign exchange rate for the reporting date. The statement of
comprehensive income is translated at the average exchange rates for the period. The exchange
differences arising on translation are taken directly to a separate reserve in equity. The deferred
cumulative amount recognised in equity relating to that particular foreign operation is recognised in
the statement of comprehensive income on disposal of a foreign entity.
v.
Statement of compliance
The financial report complies with Australian Accounting Standards and International Financial
Reporting Standards (IFRS), as issued by the International Accounting Standards Board.
vi.
Changes in accounting policies
The accounting policies adopted are consistent with those of the previous financial year except as
follows:
Accounting for research and development tax incentive
The Group changed its accounting policy in relation to research and development (R&D) tax
incentives in excess of the statutory rate. The change in policy has been applied retrospectively in
accordance with Australian Accounting Standards.
R&D tax incentives are accounted under the new policy as a government grant under AASB 120. A
$1.311 million credit was booked to cost of sales in FY2016 because the R&D claim related to the
Royal Navy of Oman program. The Group’s accounting policy for R&D credits to cost of sales is set
out in Note 5.
R&D tax incentives were previously accounted for as an income tax benefit under AASB 112 as a
reduction of the current income tax expense. The new policy results in the financial statements being
both further simplified, and more relevant and no less reliable to the users by matching the benefit
of the credit in excess of the statutory tax rate against the expenditure which initially generated the
offset.
49 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
The impact on the income statement is as follows:
2016
Impact
As reported
2015
Impact
Restated
’000
’000
’000
’000
Reversal of cost of sales / (cost of sales)
$
1,311
$
(1,296,909)
$
470
$
(1,296,439)
Profit before income tax
$
1,311
$
80,693
$
470
$
81,163
Income tax benefit / (expense)
$
(1,311)
$
(27,537)
$
(470)
$
(28,007)
Profit after tax
$
-
$
53,156
$
-
$
53,156
There has been no impact to retained earnings at 30 June 2014, profit after tax or earnings per share
for the years ended 30 June 2015 and 2016, or the consolidated statement of cash flows and
consolidated statement of financial position for the years ended 30 June 2015 and 2016.
New and amended standards adopted by the Group
The Group has applied all new and amended accounting standards and interpretations effective
from 1 July 2015:
Australian Accounting Standards Board (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 2015-3 Amendments to Australian Accounting Standards arising from the Withdrawal of
AASB 1031 Materiality. The Standard completes the AASB’s project to remove Australian
guidance on materiality from Australian Accounting Standards.
The adoption of these standards did not have any effect on the financial position or performance of
the Group.
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] (effective 1 July 2018):
AASB 9 (December 2014) is a new standard which replaces AASB 139. This new 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.
50 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
AASB 9 is effective for annual periods beginning on or after 1 January 2018. 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.
Classification and measurement
AASB 9 includes requirements for a simpler approach for classification and measurement of
financial assets compared with the requirements of AASB 139. There are also some changes made in
relation to financial liabilities.
The main changes are described below.
Financial assets
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.
Financial liabilities
Changes introduced by AASB 9 in respect of financial liabilities are limited to the measurement of
liabilities designated at fair value through profit or loss (FVPL) using the fair value option.
The change in fair value is to be accounted for as follows, where the fair value option is used for
financial liabilities: 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 would be recognised in OCI. These amounts
recognised in OCI are not recycled to profit or loss if the liability is ever repurchased at a discount.
Impairment
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.
Hedge accounting
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.
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.
51 | AUSTAL LIMITED ANNUAL REPORT 2016
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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 International Accounting Standards Board (IASB) has clarified that the use of revenue-based
methods to calculate the depreciation of an asset is not appropriate because revenue generated by
an activity that includes the use of an asset generally reflects factors other than the consumption of
the economic benefits embodied in the asset.
The 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 2018):
AASB 15 Revenue from Contracts with Customers replaces the existing revenue recognition
standards AASB 111 Construction Contracts, AASB 118 Revenue and related Interpretations
(Interpretation 13 Customer Loyalty Programmes, Interpretation 15 Agreements for the Construction
of Real Estate, Interpretation 18 Transfers of Assets from Customers, Interpretation 131 Revenue—
Barter Transactions Involving Advertising Services and Interpretation 1042 Subscriber Acquisition
Costs in the Telecommunications Industry). AASB 15 incorporates the requirements of IFRS 15
Revenue from Contracts with Customers issued by the International Accounting Standards Board
(IASB) and developed jointly with the US Financial Accounting Standards Board (FASB).
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AASB 15 specifies the accounting treatment for revenue arising from contracts with customers
(except for contracts within the scope of other accounting standards such as leases or financial
instruments).The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. An entity recognises
revenue in accordance with that core principle by applying the following steps:
(a) Step 1: Identify the contract(s) with a customer
(b) Step 2: Identify the performance obligations in the contract
(c) Step 3: Determine the transaction price
(d) Step 4: Allocate the transaction price to the performance obligations in the contract
(e) Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
AASB 2015-8 amended the AASB 15 effective date so it is now effective for annual reporting periods
commencing on or after 1 January 2018. Early application 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 2016-3 Amendments to Australian Accounting Standards – Clarifications to AASB 15 amends
AASB 15 to clarify the requirements on identifying performance obligations, principal versus agent
considerations and the timing of recognising revenue from granting a licence and provides further
practical expedients on transition to AASB 15. AASB 2014-5 incorporates the consequential
amendments to a number Australian Accounting Standards (including Interpretations) arising from
the issuance of AASB 15.
AASB 1057 Application of Australian Accounting Standards (effective date 1 July 2016):
This Standard lists the application paragraphs for each other Standard (and Interpretation), grouped
where they are the same. Accordingly, paragraphs 5 and 22 respectively specify the application
paragraphs for Standards and Interpretations in general. Differing application paragraphs are set out
for individual Standards and Interpretations or grouped where possible.
The application paragraphs do not affect requirements in other Standards that specify that certain
paragraphs apply only to certain types of entities.
AASB 2014-9 Amendments to Australian Accounting Standards – Equity Method in Separate
Financial Statements (effective date 1 July 2016):
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.
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AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture (effective date 1 July 2018):
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 2015-10 defers the mandatory effective date (application date) of AASB 2014-10 so that the
amendments are required to be applied for annual reporting periods beginning on or after 1 January
2018 instead of 1 January 2016.
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. It also clarifies that the depth of the market for high quality corporate bonds
should be assessed at the currency level.
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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 July 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 judgement 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
judgement in determining where and in what order information is presented in the financial
disclosures.
AASB 2015-9 Amendments to Australian Accounting Standards – Scope and Application Paragraphs
[AASB 8, AASB 133 & AASB 1057] (effective date 1 July 2016):
This Standard inserts scope paragraphs into AASB 8 and AASB 133 in place of application paragraph
text in AASB 1057. This is to correct inadvertent removal of these paragraphs during editorial
changes made in August 2015. There is no change to the requirements or the applicability of AASB 8
and AASB 133.
AASB 16 Leases (effective date 1 July 2019):
The key features of AASB 16 are as follows:
Lessee accounting
Lessees are required to recognise assets and liabilities for all leases with a term of more than 12
months, unless the underlying asset is of low value.
A lessee measures right-of-use assets similarly to other non-financial assets and lease liabilities
similarly to other financial liabilities.
Assets and liabilities arising from a lease are initially measured on a present value basis. The
measurement includes non-cancellable lease payments (including inflation-linked payments),
and also includes payments to be made in optional periods if the lessee is reasonably certain to
exercise an option to extend the lease, or not to exercise an option to terminate the lease.
AASB 16 contains disclosure requirements for lessees.
Lessor accounting
AASB 16 substantially carries forward the lessor accounting requirements in AASB 117.
Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and
to account for those two types of leases differently.
AASB 16 also requires enhanced disclosures to be provided by lessors that will improve
information disclosed about a lessor’s risk exposure, particularly to residual value risk.
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AASB 16 supersedes:
(a) AASB 117 Leases
(b) Interpretation 4 Determining whether an Arrangement contains a Lease
(c) SIC-15 Operating Leases—Incentives
(d) SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease
The new standard will be effective for annual periods beginning on or after 1 January 2019. Early
application is permitted, provided the new revenue standard, AASB 15 Revenue from Contracts with
Customers, has been applied, or is applied at the same date as AASB 16.
2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for
Unrealised Losses [AASB 112] (effective date 1 July 2019):
This Standard amends AASB 112 Income Taxes (July 2004) and AASB 112 Income Taxes
(August 2015) to clarify the requirements on recognition of deferred tax assets for unrealised losses
on debt instruments measured at fair value.
2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to
AASB 107 (effective date 1 July 2019):
This Standard amends AASB 136 to remove references to depreciated replacement cost as a
measure of value in use for not-for-profit entities and clarify that not-for-profit entities holding non-
cash-generating specialised assets at fair value in accordance with AASB 13 [under the revaluation
model in AASB 116 and AASB 138] no longer need to consider AASB 136.
Not-for-profit entities holding such assets at cost will determine recoverable amounts using current
replacement cost in AASB 13.
IFRS 2 (Amendments) Classification and Measurement of Share-based Payment Transactions
[Amendments to IFRS 2] (effective date 1 July 2018):
This standard amends to IFRS 2 Share-based Payment, clarifying how to account for certain types of
share-based payment transactions. The amendments provide requirements on the accounting for:
The effects of vesting and non-vesting conditions on the measurement of cash-settled share-
based payments
Share-based payment transactions with a net settlement feature for withholding tax obligations
A modification to the terms and conditions of a share-based payment that changes the
classification of the transaction from cash-settled to equity-settled.
56 | AUSTAL LIMITED ANNUAL REPORT 2016
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Current year performance
Operating segments
Australia
’000
USA
’000
Philippines
Unallocated Adjustments
’000
’000
’000
Total
’000
Elimination /
Year ended 30 June 2016
Revenues
External customers
$
173,593
$
1,133,024
$
27,160
$
6,083
$
(996)
$
1,338,864
Inter-segment
Finance income
Total
Profit / (loss) before tax
13,461
-
-
-
6,739
-
-
1,106
(20,200)
-
-
1,106
$
187,054
$
1,133,024
$
33,899
$
7,189
$
(21,196)
$
1,339,970
Earnings before interest and tax
$
6,756
$
(90,457)
$
(3,766)
$
(32,038)
$
(1,360)
$
(120,865)
Finance income
Finance expenses
-
-
-
-
-
-
1,106
(6,605)
-
-
1,106
(6,605)
Profit / (loss) before income tax
$
6,756
$
(90,457)
$
(3,766)
$
(37,537)
$
(1,360)
$
(126,364)
Depreciation and amortisation
$
(878)
$
(24,246)
$
(1,633)
$
(3,142)
$
-
$
(29,899)
Balance sheet
Segment assets
Segment liabilities
Year ended 30 June 2015
Revenues
$
87,054
$
770,286
$
24,509
$
166,286
$
(35,009)
$
1,013,126
(47,738)
(456,563)
(6,599)
(9,781)
(34,893)
(555,574)
Australia
’000
USA
’000
Philippines
Unallocated Adjustments
’000
’000
’000
Elimination /
Total
’000
* Restated
External customers
$
191,373
$
1,119,703
$
30,584
$
72,189
$
157
$
1,414,006
Inter-segment
Finance income
20,435
-
-
-
8,159
-
-
882
(28,594)
-
-
882
Total
$
211,808
$
1,119,703
$
38,743
$
73,071
$
(28,437)
$
1,414,888
Profit / (loss) before tax
Earnings before interest and tax
$
32,149
$
58,524
$
992
$
(4,106)
$
(2,286)
$
85,273
Finance income
Finance expenses
-
-
-
-
-
-
882
(4,992)
-
-
882
(4,992)
Profit / (loss) before income tax
$
32,149
$
58,524
$
992
$
(8,216)
$
(2,286)
$
81,163
Depreciation and amortisation
$
(1,057)
$
(18,692)
$
(1,449)
$
(3,068)
$
-
$
(24,266)
Balance sheet
Segment assets
Segment liabilities
$
130,101
$
816,745
$
42,376
$
108,960
$
(29,228)
$
1,068,954
(78,731)
(437,017)
(21,435)
(58,322)
38,950
(556,555)
Inter-segment revenues, investments, receivables and payables are eliminated on consolidation.
* Certain amounts shown here do not correspond to the FY2015 financial statements and reflect adjustments made, refer to Note 2.vi.a.
57 | AUSTAL LIMITED ANNUAL REPORT 2016
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2016
’000
2015
’000
$
4,425
$
8,606
-
1,658
1,106
61,500
2,083
882
Analysis of Unallocated
Revenue
Support / sustainment
Sale of stock vessel H270
Charter vessel revenue
Finance income
Total
$
7,189
$
73,071
Profit / (loss) before tax
Foreign exchange gains / (losses)
Net profit / (loss) on sale of vessel
Write down of charter vessels
Warranty Provision
Administration expenses
Marketing expenses
Design and Support
Charter vessel profit / (loss)
Finance income
Finance expenses
Total
Segment assets
Cash and restricted cash
Property, plant and equipment
Inventories
Derivatives
Deferred tax assets
Income tax receivable
Assets held for sale
Other
Total
Segment liabilities
Deferred tax liabilities
Income tax payable
Derivatives
Progress payments received in advance
Creditors & provisions
$
923
$
13,461
(208)
(1,630)
(10,966)
(10,489)
(7,009)
(1,550)
(1,109)
1,106
(6,605)
-
-
-
(10,654)
(5,561)
(1,595)
243
882
(4,992)
$
(37,537)
$
(8,216)
$
87,917
$
48,312
38,698
31
13
33,765
945
2,908
2,009
44,057
181
741
14,162
-
-
1,507
$
166,286
$
108,960
$
(27)
$
(8,717)
(1,039)
(4,379)
(62)
(4,274)
(7,493)
(36,074)
-
(6,038)
Total
$
(9,781)
$
(58,322)
58 | AUSTAL LIMITED ANNUAL REPORT 2016
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One customer in the USA segment generated revenue of $1,133.024 million during FY2016 (FY2015:
$1,119.703 million).
Revenue from external customers by geographical
location of customers
North America
Europe
Australia
Middle East
Other
Total
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
2016
$’000
2015
$’000
$
1,155,769
$
1,141,457
66,157
32,431
84,507
-
69,701
112,375
85,251
5,222
$
1,338,864
$
1,414,006
2016
$’000
2015
$’000
$
411,399
$
375,450
22,157
4,430
62,108
22,237
13,296
41,175
$
500,094
$
452,158
$
490,798
$
442,521
9,296
9,637
$
500,094
$
452,158
i.
Identification of reportable segments
The Group is organised into three business segments for management purposes based on the
location of the production facilities, related sales regions and types of activity.
The Chief Executive Officer, who is the Chief Operating Decision Maker (CODM), monitors the
performance of the business segments separately for the purpose of making decisions about the
allocation of resources and assessing performance. Segment performance is evaluated based on
operating profit or loss. Finance costs, finance income and income tax are managed on a Group
basis.
ii.
Reportable segments
The Group’s reportable segments are Australia, USA and Philippines:
Australia
The Australia business manufactures high performance defence vessels for markets worldwide,
excluding the USA and provides training and on-going support and maintenance for high
performance vessels. The segment includes the chartering of a vessel to the US Navy’s Military
Sealift Command, which concluded before the end of the financial year.
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USA
The USA business 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.
v.
Unallocated
The following items and associated assets and liabilities are not allocated to operating segments
because they are not considered to be part of the core operations of any segment:
Cost of Group services
Corporate overheads
Finance revenue and costs
Taxation
Assets held for sale
Commercial vessel charter contracts
Certain property, plant and equipment relating to the parent entity
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2016
’000
2015
’000
$
1,313,465
25,399
1,106
$
1,390,326
23,680
882
$
1,339,970
$
1,414,888
Revenue
Revenue
Vessel construction and support
Charter vessel revenue
Interest income
Total
i.
Recognition and measurement
Revenue is recognised and measured at fair value of the consideration received or receivable to the
extent that it is probable that the economic benefits will flow to the Group and that the revenue can
be measured reliably. The following specific recognition criteria must also be met before revenue is
recognised:
Construction and support contract revenue
Construction and support contract revenue is brought to account based on percentage of completion
which is calculated on actual costs incurred as a proportion of estimated total contract costs.
Contract costs are recognised as an expense as incurred and revenue is recognised only to the
extent of the costs incurred where it is probable that the costs will be recovered and the contract
outcome cannot be measured reliably during the term of the contract.
The estimated total contract costs are determined prior to commencement and re-evaluated every
month thereafter for the purposes of recognising construction contract revenue. Construction
contract revenue is adjusted in the event of a change to the cost of completion during the life of the
contract and revenue is recognised for the remaining life of the contract based upon the adjusted
value.
Charter vessel revenue
Charter revenue is operating rentals received on charter of vessels and is recognised when the
control over the right to revenue is achieved.
Interest income
Revenue is recognised as interest accrues using the effective interest method. This is a method of
calculating the amortised cost of a financial asset and allocating the interest income over the
relevant period using the effective interest rate, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial asset to the net carrying amount of the
financial asset.
ii.
Significant accounting judgements and estimates
Contract revenue and expected construction profits at completion
The assessment of contract revenue in accordance with the Group’s accounting policies requires
certain estimates to be made of total contract revenues, total contract costs and the current
percentage of completion.
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Contract revenue and contract costs are recognised as revenue and expenses respectively by
reference to the stage of completion of the contract activity at the balance sheet date (“percentage-
of-completion method”) when the outcome of a contract can be estimated reliably. Contract revenue
is recognised to the extent of contract costs incurred that are likely to be recoverable when the
outcome of a contract cannot be estimated reliably.
Management has made estimates in this area, which if ultimately inaccurate will impact the level of
revenue recognised in the Consolidated Statement of Comprehensive Income of FY2016 and future
years.
The percentage of completion is calculated on actual project costs to date, divided by the sum of
projected costs to complete the contract. Profit is recognised from commencement of the project.
Certain estimates were made by management with respect to total contract revenues, and total
contract costs, which had a resulting impact on the percentage of completion, in line with the
Group’s accounting policy for contract revenue.
A US$115 million (A$156 million) write back of work in progress (WIP) is included in the FY2016
consolidated statement of profit or loss resulting in a loss before tax for the year. The adjustment
resulted from the completion of a comprehensive review of the estimated cost of construction for
the ~ US$4 billion LCS program (LCS 6 - 26).
The review followed the delivery of LCS 6 & 8 and preliminary results of the first two physical shock
trials of LCS 6. The third and final shock trial was completed post balance date.
The shock trials are a contractual obligation that require LCS to survive the effects of a local
explosive blast. The LCS is the first aluminium trimaran in the world to undergo such an analysis
and test. The test regime qualifies the entire LCS class and no further shock trials are expected for
subsequent vessels.
Initial findings of the shock trials are that the implementation of these design modifications have
been successful, providing Austal with greater certainty about the baseline LCS design and
estimated cost of construction, and how that applies across the LCS program.
The extensive review of the LCS program gained greater clarity on the costs associated with building
to the revised baseline design and to quantify the impact across the life of the LCS program and
concluded the following:
The cost of building the LCS to meet the shock rating standard and US Naval Vessel Rules is
materially more than what was previously estimated.
The cost of modifying vessels and components already constructed to meet the shock standard
and US Naval Vessel Rules is materially more than what was previously estimated;
The cost of modifying vessels and components already built has been exacerbated by the concurrent
construction schedule with 10 LCS of a total of 11 LCS under contract at various stages of
construction since April 2015. Modifications to vessels at an advanced construction phase will be
more expensive and difficult to implement than pre-launch modifications or modifications to vessels
not yet under construction.
All other projects’ revenue and cost estimates at completion were updated with no material impact
to the Group.
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Other Profit and Loss Disclosures
Other income and expenses
Government infrastructure grants
Training reimbursement grants
Gain / (loss) on disposal of property, plant and equipment
Net foreign exchange gains
Sale of scrap materials
Other income
Write down of charter vessels
Write down of other inventory
Total
Finance costs
Interest to unrelated parties
Total
Depreciation and amortisation
Depreciation excluding impairment
Amortisation of Intangible assets
Total
Employee benefits
Wages and salaries
Superannuation
Share based payments expense
Workers’ compensation costs
Annual leave expense
Long service leave expense
Total
2016
’000
2015
’000
$
4,853
$
3,373
5,351
(200)
834
3,558
1,896
(1,903)
(1,100)
7,915
(371)
12,994
5,167
2,426
-
-
$
13,289
$
31,504
$
(6,605)
$
(4,992)
$
(6,605)
$
(4,992)
$
(28,461)
$
(22,736)
(1,438)
(1,530)
$
(29,899)
$
(24,266)
$
(415,183)
$
(337,501)
(4,766)
(796)
(10,450)
(20,062)
(1,265)
(4,822)
(1,373)
(10,085)
(14,553)
(45)
$
(452,522)
$
(368,379)
Employee benefits listed above includes expenses that are disclosed in cost of sales.
Research & development credit recognised in cost of sales
Research & development credit
$
1,311
$
470
Auditor's remuneration
Amounts received or due and receivable by Ernst & Young Australia for:
2016
$
2015
$
An audit or review of the financial report of the entity and any other entity in the Group
$
(297,404)
$
(293,409)
Amounts received or due and receivable by related practices of Ernst & Young for:
An audit or review of the financial report of the entity and any other entities in the Group
$
(892,079)
$
(550,900)
Prior year comparative re-statement of Administration & Marketing expenses
The prior year comparative for Administration expenses has increased by:
The prior year comparative for Marketing expenses has decreased by:
$
-
$
(3,846)
-
3,846
The purpose of the prior year comparative re-statement is to provide more meaningful information by aligning the cost classification with FY2016.
63 | AUSTAL LIMITED ANNUAL REPORT 2016
i.
Recognition & measurement
SHAREHOLDER INFORMATION
The following recognition and measurement criteria must be met before the following specific items
are recognised in profit or loss:
Grants relating to expense items
Grants include US Government infrastructure grants and training reimbursement grants.
Grants are recognised when there is reasonable assurance that the grant will be received and all
attaching conditions will be complied with.
All grants are recognised as income when it relates to an expense item. The grants are recognised
over the periods necessary to match the grant to the costs that it is intended to compensate.
Research and Development (R&D) Tax Credit
R&D tax incentives in excess of the statutory tax rate are accounted for as a government grant under
AASB 120. A $1.311 million credit was booked to cost of sales in FY2016 because the R&D claim
related to the Royal Navy of Oman program.
The excess R&D tax credits are recognised as a reduction to each vessel’s cost estimate at
completion when there is reasonable assurance that the credits will be received and utilised. The
profit recognition process is applied and the credit is recognised to cost of sales in full and revenue
for the project is recognised on a percentage of completion basis.
Finance costs
Finance costs directly attributable to the acquisition, construction or production of a qualifying asset
are capitalised as part of the cost of that asset. There are no qualifying assets in FY2016. 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 scrap materials
Revenue for the sale of scrap is recognised when the significant risks and rewards of ownership of
the materials have passed to the buyer. Risk and rewards of ownership are considered to have
passed to the buyer at the time of delivery of the goods to the customer.
64 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
ii.
Foreign exchange gains and losses included in profit and loss
Foreign exchange gains and losses included in profit and loss comprise:
Fair value adjustments on non-derivative financial assets such as foreign currency denominated
loans.
Foreign currency gains and losses on cash flow hedges that were deemed to be ineffective
during the accounting period.
iii.
Significant accounting judgements and estimates
Research & development tax credits
The Group engages in research and development activities over new vessel designs. Certain
judgements are required in assessing whether the research and development tax offset has been
recognised in accordance with the Group’s accounting policies.
Research and development credits in excess of the statutory tax rate are recognised as a
government grant, to the extent that expenditure is of a kind eligible for the research and
development tax incentive, and the credit is assessed as recoverable. A $1.311 million credit was
booked to cost of sales in FY2016 because the R&D claim related to the Royal Navy of Oman
program.
Management has made judgements regarding which expenditure is classified as eligible for the
credit, including assessing activities to determine whether they are conducted for the purposes of
generating new knowledge, and whose outcome cannot be known or determined in advance.
65 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Earnings per share
Net profit / (loss) after tax
Net profit attributable to ordinary equity holders of the parent from continuing operations
$’000
$
(84,281)
$
53,225
Weighted average number of ordinary shares
Weighted average number of ordinary shares (excluding reserved shares) for basic earnings per share
Number
347,665,088
342,383,958
2016
2015
Effect of dilution
Options
Performance Rights
Weighted average number of ordinary shares (excluding reserved shares) adjusted for the effect of dilution
Earnings per share
Basic earnings per share
Diluted earnings per share
i.
Measurement
Number
Number
Number
-
-
1,339,540
1,831,326
347,665,088
345,554,824
$ / share
$ / share
$
(0.24)
$
0.16
$
(0.24)
$
0.15
Basic earnings per share amounts are calculated by dividing net profit/(loss)for the year attributable
to ordinary equity holders of the parent by the weighted average number of ordinary shares
outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary
equity holders of the parent by the weighted average number of ordinary shares outstanding during
the year plus the weighted average number of ordinary shares that would be issued on the
conversion of all the dilutive potential ordinary shares into ordinary shares.
ii.
Information concerning the classification of securities
Performance rights
Performance rights granted to executives under the Group’s Long Term Incentive Plan are included
in the calculation of diluted earnings per share where the conditions would have been met at
balance sheet date. The rights are not included in the determination of basic earnings per share.
There are 1,665,407 performance rights which are not considered dilutive.
Further information about the performance rights is provided in Note 30.
Options
Austal Limited issued three tranches of options to the sellers of KME Engineering (NT) Pty Ltd &
Hydraulink when they were acquired by Austal Service Darwin Pty Ltd in FY2013. The options are
not included in the determination of basic earnings per share. There are 1,374,196 options which are
not considered dilutive.
Further information about the options is provided in Note 30.
66 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Share rights
Share rights may be provided to the CEO as part of his total fixed remuneration. The share rights are
subject to a 12 month holding period from the date at which the shares are released to the CEO, and
no performance condition exists because it is considered to be part of his base remuneration subject
to shareholder approval at the 2016 Annual General Meeting. The share rights are included in the
calculation of basic earnings per share. 97,360 shares were issued during the year.
Further information about the share rights is provided in Note 30.
Other equity transactions
There have been no transactions involving ordinary shares or potential ordinary shares between the
reporting date and the date of completion of these financial statements.
67 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Reconciliation of net profit after tax to net cash flows from operations
Net (loss) / profit after tax
Adjustments for:
Depreciation and amortisation
Write down of charter vessels
Net (gain) / loss on disposal of property, plant and equipment
Share based payments expense
Net exchange differences
Government infrastructure grants income
2016
’000
2015
’000
$
(84,182)
$
53,156
$
29,899
$
24,266
1,903
200
796
(834)
(4,877)
-
457
1,373
(15,067)
(4,986)
Total
$
27,087
$
6,043
Changes in assets and liabilities:
Increase / (decrease) in provisions for:
Income tax (current and deferred)
Workers’ compensation insurance
Warranty
Employee benefits
Other provisions
(Increase) / decrease in trade & other receivables
(Increase) / decrease in inventories
(Increase) / decrease in prepayments
(Increase) / decrease in other financial assets
Increase / (decrease) in trade and other payables
Increase / (decrease) in progress payments in advance
Increase / (decrease) in derivative assets & liabilities
Increase / (decrease) in government grants
$
(52,370)
$
5,753
515
9,736
4
(1,821)
(26,922)
230,729
913
(3,854)
15,111
(13,365)
(1,799)
2,284
6,225
(1,863)
(1,015)
(3,105)
4,483
(11,561)
(2,224)
-
56,506
(2,885)
(393)
1,314
Total
$
159,161
$
51,235
Net cash (outflow) / inflow from operating activities
$
102,066
$
110,434
68 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Dividends paid and proposed
i.
Dividends on ordinary shares
2016
’000
2015
’000
Dividends paid on Ordinary Shares
Fully franked final dividend for the prior year, 3 cents per share (2015: nil)
$
(10,422)
$
-
Fully franked interim dividend for the current year, 2 cents per share (2015: 1 cent per share)
(6,953)
(3,468)
Dividend declared subsequent to the reporting period end (not recorded as liability)
Fully franked final dividend, 2 cents per share (2015: 3 cents per share)
$
(6,968)
$
(10,422)
ii.
Franking credit balance
2016
’000
2015
’000
Opening Balance
$
5,871
$
933
Franking credits that arose from the payment of income tax instalments during the year
$
12,680
$
6,425
Franking credits distributed
Movement
Closing Balance
(7,447)
(1,487)
$
5,233
$
4,938
$
11,104
$
5,871
69 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Income and other taxes
i.
Income tax expense
Major components of tax (expense) / benefit for the years ended 30 June 2016 and 2015 are:
Consolidated Profit & Loss
Current Income Tax
Current income tax charge
Adjustments in respect of current income tax of the previous year
Total
Deferred Income Tax
Relating to origination and reversal of temporary differences
Adjustments in respect of deferred income tax of the previous year
Total
Total income tax (expense) / benefit
Other Comprehensive Income (OCI)
2016
’000
2015
’000
* Restated
$
(2,987)
$
(22,912)
(765)
3,577
$
(3,752)
$
(19,335)
$
44,861
$
(3,916)
1,073
(4,756)
$
45,934
$
(8,672)
$
42,182
$
(28,007)
Current and deferred income tax related items charged or credited directly to OCI
Current and deferred gains and losses on foreign currency contracts and consolidation adjustments
$
(3,800)
$
12,622
Current gains and losses in FCTR
Deferred gains on revaluation of property, plant and equipment
Total (expense) / benefit charged to OCI
(21)
(10,710)
(1,851)
-
$
(14,531)
$
10,771
A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows:
Accounting profit / (loss) before income tax from continuing operations
$
(126,364)
$
81,163
Income Tax at the Group’s statutory income tax rate of 30% (2015: 30%)
$
37,909
$
(24,349)
Adjustment for USA statutory income tax rate of 36.9% (2015: 36.9%)
$
5,182
$
(2,876)
Other foreign tax rate differences
Philippines, UAE and Trinidad profit / (loss) not assessable
US section 199 domestic manufacturing deduction
Unrealised foreign exchange losses on intercompany loans
Adjustments in respect of current and deferred income tax of the previous year
Non-deductible share based payments expense
Other non-assessable or non-deductible items
126
(847)
-
-
308
(684)
188
(462)
2
351
(83)
(709)
(281)
400
Total Adjustments
$
4,273
$
(3,658)
Income tax (expense) / benefit reported in Consolidated statement of profit or loss
$
42,182
$
(28,007)
Income tax payable
Income tax payable
$
(98)
$
(7,493)
* Certain amounts shown here do not correspond to the FY2015 financial statements and reflect adjustments made, refer to note Note 2.vi.a.
70 | AUSTAL LIMITED ANNUAL REPORT 2016
ii.
Analysis of temporary differences
SHAREHOLDER INFORMATION
Deferred income tax - USA
Deferred tax assets
Trade & other receivables
Payables
Provisions
Deferred grant income
Losses available for offset against future taxable income
Research and development tax credits
Work opportunity tax credits
Charitable donations
Inventories
Deferred gains and losses on foreign currency contracts
Statement of Financial Position
Consolidated Profit & Loss
2016
’000
2015
’000
2016
’000
2015
’000
$
-
$
585
$
1,214
$
-
10,572
4,615
28,925
47,527
-
215
42
72
3,461
7,418
3,317
21,150
-
-
1,558
40
168
-
3,824
385
(1,644)
44,899
-
-
-
(565)
-
(12,393)
(2,568)
(1,264)
(5,655)
(23)
1,410
-
168
-
Total
$
95,429
$
34,236
$
48,113
$
(20,325)
Deferred tax liabilities
Property, plant and equipment
Inventories
Deferred gains and losses on foreign currency contracts
$
(65,897)
$
(42,978)
$
(2,699)
$
2,113
-
(33)
-
-
-
-
276
-
Total
$
(65,930)
$
(42,978)
$
(2,699)
$
2,389
Net deferred tax asset / (liability)
$
29,499
$
(8,742)
$
45,414
$
(17,936)
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
Inventories
Total
Deferred tax liabilities
$
36
$
1,774
$
(1,738)
$
(2,055)
166
6,428
2,100
184
180
320
800
3,918
10,609
358
231
-
(607)
2,510
(6)
(176)
(51)
238
515
(938)
-
(176)
13
11,660
$
9,414
$
17,690
$
170
$
9,019
Property, plant and equipment
$
(3,841)
$
(3,350)
$
542
$
53
Deferred gains and losses on foreign currency contracts
(113)
(251)
(192)
192
Total
$
(3,954)
$
(3,601)
$
350
$
245
Net deferred tax asset / (liability)
$
5,460
$
14,089
$
520
$
9,264
Net deferred tax asset / (liability)
$
34,959
$
5,347
Deferred tax (expense) / benefit
$
45,934
$
(8,672)
71 | AUSTAL LIMITED ANNUAL REPORT 2016
iii.
Recognition and measurement
SHAREHOLDER INFORMATION
Current tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to 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 except:
when the deferred income tax liability arises from the initial recognition of goodwill or of an
asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss; or
when the taxable temporary differences associated with investments in subsidiaries, associates
or interests in joint ventures, and the timing of the reversal of the temporary differences can be
controlled and it is probable that the temporary differences will not reverse in the foreseeable
future.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of
unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be
available against which the deductible temporary differences, and the carry-forward of unused tax
assets and unused tax losses can be utilised except:
when the deferred income tax asset relating to the deductible temporary difference arises from
the initial recognition of an asset or liability in a transaction that is not a business combination
and, at the time of the transaction, affects neither the accounting profit nor taxable profit or
loss; or
when the deductible temporary differences are 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 taxable profits will be available in the foreseeable future.
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.
Deferred tax assets are recognised because management believes it is probable that the Group will
be in a position to generate future profits to utilise the deferred tax asset. An assessment of the
Group’s future profits has been undertaken based on contracted revenue and this supports the
recoverability of the deferred tax asset.
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.
72 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
The agreement provides for the allocation of income tax liabilities between the entities in the event
that the head entity defaults on its tax payment obligations. The possibility of default was assessed
to be remote at the balance date.
The current and deferred tax amounts for the Tax Consolidated Group are allocated amongst the
entities in the Tax Consolidated Group using a stand-alone taxpayer approach whereby each entity
in the Tax Consolidated Group measures its current and deferred taxes as if it had 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 Tax Consolidated Group recognises deferred tax assets arising from unused tax losses of the
Tax Consolidated Group to the extent that it is probable that future taxable profits of the Tax-
Consolidated Group will be available against which the asset can be utilised.
Any subsequent period adjustments to deferred tax assets arising from unused tax losses assumed
from subsidiaries are recognised by the head entity only.
The members of the Tax Consolidated Group have entered into a tax funding arrangement which
sets out the funding obligations of members of the Tax Consolidated Group in respect of tax
amounts. The tax funding arrangements require payments to / from the head entity equal to the
current tax liability (asset) assumed by the head entity and any tax-loss deferred tax asset assumed
by the head entity.
No amounts have been recognised as tax consolidation contribution/distribution adjustments in
preparing the accounts for the parent company for the current year.
v.
Significant accounting judgements and estimates
Deferred tax assets are recognised for deductible temporary differences because 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. 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 given the wide range of international
business relationships and the long-term nature and complexity of existing contractual agreements.
The Group establishes a provision, based on reasonable estimates, for possible consequences of
audits by the tax authorities of the respective countries 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.
73 | AUSTAL LIMITED ANNUAL REPORT 2016
vi.
Other taxes
SHAREHOLDER INFORMATION
Revenues, expenses and assets are recognised net of the amount of Goods Services Tax (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.
74 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Capital structure
Cash and cash equivalents
Current
Cash at bank and in hand
1
Restricted cash
2016
’000
2015
’000
$
224,318
$
138,413
-
10,055
Total Cash per Cash Flow Statement
$
224,318
$
148,468
1. Restricted cash was unutilised Go Zone Bonds that could only be spent on projects specifically identified in the GZB documentation issued to investors. These funds were applied
to the reduction of the GZB debt in FY2016.
i.
Recognition and measurement
Cash and short-term deposits in the statement of financial position comprise cash at bank and in
hand and short-term deposits with an original maturity of three months or less.
Cash and cash equivalents for the purposes of the Consolidated statement of cash flows consists of
cash and cash equivalents as defined above, net of cash held as a guarantee.
75 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Interest bearing loans and borrowings
2016
’000
2015
’000
$
(2,545)
$
(1,791)
-
(143,188)
$
(2,545)
$
(144,979)
$
(8,110)
$
(7,658)
(136,113)
(25,843)
-
-
$
(170,066)
$
(7,658)
$
(172,611)
$
(152,637)
Current
Finance Leases
Go Zone Bonds
Total
Non - Current
Finance Leases
Go Zone Bonds
Vessel finance for Cape Class Patrol Boats 9 & 10
Total
Total
i.
Recognition and measurement
All loans and borrowings are initially recognised at the fair value of the consideration received less
directly attributable transaction costs. Interest bearing loans and borrowings are subsequently
measured at amortised cost using the effective interest method.
Gains and losses are recognised in the statement of comprehensive income when the liabilities are
derecognised.
ii.
Go Zone Bonds
The Gulf Opportunity Zone Bonds (Go Zone Bonds or GZB) are a form of indebtedness that was
authorised by the US Federal Government to incentivise private investment in infrastructure in
geographical areas that were affected by Hurricane Katrina in 2005. Austal qualified to borrow
US$225.000 million with a 30 year maturity to invest in the development of shipbuilding
infrastructure in the USA between FY2008 and FY2013.
GZB bondholders were secured by letters of credit issued by Austal’s former banking syndicate with
a maturity date of 31 December 2015. Austal’s syndicated facility agreement was refinanced during
the period, and replacement letters of credit were issued under the new facility with a maturity date
in October 2018 and therefore the Go Zone Bond debt has been reclassified as a non-current liability.
The average cost of the letters of credit in FY2016 was 1.85%. The Go Zone Bonds are tax-exempt
municipal bonds in the United States and attracted an average coupon rate of 0.12% in FY2016.
Austal has redeemed (repaid) a cumulative amount of ~ US$120 million of GZB funds since inception
and owes US$104.500 million at 30 June 2016 (FY2015: $112.000 million).
iii.
Finance leases
Austal USA entered into Finance leases to fund mobile equipment and a plot of land in Mobile,
Alabama, USA. The leases entered into in late FY2015 have a term of 5 years each, and the following
average interest rates were incurred in FY2016:
mobile equipment 1.75%
land 1.50%
76 | AUSTAL LIMITED ANNUAL REPORT 2016
iv.
Vessel finance for Cape Class Patrol Boats 9 & 10
SHAREHOLDER INFORMATION
Austal has entered into a finance arrangement with National Australia Bank and the Australian
Border Finance for the construction of two more Cape Class Patrol Boats (9 & 10). The arrangement
is such that National Australia Bank finances the construction of the vessels and will lease them to
the Australian Border Force for an initial 3 year term. Whilst extensions or a future sale of the two
vessels is probable the contract contains an option for NAB to sell the vessels back to Austal at an
option price equal to the residual value of $21.843M per vessel at the end of the 3 year term. The
effective interest rate incurred in FY2016 was 3.5%.
v.
Re-financing of Syndicated Facility Agreement
Austal re-financed its Syndicated Facility Agreement for a three year period to October 2018. The
new agreement includes US$104.500 million for letters of credit to secure the Go Zone Bonds and a
A$170.000 million revolving credit facility. The entire revolving credit facility can be used for
contingent non-financial instruments, up to $50.000 million of any unused part of the facility can be
used for cash advances and up to $20.000 million of any unused part of the facility can be used for
contingent financial instruments.
vi.
Banking facilities
Facilities used at reporting date
Finance Leases (1)
Go Zone Bonds (2)
Contingent Instrument Facility (3)
Total
Facilities unused at reporting date
2016
’000
2015
’000
$
(10,655)
(140,373)
(133,602)
$
(9,449)
(145,113)
(79,965)
$
(284,630)
$
(234,527)
Finance Leases (1)
Contingent Instrument & Cash Loan Facility (3&4)
$
-
(36,398)
$
(3,220)
(70,035)
Total
$
(36,398)
$
(73,255)
Total Facilities Available
Finance Leases (1)
Go Zone Bonds (2)
Contingent Instrument & Cash Loan Facility (3&4)
Total
$
(10,655)
(140,373)
(170,000)
$
(12,669)
(145,113)
(150,000)
$
(321,028)
$
(307,782)
1. The Finance leases are used to fund mobile equipment and a plot of land in Austal USA, incurring interest at an average rate of 1.75% and
1.50% respectively. The leases have a term of 5 years each.
2. The Go Zone Bonds of US$104.577 million are variable rate demand bonds that are secured 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 7 October 2018. The Bonds are payable in US
dollars with an average effective interest rate of approximately 0.12% in FY2016.
3. 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).
4. The Cash Loan Facility is a working capital facility that can be used for both cash requirements and additional Contingent Instruments. The
Group has not utilised the Cash Loan Facility during FY2016 and 2015.
vii.
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. The interest rates on Go Zone Bonds are reset on a weekly
basis.
77 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Contributed equity and reserves
Ordinary Shares on Issue
1 July
Shares
’000
2016
2015
2016
2015
346,923,451
346,544,933
$
121,753
$
121,210
Shares issued during the year
1,469,998
378,518
1,986
543
30 June
348,393,449
346,923,451
$
123,739
$
121,753
Reserved Shares
1 July
(4,015,539)
(4,350,601)
$
(9,230)
$
(9,612)
Movement in Reserved Shares 1
-
335,062
229
382
30 June
Net
(4,015,539)
(4,015,539)
$
(9,001)
$
(9,230)
344,377,910
342,907,912
$
114,738
$
112,523
1.
The movement in Reserved Shares relates to the offset to accrued interest on employee shareholder loans in the Austal Group Management Share
Plan (AGMSP) via dividend payments. Refer to Note 30 for further information regarding the AGMSP.
i.
Recognition and measurement
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net of tax, from the proceeds of the new
shares or options.
Ordinary shares have no par value and the company does not have a limited amount of authorised
capital.
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
Reserved shares
Own equity instruments which are issued and held by a trustee under the Austal Group
Management Share Plan are classified as reserved shares and are deducted from equity. No gain or
loss is recognised in the statement of comprehensive income on the purchase, sale, issue or
cancellation of the Group’s own equity instruments.
Refer to Note 30 for more information in relation to the Austal Group Management Share Plan.
78 | AUSTAL LIMITED ANNUAL REPORT 2016
ii. Movements in ordinary share capital
SHAREHOLDER INFORMATION
Ordinary Shares on Issue
1 July
CEO - Mr Andrew Bellamy - fixed share based remuneration
Dividend reinvestment plan
Performance rights exercised
30 June
Shares
2016
2015
346,923,451
346,544,933
-
972,814
497,184
320,236
58,282
-
348,393,449
346,923,451
The movement in ordinary shares during year ended 30 June 2016 is comprised of shares issued as
part of dividends declared and paid during the year, and the exercising of performance rights.
The Group announced a 3 cents per share dividend with an option for dividend reinvestment of
$2.20 per share on 26 August 2015, followed by an interim dividend of 2 cents per share with an
option for dividend reinvestment of $1.47 per share, which was announced on 23 February 2016.
497,184 performance rights relating to the first tranche of the FY2014 Performance Rights vested in
accordance with the rules of the Group’s Long Term Incentive Plan on 8 September 2015.
iii.
Nature & purpose of reserves
Foreign currency translation reserve (FCTR)
The FCTR 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 hedging instruments in cash flow hedges that
are 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.
79 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Government grants relating to assets
Deferred Grant Income
Current
2016
’000
2015
’000
Infrastructure Development
$
(8,543)
$
(3,244)
Total
Non - Current
$
(8,543)
$
(3,244)
Infrastructure Development
$
(71,991)
$
(63,722)
Total
Total
Movements in Grants
Opening Balance
Grants received during the year
Amortised to the profit and loss
Exchange rate adjustment
$
(71,991)
$
(63,722)
$
(80,534)
$
(66,966)
$
(66,966)
$
(53,442)
$
(16,746)
$
(4,986)
4,876
(1,697)
3,673
(12,210)
Closing Balance
$
(80,534)
$
(66,966)
i.
Recognition and measurement
Austal has received grants from various government bodies in the USA to fund the infrastructure
required for the expansion of the Group’s USA operations in Mobile, Alabama.
The fair value of grants related to assets is credited to a deferred income liability account and is
released to profit and loss over the expected useful life of the relevant asset.
The fair value of grants related to expense items is recognised as income over the periods necessary
to match the grants on a systematic basis to the costs that it is intended to compensate.
Government grants are only recognised when received or when there is reasonable assurance that
the grant will be received and all attaching conditions will be complied with.
80 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Working capital
Trade and other receivables
Current
Trade amounts owing by unrelated entities
Allowance for doubtful debts
Total
2016
’000
2015
’000
$
128,505
$
104,404
(165)
(89)
$
128,340
$
104,315
i.
Recognition and measurement
Trade receivables which are within the normal credit terms are recognised and carried at original
invoice amount less an allowance for any uncollectible amounts. An allowance for doubtful debts is
made when there is objective evidence that the Group will not be able to collect the debts. Bad
debts are written off when identified.
ii.
Impaired trade receivables
Individual receivables which are known to be uncollectible are written off by directly reducing the
carrying amount. The other receivables are assessed collectively to determine whether there is
objective evidence that an impairment has been incurred but not yet been identified. The estimated
impairment losses for these receivables are recognised in a separate impairment allowance account.
The Group considers that there is evidence of impairment if any of the following indicators are
present:
significant financial difficulties of the debtor
probability that the debtor will enter bankruptcy or financial reorganisation, and
default or delinquency in payments (more than 90 days overdue).
Receivables for which an impairment provision was recognised are written off against the provision
when there is no expectation of recovering additional cash.
Impairment losses are recognised in profit or loss within other expenses. Subsequent recoveries of
amounts previously written off are credited against other expenses.
Refer to Note 23 for an analysis of the Group’s credit risk.
81 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
iii.
Allowance for doubtful debts
Trade receivables of an initial value of $0.165 million (FY2015: $0.089 million) were impaired and
provided for at 30 June 2016. Movements in impairment allowance account are detailed below:
Provision for Doubtful Debts
1 July
Arising during the year
Unused amounts reversed
Movement
30 June
2016
$’000
2015
$’000
$
(89)
$
(89)
$
(110)
$
(60)
34
60
$
(76)
$
-
$
(165)
$
(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
2016
2015
’000
$
122,506
$
3,171
$
1,501
$
1,327
$
(165)
$
128,340
’000
98,971
1,623
177
3,633
(89)
104,315
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.
Any trade and other receivable which is aged greater than 30 days is considered to be overdue.
v.
Fair values of current trade and other receivables
The carrying amount of the receivables is assumed to be the same as their fair value due to their
short term nature.
82 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Vessel construction and support contracts in progress
2016
’000
2015
’000
Work in Progress
Construction and support revenue recognised to date
$
6,983,610
$
5,636,779
less Progress payments received & receivable
(6,876,021)
(5,299,051)
Total due from customers
$
107,589
$
337,728
Progress Payments Received in Advance
Construction and support revenue recognised to date
$
22,572
$
266,437
less Progress payments received & receivable
(35,384)
(292,614)
Total due to customers
$
(12,812)
$
(26,177)
Total due from / (to) customers
$
94,777
$
311,551
i.
Recognition and measurement
Construction and support work in progress is valued at contract revenue recognised to date, less
any provision for anticipated future losses and progress billings. Construction and support profits
are recognised on the percentage of completion basis. Percentage of completion is determined by
reference to actual costs to date as a proportion of estimated total contract costs.
Refer to Note 23 for an analysis of the Group’s credit risk.
ii.
Significant accounting judgements and estimates
Refer to Note 4 for details of estimates made regarding construction and support contracts.
83 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Inventories and work in progress
Current
Work in progress
Other inventory
Total
Notes
2016
’000
2015
’000
15
$
107,589
$
337,728
1,385
1,975
$
108,974
$
339,703
i.
Recognition and measurement
Stock and finished goods are valued at the lower of cost and net realisable value. Cost of stock is
determined on the weighted average cost basis.
No inventories are expected to be realised more than 12 months after balance sheet date.
84 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Trade and other payables
2016
’000
2015
’000
Current
Trade & other payables owed to unrelated entities 1
Total
$
(229,774)
$
(223,497)
$
(229,774)
$
(223,497)
1. Trade payables are unsecured, non-interest bearing and are normally settled on 45 day terms.
i.
Recognition and measurement
Trade payables and other payables are carried at amortised costs and represent liabilities for goods
and services provided to the Group prior to the end of the financial year that are unpaid and arise
when the Group becomes obliged to make future payments in respect of the purchase of these
goods and services.
ii.
Fair value of trade and other payables
The carrying amounts of trade and other payables are assumed to be the same as their fair values,
due to their short-term nature.
85 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Infrastructure & other assets
Property, plant and equipment
i.
Net carrying amount
Freehold
Land &
Leasehold
Plant &
Capital
Buildings
Improvements Equipment
’000
’000
’000
WIP
’000
Total
’000
Balance 30 June 2015
Gross carrying amount at fair value
Gross carrying amount at cost
Accumulated Depreciation & Impairment
$
382,078
$
-
$
-
$
-
$
382,078
-
21,822
154,646
11,704
(43,225)
(2,040)
(82,462)
-
188,172
(127,727)
Net Carrying Amount
$
338,853
$
19,782
$
72,184
$
11,704
$
442,523
Balance 30 June 2016
Gross carrying amount at fair Value
Gross carrying amount at cost
Accumulated Depreciation & Impairment
$
396,169
$
-
$
-
$
-
$
396,169
-
(7,733)
23,582
158,659
18,066
(3,113)
(94,832)
-
200,307
(105,678)
Net Carrying Amount
$
388,436
$
20,469
$
63,827
$
18,066
$
490,798
ii.
Reconciliation of movement for the year
Balance 1 July 2014
Additions
Transfer in / (out)
Disposals
Depreciation charge for the year
Exchange Adjustment
Total
Balance 1 July 2015
Additions
Transfer in / (out)
Transfer to Assets Held for Sale
Disposals
Depreciation charge for the year
Impairment
Revaluation
Exchange Adjustment
Total
Freehold
Land &
Leasehold
Plant &
Capital
Buildings
Improvements Equipment
’000
’000
’000
WIP
’000
Total
’000
$
289,553
$
14,266
$
61,859
$
822
$
366,500
$
3,776
$
2,124
$
11,872
$
10,355
$
28,126
(1,154)
(2,139)
(8,740)
57,557
-
-
2,118
(658)
(725)
(13,271)
(964)
(15)
-
4,117
10,264
1,506
-
(2,812)
(22,736)
73,444
$
49,300
$
5,516
$
10,325
$
10,882
$
76,021
$
338,853
$
19,782
$
72,184
$
11,704
$
442,523
$
910
$
1,022
$
13,400
$
28,815
$
44,147
23,166
-
-
(12,302)
-
29,667
8,142
242
(23,408)
-
-
-
(2,908)
(3,598)
(924)
(15,235)
-
-
589
(1,903)
-
1,645
-
-
-
-
-
955
-
(2,908)
(3,598)
(28,461)
(1,903)
29,667
11,331
$
49,583
$
687
$
(8,357)
$
6,362
$
48,275
Balance 30 June 2016
$
388,436
$
20,469
$
63,827
$
18,066
$
490,798
86 | AUSTAL LIMITED ANNUAL REPORT 2016
iii.
Recognition and measurement
SHAREHOLDER INFORMATION
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 on a regular
basis to ensure that the fair value of a revalued asset does not differ materially from its carrying
value.
The carrying amount would be as detailed in the table below, if land and buildings were measured
using the cost model.
Land & Buildings valued using cost model
Cost
Accumulated Depreciation & Impairment
Net Carrying Amount
2016
’000
2015
’000
$
391,399
$
379,023
(69,169)
(57,933)
$
322,229
$
321,090
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.
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.
v.
Key judgements and accounting estimates
Impairment of non-financial assets
The Group assesses whether there is an indication that an asset may be impaired at each reporting
date. 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. Refer to Note 19 ii. for impairment testing of goodwill and non-
current assets.
The carrying values of plant and equipment are reviewed for impairment at each reporting date, with
the recoverable amount being estimated when events or changes in circumstances indicate the
carrying value of the asset may be impaired.
87 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
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.
The recoverable amount for an asset that does not generate largely independent cash inflows 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.
The key assumptions used to determine the recoverable amount for cash-generating units (CGU) are
disclosed and further explained in Note 19.
Estimation of useful lives of assets
The estimation of the useful lives of assets has been based on historical experience and the
condition of the assets is assessed at least once per year and considered against the remaining
useful life. Adjustments to useful life are made when considered necessary.
Depreciation 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 – 20 to 40 years
Plant and equipment – 2 to 10 years
Leasehold improvements – 25 years
The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted at the
end of each financial year if appropriate.
Revaluation of land and buildings
Australia
’000
USA
’000
Total
’000
Asset revaluation reserve at 30 June 2015
$
8,246
$
13,511
$
21,757
Revaluations during period
Tax-effect on revaluation
$
3,443
$
26,224
$
29,667
(1,033)
(9,677)
(10,710)
Movement in OCI
$
2,410
$
16,547
$
18,957
Asset revaluation reserve at 30 June 2016
$
10,656
$
30,058
$
40,714
88 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
The following revaluations occurred during the year ended 30 June 2016:
Australian assets were revalued upwards by $3.443 million, resulting in a net increase in the
reserve of $2.410 million; and
USA assets were revalued upwards by $26.224 million, resulting in a net increase in the reserve
of $16.547 million.
The revaluations were performed by independent valuers, with valuation dates of 31 December
2015. The valuation methodology utilised a market comparison approach based on highest and best
use, which is consistent with the Group’s current use of the assets. This valuation method is
classified as level 3, under the fair value hierarchy.
Further information about the valuation of land and buildings is provided in Note 22.
89 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Intangible assets
Balance 1 July 2014
Additions
Amortisation for the year
Exchange Adjustment
Total
Balance 30 June 2015
Balance 1 July 2015
Additions
Amortisation for the year
Exchange Adjustment
Total
Balance 30 June 2016
Computer
Software
Goodwill
’000
’000
Total
’000
$
3,010
$
6,463
$
9,473
$
1,053
$
-
$
1,053
(1,530)
641
-
-
(1,530)
641
$
164
$
-
$
164
$
3,174
$
6,463
$
9,637
$
3,174
$
6,463
$
9,637
$
994
$
-
$
994
(1,438)
103
-
-
(1,438)
103
$
(341)
$
-
$
(341)
$
2,833
$
6,463
$
9,296
Balance 1 July 2015
Cost
Accumulated Amortisation & Impairment
$
15,767
$
6,463
$
22,230
(12,593)
-
(12,593)
Net Carrying Amount
$
3,174
$
6,463
$
9,637
Balance 30 June 2016
Cost
Accumulated Amortisation & Impairment
$
17,233
$
6,463
$
23,696
(14,400)
-
(14,400)
Net Carrying Amount
$
2,833
$
6,463
$
9,296
i.
Recognition and measurement
Intangible assets acquired separately are initially measured at cost and subsequently carried at cost
less any accumulated amortisation and any accumulated impairment losses. Internally generated
intangible assets, excluding capitalised development costs, are not capitalised and expenditure is
charged against profit or loss in the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets
with finite lives are amortised over the useful life and assessed for impairment whenever there is an
indication that the intangible asset may be impaired. The amortisation period and the amortisation
method for an intangible asset with a finite useful life are reviewed at least once per financial year.
Changes in the expected useful life or the expected pattern of consumption of future economic
benefits embodied in the asset are accounted for by changing the amortisation period or method, as
appropriate, which is a change in accounting estimate. The amortisation expense on intangible
assets with finite lives is recognised in the statement of comprehensive income in the expense
category consistent with the function of the intangible asset.
A summary of the policies applied to the Group’s intangible assets is as follows:
90 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Computer software
Computer software is initially measured at cost and amortised on a straight-line basis over the
estimated useful life of each asset. Impairment testing is conducted annually.
Computer software is amortised on a straight-line basis over 2.5 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.
Goodwill is tested annually for impairment regardless of whether impairment triggers are identified.
The Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or
Group of CGU) 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 non-current assets
Non-current assets are reviewed on an annual basis in accordance with the Group’s accounting
policies, to determine whether there is an impairment indicator. An estimate of the recoverable
amount is made where an impairment indicator exists.
Management has identified an impairment trigger, based on the market capitalisation of the Group
being less than the reported net assets.
The recoverable amounts have been assessed at the CGU level. The following CGU have been
identified by management:
Australia
USA
Philippines
Corporate assets have been allocated to CGUs to the extent that they relate to the CGU under
review.
Goodwill acquired through business combinations has been allocated to the Australia segment (refer
to Note 3 for details).
The recoverable amounts for each CGU have been determined based on value in use calculations
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.
91 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
iii.
Significant accounting judgement and estimates
Recoverable amount of the CGU
The following table sets out the key assumptions:
CGU
Australia
USA
Philippines
Growth assumptions
Award of Projected vessels
Award of Projected vessels
Award of Projected vessels
Perpetuity growth rate
Pre-tax discount factor
Inflation on costs
Pre-tax discount factor
0.0%
13.9%
2.0%
0.0%
15.8%
1.5%
0.0%
12.9%
2.5%
Discount rates represent the current market assessment of the risks specific to each CGU, taking into
consideration the time value of money and individual risks of the underlying assets that have not
been incorporated in the cash flow estimates.
The discount rate calculation is based on the specific circumstances of the Group and its operating
segments and is derived from the Group’s weighted average cost of capital (WACC).
Inflation on costs
Estimates are obtained from published indices for the countries from which materials are sourced,
as well as data relating to specific commodities. Forecast figures are used if data is publically
available, otherwise past actual raw material price movements are used as an indicator of future
price movements.
iv.
Sensitivity to changes in assumptions
Any change in the key assumptions used to determine the recoverable amount would result in a
change in the assessed recoverable amount. An impairment of assets may result if the variation in
assumption has a negative impact on the recoverable amount.
The estimated recoverable amounts of each of the CGU are significantly greater than the carrying
value of the assets within the respective CGU. No reasonably foreseeable changes in any of the key
assumptions are likely to result in an impairment loss.
92 | AUSTAL LIMITED ANNUAL REPORT 2016
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Other financial assets
Other financial assets
Collateral 1
Security deposits
2016
’000
2015
’000
$
7,476
$
3,600
162
184
$
7,638
$
3,784
1.
Legal requirement in the USA to provide cash collateral to ensure that workers' compensation claims will be paid if they eventuate.
i.
Recognition and measurement
Collateral in the statement of financial position comprises cash at bank with an original maturity of
twelve months or more.
93 | AUSTAL LIMITED ANNUAL REPORT 2016
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Other liabilities
Provisions
Employee
Workers'
Benefits
Compensation Warranty
’000
’000
’000
Other
’000
Total
’000
Provisions at 30 June 2015
$
(23,189)
$
(3,076)
$
(4,712)
$
(3,992)
$
(34,969)
Arising during the year
$
(73,949)
$
(10,450)
$
(18,798)
$
(59,310)
$
(162,507)
Utilised
Unused amounts reversed
Effects of foreign exchange
72,829
1,579
(463)
9,986
-
(51)
7,538
1,580
4
59,966
1,263
(98)
150,319
4,422
(608)
Movement
$
(4)
$
(515)
$
(9,676)
$
1,821
$
(8,374)
Provisions at 30 June 2016
$
(23,193)
$
(3,591)
$
(14,388)
$
(2,171)
$
(43,343)
Employee
Workers'
Benefits
Compensation Warranty
’000
’000
’000
Other
’000
Total
’000
$
(22,050)
$
(3,076)
$
(4,712)
$
(3,992)
$
(33,830)
(1,139)
-
-
-
(1,139)
$
(23,189)
$
(3,076)
$
(4,712)
$
(3,992)
$
(34,969)
$
(22,141)
$
(3,591)
$
(14,388)
$
(2,171)
$
(42,291)
(1,052)
-
-
-
(1,052)
$
(23,193)
$
(3,591)
$
(14,388)
$
(2,171)
$
(43,343)
2015
Current
Non-Current
Total
2016
Current
Non-Current
Total
i.
Recognition and measurement
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result
of a past event, it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability if
the effect of the time value of money is material.
The increase in the provision due to the passage of time is recognised as a finance cost when
discounting is used.
ii.
Information about individual provisions and significant accounting estimates
Wages, salaries, vested sick leave, work safe bonus and other short term benefits
Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave
expected to be wholly settled within 12 months of the reporting date are recognised in other
payables in respect of employees’ services up to the reporting date. They are measured at the
amounts expected to be paid when the liabilities are settled.
94 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
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 and
annual leave 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 2 cents per
share was issued for the half year 31 December 2015 (FY2015 H1: 1 cent).
A final dividend of 2 cents per share is proposed and not recognised as a liability for the year ended
30 June 2016 (FY2015 final proposed and not recognised: 3 cents).
Warranties
Provision for warranty is made upon delivery of the vessels based on the estimated future costs of
warranty repairs on vessels. The estimated future costs are based on the Group’s history of
warranty claims on similar vessels of currently and known vessels that are in warranty periods.
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.
The ninth Cape Class Patrol Boat (Hull 380) under construction at Austal Australia
95 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Financial risk management
Fair value measurements
i.
Financial assets and financial liabilities
The Group holds the following financial instruments:
Financial Assets
Notes
’000
for hedging
at fair value
amortised
cost
’000
Total
’000
Derivatives used
Assets at
2016
Cash and cash equivalents
Trade & other receivables
Forward exchange contracts
Total
2015
Cash and cash equivalents
Restricted cash
Trade & other receivables
Forward exchange contracts
10
14
23
10
10
14
23
$
-
$
224,318
$
224,318
-
487
128,340
-
128,340
487
$
487
$
352,658
$
353,145
$
-
$
138,413
$
138,413
-
-
115
10,055
104,315
-
10,055
104,315
115
Total
$
115
$
252,783
$
252,898
Financial Liabilities
Derivatives used
Liabilities at
for hedging
at fair value
Notes
’000
amortised
cost
’000
Total
’000
2016
Trade & other payables
Forward exchange contracts
Interest bearing borrowings
Total
2015
Trade & other payables
Forward exchange contracts
Interest bearing borrowings
17
23
11
17
23
11
$
-
$
(229,774)
$
(229,774)
(16,402)
-
-
(172,611)
(16,402)
(172,611)
$
(16,402)
$
(402,385)
$
(418,787)
$
-
$
(223,497)
$
(223,497)
(36,074)
-
-
(152,637)
(36,074)
(152,637)
Total
$
(36,074)
$
(376,134)
$
(412,208)
The Group’s exposure to various risks associated with the financial instruments is discussed in Note
23. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of
each class of financial asset mentioned above.
The fair value of assets and liabilities held at amortised cost is described in the associated note
referenced in the table above.
96 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
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.
Fair value measurement
Balance 30 June 2016
Notes
Level 1
’000
Level 2
’000
Level 3
’000
Total
’000
Financial assets
Derivatives used for hedging
23
$
-
$
487
$
-
$
487
Financial liabilities
Derivatives used for hedging
23
$
-
$
(16,402)
$
-
$
(16,402)
Balance 30 June 2015
Financial assets
Derivatives used for hedging
23
$
-
$
115
$
-
$
115
Financial liabilities
Derivatives used for hedging
23
$
-
$
(36,074)
$
-
$
(36,074)
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 2016 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.
97 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
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
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 non-financial 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.
98 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Balance 30 June 2016
Notes
Level 1
’000
Level 2
’000
Level 3
’000
Total
’000
Land & buildings
18
$
-
$
-
$
388,436
$
388,436
Balance 30 June 2015
Land & buildings
18
$
-
$
-
$
338,853
$
338,853
There were no transfers between any of the levels for recurring fair value measurements during the
year.
Valuation techniques used to determine fair values
The Group engages independent accredited valuation specialists on a periodic basis to determine
the fair values of these assets. The Group reviews market indicators in the interim periods to ensure
that the carrying value of revalued property is not materially different from fair value.
The revaluations were performed by independent valuers, with valuation dates of 31 December
2015. The valuation methodology utilised a market comparison approach for land and property, and
a depreciated replacement cost approach for buildings based on highest and best use, which is
consistent with the Group’s current use of the assets. This valuation method is classified as level 3,
under the fair value hierarchy.
Balance 30 June 2016
Financial assets
Date of
valuation
Level 1
’000
Level 2
’000
Level 3
’000
Total
’000
Land and buildings
31 Dec 2015
$
-
$
-
$
392,419
$
392,419
Total
$
-
$
-
$
392,419
$
392,419
Balance 30 June 2015
Financial assets
Land and buildings
30 Jun 2012
-
-
382,078
382,078
Total
$
-
$
-
$
382,078
$
382,078
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.
99 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Description
Fair value at
30 June 2016
'000
Unobservable
inputs
Range of inputs
(probability-
weighted average)
Relationship of
unobservable inputs
to fair value
Land - Mobile
US$30,700
Selection of land with
similar approximate
utility
US$3.89 - US$4.67
(US$4.25) per ft2
Higher value of similar land
increases estimated fair value
Buildings - Mobile
US$223,491
Cost per square foot
floor area (ft2)
US$100 - $212.36 ($189.58) Higher cost per ft2
per ft2
increases fair value.
Land - Henderson
$
12,250
Selection of land with
similar approximate
utility
$225-275 ($250) per m2
Higher value of similar land
increases estimated fair value
Buildings - Henderson
$
19,206
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
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-generating 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.
100 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Financial risk management
This note explains the Group’s exposure to financial risks and how these risks could affect the Group’s
future financial performance. Current year profit and loss information has been included where relevant to
add further context.
Risk
Exposure arising from
Monitoring
Management
Market risk - interest rate
Long-term borrowings at variable rates
Sensitivity analysis
Market risk - interest rate
Cash
Sensitivity analysis
Market risk - foreign currency
Future commercial transactions,
recognised financial assets and liabilities not
denominated in functional currency
Cash flow forecast,
Sensitivity analysis
Sustainable mix of variable and
fixed rates
Excess cash investment within
high interest deposit accounts
Forward foreign exchange
contracts, Forward currency
options
Monitoring credit allowances
Cash, short term deposits, trade receivables
and derivative financial instruments
Ageing analysis, credit
ratings
Borrowings, trade payables and derivative
financial instruments
Rolling cash flow forecasts
Availability of committed credit
lines and borrowing facilities
Credit risk
Liquidity
Objectives and policy
The objective of the Group’s financial risk management policy is to reduce the impacts of external threats
to the Group, and to afford the opportunity to seek further investments.
Ultimate responsibility for identification and control of financial risks rests with the Board of Directors. The
Board reviews and agrees policies for managing each of the risks identified below, including hedging cover
of foreign currency, credit allowances, and future cash flow forecast projections.
Details of the significant accounting policies and methods adopted, including the criteria for recognition,
the basis of measurement and the basis on which income and expenses are recognised, in respect of each
class of financial asset, financial liabilities and equity instrument are disclosed in the relevant notes to the
financial statements.
Market risk
i.
Capital management
The Group undertakes capital management to ensure that secure and flexible funding resources are
available to meet all operating and capital expenditure requirements.
The Group’s policy is to maintain a strong and flexible capital base to provide investor, creditor and
market confidence to sustain future development of the business. The Group monitors the return on
capital, which the Group defines as total shareholders’ equity attributable to members of Austal
Limited. The Board determines the level of dividends to shareholders.
The Group monitors statement of financial position strength and flexibility using cash flow forecast
analysis and detailed budgeting processes. The gross gearing ratio is monitored and maintained at a
level that does not limit the Group’s growth opportunities and is in line with peers and industry
norms.
There were no changes in the Group’s approach to capital management during the year. Risk
management policies and procedures are established with regular monitoring and reporting.
Neither the Group nor any of its subsidiaries are subject to externally imposed capital requirements,
other than normal banking requirements.
101 | AUSTAL LIMITED ANNUAL REPORT 2016
ii.
Interest rate risk exposure
SHAREHOLDER INFORMATION
Interest rate risk management is undertaken by the Group in order to reduce the potential volatility
towards its financial position due to fluctuations in prevailing market interest rates.
The Group’s exposure to market interest rates relates primarily to the Group’s long-term debt
obligations and investment in cash funds.
The Group constantly analyses its interest rate exposure. Consideration is given to potential
renewals of existing positions and alternative financing structures.
The Group had the following variable rate borrowings outstanding at the end of the reporting period.
Financial Assets
Cash and cash equivalents
Australian variable rate interest
US variable rate interest
Other variable rate interest
Total
Financial Liabilities
Interest bearing loans and borrowings
2016
’000
2015
’000
$
79,165
137,713
7,440
$
54,909
93,559
-
$
224,318
$
148,468
US variable rate interest
$
(151,028)
$
(154,562)
Total
Net Exposure
$
(151,028)
$
(154,562)
$
73,290
$
(6,094)
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 25 basis point movement in interest rates
occurred. 25 basis points was deemed to be a reasonable level of volatility based on FY2016
observations.
Post tax gain / (loss)
AUD
+0.25% (25 basis points)
-0.25% (25 basis points)
USD
+0.25% (25 basis points)
-0.25% (25 basis points)
2016
’000
2015
’000
$
383
$
244
(383)
(244)
$
(83)
$
(451)
83
451
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 exposure is currently immaterial.
102 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
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 USA
operation. These transactions are primarily 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 limits 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 hedges
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.
The Group’s financial assets and liabilities at the end of the reporting period were as follows:
Balance 30 June 2016
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivatives
Total
Financial liabilities
Trade and other payables
Derivatives
Interest bearing borrowings
All values are stated in AUD equivalents
AUD
’000
USD 1
’000
Other
’000
Total
’000
$
79,165
$
137,713
$
7,440
$
224,318
20,553
377
107,674
110
113
-
128,340
487
$
100,095
$
245,497
$
7,553
$
353,145
$
(30,206)
$
(199,537)
$
(31)
$
(229,774)
(6,984)
(24,473)
(9,418)
(148,138)
-
-
(16,402)
(172,611)
Total
$
(61,663)
$
(357,093)
$
(31)
$
(418,787)
Balance 30 June 2015
Financial assets
Cash and cash equivalents
Restricted cash
Trade and other receivables
Derivatives
Total
Financial liabilities
All values are stated in AUD equivalents
AUD
’000
USD 1
’000
Other
’000
Total
’000
$
34,844
$
102,235
$
1,334
$
138,413
-
5,475
115
10,055
98,283
-
-
557
-
10,055
104,315
115
$
40,434
$
210,573
$
1,891
$
252,898
Trade and other payables
$
(23,282)
$
(200,275)
$
60
$
(223,497)
Derivatives
Interest bearing borrowings
(36,074)
520
-
(153,157)
-
-
(36,074)
(152,637)
Total
$
(58,836)
$
(353,432)
$
60
$
(412,208)
1. Spot USD / AUD rate for FY2016 was 0.7450 (FY2015: 0.7673)
103 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Known foreign exchange transaction exposures which result from normal operational business
activities, are hedged utilising financial instruments.
Net profit after tax and equity would have been affected as illustrated 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)
2016
’000
2015
’000
2016
’000
2015
’000
USD / AUD
+10%
-10%
EUR / AUD
+10%
-10%
USD / EUR
+10%
-10%
$
971
$
(854)
$
1,408
$
3,679
(971)
854
(1,639)
(5,011)
$
-
$
1
$
(4,037)
$
868
-
(1)
4,934
(1,061)
$
-
$
-
$
6,193
$
5,420
-
-
(6,193)
(5,420)
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.
The Group’s policy is to negotiate the terms of the hedge derivatives to match the terms of the
hedged item to maximise hedge effectiveness.
Trading is specifically prohibited. The financial impact of the derivative instrument is incorporated
into the cost of goods acquired or the sales proceeds. General hedges are not undertaken.
Foreign currency contracts designated as cash flow hedges to mitigate the movements in foreign
exchange rates are outlined in Note 24.
v.
Credit risk
The Group trades only with recognised, creditworthy third parties. It is the Group’s policy that all
customers who wish to trade on credit terms are subject to credit verification procedures, which are
conducted internally. The Group, while exposed to credit related losses in the event of non-
performance by counterparties to financial instruments, does not expect counterparties to fail to
meet their obligations given their credit ratings.
The Group minimises concentrations of credit risk and the risk of default of counterparties in relation
to cash and cash equivalents and financial instruments by spreading them amongst a number of
financial institutions.
The Group’s policy is 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. The Group’s policy is 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.
104 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
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 and US 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.
The Group’s policy is to continually review the Group’s liquidity position including cash flow
forecasts to determine the forecast liquidity position and maintain appropriate liquidity levels. Austal
finalised a new syndicated banking facility during the financial year. The new SFA matures in
October 2018, and hence all liabilities relating to the SFA agreement have been disclosed as non-
current at the reporting date.
The contractual maturities of financial liabilities, including interest payments are as follows:
Balance 30 June 2016
Derivative financial assets / (liabilities)
Carrying
Amount
’000
Years to maturity
0 - 1
’000
1 - 2
’000
2 - 5
’000
> 5
’000
Contractual
Cash
Flows (ii)
’000
Outflow
Inflow
$
(257,952)
$
(104,852)
$
(153,088)
$
(4,228)
$
-
$
(262,168)
242,817
94,230
148,640
4,034
-
246,904
Net derivative financial assets / (liabilities)
$
(15,135)
$
(10,622)
$
(4,448)
$
(194)
$
-
$
(15,264)
Non Derivative financial liabilities
Trade & other payables
Go Zone Bond facility (i)
Finance lease
Vessel finance for Cape Class Patrol Boats 9 & 10
$
(229,774)
$
(229,774)
$
-
$
-
$
-
$
(229,774)
(136,113)
(10,655)
(25,843)
(4,210)
(2,544)
-
(4,210)
(2,631)
(11,221)
(141,725)
(7,769)
(15,478)
-
(333)
-
(150,145)
(13,277)
(26,699)
Total
$
(402,385)
$
(236,528)
$
(18,062)
$
(164,972)
$
(333)
$
(419,895)
(i) Go Zone Bonds are classified with 2 to 5 years to maturity because the letters of credit securing the bonds mature in October 2018.
(ii) Contractual cash flows include interest
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
Finance lease
Total
$
(223,497)
$
(223,497)
$
-
$
-
$
-
$
(223,497)
(143,188)
(9,449)
(145,525)
(1,785)
-
-
(3,597)
(3,297)
-
-
(145,525)
(8,679)
$
(376,134)
$
(370,807)
$
(3,597)
$
(3,297)
$
-
$
(377,701)
The Group had $36.398 million (FY2015: $50.000 million) of unused credit facilities available for
immediate use at balance date (Note 11) and $224.318 million (FY2015: $138.413 million) in cash and
cash equivalents, which can be used to meet its liquidity needs.
105 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Derivative financial instruments and hedging
The Group is exposed to the risk of adverse movements in the Australian Dollar, US Dollar and Euro
relative to each other arising from receipts from export sales and the purchase of components for
construction.
The Group uses derivative financial instruments such as forward exchange contracts and forward currency
options to hedge its risks associated with foreign currency fluctuations. These contracts are matched to
highly probable receipts and payments and they are timed to mature when the receipts and payments are
scheduled to be received and made.
i.
Recognition and measurement
Derivative financial instruments are stated at fair value on the date on which a derivative contract is
entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when
the fair value is positive and as liabilities when the fair value is negative.
Any gains or losses arising from changes in the fair value of derivatives are taken to the statement of
profit and loss, except for those that qualify as cash flow hedges, which are taken to cash flow hedge
reserve in other comprehensive income.
The fair value of forward currency contracts is calculated by reference to current forward exchange
rates for contracts with similar maturity profiles. Credit risk has been included in foreign currency
contracts.
The Group’s derivatives are categorised in level 2 of the valuation hierarchy, because their fair value
has been calculated using valuation techniques where the inputs that have a significant effect on the
valuation are directly or indirectly based on market observable data.
ii.
Hedge designation
For the purposes of hedge accounting, hedges are classified as:
fair value hedges when they hedge the exposure to changes in the fair value of a recognised
asset or liability or an unrecognised firm commitment other than foreign currency risk; or
cash flow hedges when they hedge exposure to variability in cash flows that is attributable
either to a particular risk associated with a recognised asset or liability or foreign exchange risks
on firm commitments.
The Group formally designates and documents the hedge relationship to which the Group wishes to
apply hedge accounting and the risk management objective and strategy for undertaking the hedge
at the inception of a hedge relationship.
The documentation includes identification of the hedging instrument, the hedged item or
transaction, the nature of the risk being hedged and how the entity will assess the hedging
instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or
cash flows attributable to the hedged risk.
Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash
flows and are assessed on an ongoing basis to determine that they actually have been highly
effective throughout the financial reporting periods for which they were designated.
iii.
Fair value hedge accounting
Fair value hedges are hedges of the Group’s exposure to changes in the fair value of a recognised
asset or liability or an unrecognised firm commitment other than foreign exchange rate risk, or an
identified portion of such an asset, liability or firm commitment that is attributable to a particular risk
and could affect profit or loss. The carrying amount of a hedged item is adjusted for gains and
losses attributable to the risk being hedged, the derivative is remeasured to fair value and gains and
losses from both are taken to the statement of comprehensive income.
106 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold,
terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the Group
revokes the designation. Any adjustment to the carrying amount of a hedged financial instrument
for which the effective interest method is used is amortised to the statement of comprehensive
income. Amortisation may begin as soon as an adjustment exists and shall begin no later than
when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being
hedged.
iv.
Cash flow hedge accounting
Cash flow hedges are hedges of the Group’s exposure to variability in cash flows that is attributable
to a particular risk associated with a recognised asset or liability or a highly probable forecast
transaction and the foreign exchange risks on firm commitments and that could affect profit or loss.
The effective portion of the gain or loss on the hedging instrument is recognised directly in other
comprehensive income, while the ineffective portion is recognised in the profit and loss.
Amounts taken to other comprehensive income are transferred to the profit and loss when the
hedged transaction affects profit or loss, such as when hedged income or expenses are recognised
or when a committed and future sale or the asset is consumed. The amounts taken to equity are
transferred to the initial carrying amount of the non-financial asset or liability when the hedged item
is the cost of a non-financial asset or liability.
Amounts previously recognised in equity are transferred to the profit and loss if the forecast
transaction is no longer expected to occur. Amounts previously recognised in equity will remain in
equity until the forecast transaction occurs if the hedging instrument expires or is sold, terminated or
exercised without replacement or rollover, or if its designation as a hedge is revoked.
v.
Summary of forward foreign exchange contracts
The following table summarises the AUD value of the significant forward foreign exchange
agreements 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.
2016
2015
Average
Forward
Rate
0.8047
0.8214
0.8228
-
-
0.6355
-
-
-
Buy
'000
AUD
$
8,456
24,853
13,832
$
47,141
AUD
$
-
-
69,333
$
69,333
EUR
$
-
-
-
$
-
Average
Forward
Rate
0.7655
0.7246
0.7259
0.5930
0.6271
0.6351
1.1328
1.2789
1.2831
Sell
'000
AUD
$
(261)
(6,070)
(565)
$
(6,896)
AUD
$
(349)
(2,676)
(103)
$
(3,128)
EUR
$
(253)
(50,831)
(67,222)
$
(118,306)
Average
Forward
Rate
0.8398
0.8847
0.8661
0.7343
0.6904
-
-
-
-
Buy
'000
AUD
$
2,843
85,792
29,081
$
117,716
AUD
$
477
445
-
$
922
EUR
$
-
-
-
$
-
Average
Forward
Rate
0.8286
0.7720
0.7644
0.6664
0.6111
0.5933
1.2313
1.3407
1.3772
Sell
'000
AUD
$
(607)
(1,008)
(262)
$
(1,877)
AUD
$
(424)
(10,850)
(5,069)
$
(16,343)
EUR
$
(1,138)
(30,913)
(45,486)
$
(77,537)
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
107 | AUSTAL LIMITED ANNUAL REPORT 2016
vi.
Offsetting financial instruments
SHAREHOLDER INFORMATION
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.
108 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Unrecognised items
Commitments and contingencies
i.
Commitments and contingencies
The Group entities may have potential financial liabilities that could arise from historical commercial
contracts. No material losses are anticipated in respect of any of those contingencies. The fair value
disclosed (if any) is the Directors’ best estimate of amounts that would be payable by the Group to
settle those financial liabilities.
Operating lease commitments
Future minimum rentals payable under non-cancellable leases as at 30 June are as follows
Within one year
After one year but not more than five years
Total
Capital commitments
Mobile Equipment - USA
Total
Guarantees
2016
’000
2015
’000
$
(2,947)
$
(2,153)
(6,291)
(478)
$
(9,238)
$
(2,631)
$
-
$
(2,088)
$
-
$
(2,088)
Bank performance guarantees 1
$
(133,602)
$
(79,965)
1. The bank performance guarantees are secured by a mortgage over the land and buildings and floating charges over cash, receivables, work in progress and plant and
equipment.
ii.
Other contingent liabilities excluded from the above include:
The parent company has guaranteed the performance of certain contract obligations of a subsidiary.
Austal received notice of arbitration proceedings initiated by a commercial customer in FY2013. The
claim is in respect of consequential damages arising from a warranty defect. The company is fully
provided with an estimate for rectifying the warranty defect. The shipbuilding contract between the
parties specifically excludes consequential damages in relation to warranty defects. The company
intends to defend the claim.
Events after the balance date
A fully franked final dividend of 2 cents per share (FY2015 final: 3 cents) has been proposed.
109 | AUSTAL LIMITED ANNUAL REPORT 2016
The Group, management and related parties
SHAREHOLDER INFORMATION
Parent interests in subsidiaries
The consolidated financial statements include the financial statements of Austal Limited and the
subsidiaries listed in the following table.
Company
Austal Ships Pty Ltd
Austal Cyprus Ltd
Austal Egypt LLC
Austal Muscat LLC
Austal Service Pty Ltd
Austal Service Darwin Pty Ltd 1
Hydraulink (NT) Pty Ltd 1
KM Engineering (NT) Pty Ltd 1
Austal Systems Pty Ltd
Austal UK Ltd
Austal Holdings Inc
Austal USA LLC
Austal Hull 130 Chartering LLC
Austal Philippines Pty Ltd
Austal Middle East Pty Ltd
Austal China Holdings Pty Ltd
Austal China Pty Ltd 2
Oceanfast Pty Ltd
Seastate Pty Ltd
1. Refer to Note 28.
Country of
Incorporation
Equity Interest
2016
2015
Australia
Cyprus
Egypt
Oman
Australia
Australia
Australia
Australia
Australia
United Kingdom
USA
USA
USA
Australia
Australia
Australia
Australia
Australia
Australia
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
80%
80%
80%
100%
100%
100%
100%
100%
100%
100%
-
100%
100%
100%
2. This entity was renamed from Oceanfast Luxury Yachts Pty Ltd during the year
Related party disclosure
The Group received notification that the minority shareholders of Austal Service Darwin Pty Ltd were
exercising their option to sell of all their shares to Austal for $2.000 million, in line with the Shareholders’
agreement signed on 3 October 2012. The non-controlling interest ceased to exist from 30 November 2015.
Group policy is that all transactions with related parties are conducted on commercial terms and
conditions.
No related party transactions occurred with the consolidated entity other than the remuneration of
Directors and Key Management Personnel and the matters disclosed in this report.
Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Termination benefits
Long term benefits
Share-based payment
Total
2016
’000
2015
’000
$
3,303
$
3,580
191
839
143
307
196
78
120
460
$
4,783
$
4,434
Detailed remuneration disclosures are provided in the Remuneration Report commencing on page 17.
110 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Share based payments
i.
Long Term Incentive Plan
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 to ensure that executives hold a
stake in the Company and to align their interests with those of shareholders.
The board implemented a number changes in FY2016 after undertaking a review of the LTI plan
during FY2015 that were described in the FY2015 Annual Report. The purpose of the changes 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 the below
sections. The Total Shareholder Return (TSR) measure has been changed from an absolute TSR to
an indexed TSR (iTSR) for the FY2016 grant and all other future awards following market feedback,
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.
Form of incentive
The LTI should be based on Performance Rights that vest based on an assessment of performance
against objectives
Measurement period
The Company instituted a transitional arrangement for the LTI scheme for FY2014 and FY2015 which
was explained in the FY2014 Annual Report.
The standard measurement period from FY2016 onwards is three years, however the Board has the
discretion to modify the duration of the measurement period if it deems an extension to be
appropriate.
Measures of long term performance
The Company uses two long term performance measures:
iTSR which the board believes best reflects internal measures of performance
ROIC which the board believes best reflects external measures of performance
Performance hurdles
The granting of performance rights is tied exclusively to overall Group performance, measured
against ROIC and TSR targets set periodically by the Board. The targets will be based on Group
performance, rather than business unit performance in order to maximise alignment with
shareholder interests; Performance rights will not vest unless these hurdles, are met. Performance
hurdles will be measured over a prescribed period determined by the Board.
The performance hurdles for rights granted in FY2014, FY2015 and FY2016 are as follows:
111 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Return on Invested Capital (ROIC) measure
Senior Executives are faced with significant and long term business development and project based
challenges, therefore the LTI should also be 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 the Board and by major stakeholders.
ROIC is calculated by dividing the Net operating profit after tax exclusive / Net Assets (excluding
cash, debt, derivatives and tax accounts).
Actual ROIC results are compared against internal targets.
The number of performance rights expected to vest is adjusted based on current and future Group
ROIC estimates.
ROIC: 60% of the FY2016 LTI Plan is determined by ROIC
Performance Level
Below Threshold
Threshold
ROIC
<= 8.0%
8%
Between Threshold and Target
8.0% < ROIC < 10.0%
Target
Between Target and Stretch
Stretch
10%
8.0% < ROIC < 10.0%
>= 12.0%
Vesting %
0%
25%
Pro-rata
50%
Pro-rata
100%
Total Shareholder Return (TSR) measure
Indexed Total Shareholder Return (iTSR): 40% of the FY2016 LTI plan performance rights issued are
determined by iTSR. This is calculated by comparing the actual shareholder return of Austal Limited,
measured over the three year measurement period, to the All Ordinaries Accumulation Index
(XAOAI) for the same period to determine the number of performance rights that vest. The fair value
is determined by an external valuer using a Monte Carlo model.
Performance Level
TSR v iTSR
Vesting %
Below Threshold
Threshold
<= 100%
100%
Between Threshold and Target
100% < iTSR < 150%
Target
150%
Between Target and Stretch
More than 150% but less than 200%
Stretch
>= 200%
0%
25%
Pro-rata
50%
Pro-rata
100%
112 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
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
1,566,127 (FY2015: 1,173,455) performance rights were issued during the year.
Balance at start
Rights issued
Grant
of the year
during the year
Exercised
Forfeited
/ Lapsed
Balance at end
of year
Tranche 1
Expiry date
Tranche 2
Expiry date
FY2014
FY2015
FY2016
Total
994,390
1,069,428
-
-
-
1,566,127
(497,184)
(200,777)
-
-
(521,583)
(744,994)
296,429
547,845
821,133
30 Jun 2015
30 Jun 2016
30 Jun 2016
30 Jun 2017
30 Jun 2018
-
2,063,818
1,566,127
(497,184)
(1,467,354)
1,665,407
1. Closing share price at
$2.07
2. Performance rights are issued at a zero exercise price.
The board has the discretion to decide if performance rights will lapse or vest.
113 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
The Group uses the Monte Carlo model to value the performance rights. The following table lists the
inputs to the valuation model used:
Assumptions
FY2016
Tranche A
Tranche B
Tranche C
Monte Carlo simulation method assumptions:
Discount Rate
Share Price Volatility
Grant Date
1.8% p.a.
40% p.a.
1.8% p.a.
40% p.a.
1.9% p.a.
40% p.a.
30 October 2015
13 October 2015
23 September 2015
Expected life of option (years)
3
3
3
The fair values of the rights at grant date were as follows:
Fair value per performance right - TSR
Fair value per performance right - ROIC
Share price at grant date
$1.71
$2.16
$2.28
$1.52
$2.00
$2.11
$1.63
$2.06
$2.18
FY2015
Tranche A
Tranche B
Measurement
Period 1
Measurement
Period 2
Measurement
Period 1
Measurement
Period 2
Monte Carlo simulation method assumptions:
Discount Rate
Share Price Volatility
Grant Date
1.8% p.a.
40% p.a.
1.8% p.a.
40% p.a.
1.8% p.a.
40% p.a.
1.8% p.a.
40% p.a.
30 October 2014
30 October 2014
21 October 2014
21 October 2014
Expected life of option (years)
2
3
2
3
The fair values of the rights at grant date were as follows:
Fair value per performance right - TSR
Fair value per performance right - ROIC
Share price at grant date
$0.86
$1.30
$1.30
$0.90
$1.30
$1.30
$0.77
$1.24
$1.23
$0.81
$1.24
$1.23
The Board has decided to extend the measurement period of performance rights due to vest at 30
June 2016 by one year. The decision was taken due to the trading halt that was initiated on 30 June
2016 pending the release of the FY2016 earnings guidance, and the subsequent reduction in share
price on
4 July 2016 which was outside of the original measurement period. The vesting criteria for the
performance rights have been adjusted pro-rata for the one year extension in the measurement
period. No further extensions to the validity of these rights will be considered.
ii.
Employee Share Option Plan (ESOP)
The ESOP was wound up during the year because:
the measurement period was completed, and
the relevant performance conditions were not met.
Therefore, there are no options under the ESOP that remain exercisable at 30 June 2016.
114 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
iii.
Acquisition of KM Engineering (NT) Pty Ltd & Hydraulink (NT) Pty Ltd Option Plan (KME)
Austal Limited issued three tranches of options to the sellers of KME Engineering (NT) Pty Ltd &
Hydraulink when they were acquired by Austal Service Darwin Pty Ltd in FY2013. The third tranche
did not vest. The remaining two tranches were as follows:
687,098 of zero priced options as part of the equity consideration. The number of options was
adjusted based on EBIT targets for the 3 years post acquisition. The options expire on 5
October 2018.
687,098 options to acquire shares as an executive incentive to the owners who remained
employed on as managers. The number of options was adjusted based on EBIT targets for the
3 years post acquisition. The options expire on 4 March 2019.
The total number of options vested and exercisable is 1,374,196.
iv.
Austal Group Management Share Plans (AGMSP)
The trustee holds a total of 4,015,539 shares at balance date on behalf of the AGMSP plans
represented by:
683,539 shares allocated under Plan 1 and Plan 2 with a weighted average price of $1.33 each,
with no contractual life, and
3,332,333 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 are 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.
115 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
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:
Summary of options granted under AGMSP
Outstanding at the beginning of the year
Exercised during the year
Outstanding at the end of the year
All remaining options were fully vested and exercisable throughout the year
2016
’000
2015
’000
684
-
684
1,019
(335)
684
v.
CEO fixed remuneration share rights issue
The structure of Base Remuneration for the incoming CEO, David Singleton, for the period ended 30
June 2016 is as follows:
Fixed cash remuneration is 70% of Total Fixed Remuneration (TFR)
Fixed share based remuneration equal to 30% of TFR. The number of shares are based on the
volume weighted average closing price of ASB shares in the last 5 trading days of each
month.
Name
Period earned
Measurement
date
Earned
Fair value
per right
Fair value
David Singleton
FY2016
28 Oct 2016
97,360
1.11
$
108,070
30% of the CEO’s fixed remuneration is provided in shares which are subject to a 12 month holding
period from the date at which the shares are released to the CEO and no performance condition
exists because it is considered part of his base remuneration. 97,360 share rights were accounted
for at 30 June 2016. The number of share rights are based upon the volume weighted average
closing price of Austal Limited (ASX Ticker: ASB) shares in the last 5 trading days of each month.
The fair value per share is based on the closing share price for the year. The share rights are subject
to shareholder approval at the 2016 Annual General Meeting (AGM). The AGM is expected to occur
on 28 October 2016.
116 | AUSTAL LIMITED ANNUAL REPORT 2016
vi.
Recognition- equity settled transactions
SHAREHOLDER INFORMATION
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)
The Long Term Incentive Plan (LTI Plan)
CEO shares
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 cost of these equity-settled transactions with employees is recorded by reference to the fair
value at the date at which they are granted. 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.
vii. 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
$
(796)
$
(1,373)
2016
’000
2015
’000
117 | AUSTAL LIMITED ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
Parent entity
Information relating to Austal Limited, the Parent entity, is detailed below:
Balance sheet
Assets
Current
Non - Current
Total
Liabilities
Current
Non - Current
Total
Net Assets
Equity
Contributed equity
Employee benefits reserve
Asset revaluation reserve
Cash flow hedge reserve
Retained earnings
Total
Income
2016
’000
2015
’000
$
80,583
$
108,498
289,944
297,056
$
370,527
$
405,554
$
(7,786)
$
(46,392)
(3,996)
(18,307)
$
(11,782)
$
(64,699)
$
358,745
$
340,855
$
114,738
$
112,523
5,688
10,656
(1,577)
229,241
7,685
8,246
(20,184)
232,585
$
358,746
$
340,855
Net Profit / (Loss) after tax
Total Comprehensive Income
$
14,031
$
2,928
35,048
(25,519)
Austal Limited provides guarantees to its subsidiaries as the parent. Austal Limited provided a parent
guarantee to Austal Philippines at 30 June 2016.
118 | AUSTAL LIMITED ANNUAL REPORT 2016
Directors’ declaration
SHAREHOLDER INFORMATION
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 2016 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 2016.
John Rothwell AO
Chairman
On behalf of the Board.
27 August 2016
Launch of EPF 6 USNS Brunswick at Austal USA, Mobile Alabama
119 | AUSTAL LIMITED ANNUAL REPORT 2016
Independent audit report to the members of Austal Limited
SHAREHOLDER INFORMATION
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
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 2016, 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.
120 | AUSTAL LIMITED ANNUAL REPORT 2016
Opinion
SHAREHOLDER INFORMATION
In our opinion:
1. the financial report of Austal Limited is in accordance with the Corporations Act 2001, including:
a. giving a true and fair view of the consolidated entity's financial position as at 30 June 2016 and of its performance for the year
ended on that date; and
b. complying with Australian Accounting Standards and the Corporations Regulations 2001; and
2. the financial report also complies with International Financial Reporting Standards as disclosed in Note 2.
Report on the remuneration report
We have audited the Remuneration Report included in the directors' report for the year ended 30 June 2016. The directors of the
company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the
Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
Opinion
In our opinion, the Remuneration Report of Austal Limited for the year ended 30 June 2016, complies with section 300A of the
Corporations Act 2001.
This declaration is in respect of Austal Limited and the entities it controlled during the financial period.
Ernst & Young
Robert A Kirkby
Partner
27 August 2016
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
121 | AUSTAL LIMITED ANNUAL REPORT 2016
Shareholder information
SHAREHOLDER INFORMATION
The following information was extracted from the Company’s register at 18 August 2016.
Distribution of shares
1 - 1000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Total
Number of
Number of
% of Total
holders
shares
issued capital
1,785
2,457
1,006
1,071
84
867,052
6,845,468
7,877,724
28,386,312
304,416,893
0.25%
1.96%
2.26%
8.15%
87.38%
6,403
348,393,449
100.00%
Twenty largest shareholders
Rank
Shareholder
Number of
% of Total
shares
issued capital
Substantial
shareholder
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Ltd
Austro Pty Ltd
National Nominees Limited
Onyx (WA) Pty Ltd
Zero Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
Austal Group Management Share Plan Pty Ltd
Mr William Robert Chambers
RBC Investor Services Australia Nominees Pty Limited
Garry Heys & Dorothy Heys
Sandhurst Trustees Ltd
Lavinia Shipping Ltd
Mossisberg Pty Ltd
Mirrabooka Investments Limited
CS Fourth Nominees Pty Limited
Lujeta Pty Ltd
Kenny Nominees (NT) Pty Ltd
ACE Property Holdings Pty Ltd
Yes
Yes
Yes
Yes
Yes
97,805,780
46,810,330
40,773,586
32,500,745
29,369,634
7,317,570
6,184,041
5,911,902
4,016,036
3,600,000
3,164,242
2,844,670
2,326,784
2,120,000
1,922,000
1,500,000
1,374,701
1,300,000
870,783
860,000
28.07%
13.44%
11.70%
9.33%
8.43%
2.10%
1.78%
1.70%
1.15%
1.03%
0.91%
0.82%
0.67%
0.61%
0.55%
0.43%
0.39%
0.37%
0.25%
0.25%
Total
292,572,804
83.98%
Voting rights
All ordinary shares issued by Austal Limited carry one vote per share without restriction.
122 | AUSTAL LIMITED ANNUAL REPORT 2016
Corporate governance statement
SHAREHOLDER INFORMATION
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.
Corporate directory
Directors
Executive Directors
David Singleton
Non-Executive Directors
Giles Everist
Jim McDowell
John Rothwell
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
Share registry
Advanced Share Registry Services
110 Stirling Highway
Nedlands 6009
Western Australia
Telephone: +61 8 9389 8033
High Speed Support Vessel (HSSV) under construction at
Austal Australia
Render of 109 metre vehicle passenger ferry to be
constructed for Mols Linien of Denmark, by Austal
Australia
Austal Philippines shipyard at Balamban, Cebu
123 | AUSTAL LIMITED ANNUAL REPORT 2016