AUSTAL LIMITED
2017
ANNUAL REPORT
HIEF EXECUTIVE OFFICER’S REPORT
Contents
Contents ............................................................................................................................................................................. 1
Index to the notes to the financial statements ................................................................................................................ 2
Chairman’s report ............................................................................................................................................................. 3
Chief Executive Officer’s report ........................................................................................................................................ 6
Review of operations ........................................................................................................................................................ 9
Directors’ report .............................................................................................................................................................. 13
Remuneration report (audited) ....................................................................................................................................... 20
Auditor independence..................................................................................................................................................... 44
Consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2017 ...... 45
Consolidated statement of financial position as at 30 June 2017 ............................................................................... 46
Consolidated statement of changes in equity for the year ended 30 June 2017 ........................................................ 47
Consolidated statement of cash flows for the year ended 30 June 2017 .................................................................... 48
Notes to the financial statements .................................................................................................................................. 49
Directors’ declaration .................................................................................................................................................... 121
Independent audit report to the members of Austal Limited .................................................................................... 122
Shareholder information .............................................................................................................................................. 127
Corporate governance statement ................................................................................................................................ 128
Corporate directory ....................................................................................................................................................... 130
Seaspovill launch at Austal Philippines in Cebu
1 | AUSTAL LIMITED ANNUAL REPORT 2017
HIEF EXECUTIVE OFFICER’S REPORT
Index to the notes to the financial statements
Basis of preparation ........................................................................................................................................................ 49
Current year performance .............................................................................................................................................. 57
Capital structure .............................................................................................................................................................. 75
Working capital ................................................................................................................................................................ 81
Infrastructure & other assets .......................................................................................................................................... 86
Other liabilities ................................................................................................................................................................ 93
Unrecognised items ...................................................................................................................................................... 109
The Group, management and related parties ............................................................................................................. 110
2 | AUSTAL LIMITED ANNUAL REPORT 2017
HIEF EXECUTIVE OFFICER’S REPORT
Chairman’s report
It is my pleasure to present the 2017 Annual
Report to you on behalf of the Board of Austal
Limited.
The 2017 financial year was one of positive
momentum right across the business, with
operational improvements, stronger financial
results, and important strategic milestones
achieved as we look to the longer term.
We saw encouraging signs in the USA that our
single largest contract – the Littoral Combat Ship
(LCS) program – is proceeding broadly to plan
after successful shock trial testing of the vessel
was completed by the US Navy in July 2016.
Meanwhile, our operationally mature
Expeditionary Fast Transport (EPF) program
continued to perform very well.
EPF 4, USNS Fall River was chosen by the
US Navy to lead a goodwill mission to
Myanmar in March 2017.
In Australia, we combined with leading German
ship designer and builder Fassmer to submit a
bid in March 2017 for the Royal Australian
Navy’s new Offshore Patrol Vessel, a circa $3
billion shipbuilding program and sustainment.
We also commenced production of the Pacific
Patrol Boat Replacement vessels (Guardian
class) on schedule. These are critical programs
for our Western Australia operations as they
form the start of the Commonwealth’s new
continuous shipbuilding plan that will underpin
our operations in Henderson for more than a
decade.
3 | AUSTAL LIMITED ANNUAL REPORT 2017
The final shape of the Commonwealth’s plan is
crucial to ensure that Australia possesses a
sovereign shipbuilding capability for decades to
come across design, construction, and ongoing
sustainment of defence vessels. Export aptitude
is integral to leveraging additional export
revenue from this newly-installed sovereign
capability.
It is pleasing that Western Australia was selected
as one of only two states that will form the
centrepiece of the nation’s shipbuilding plan.
This, combined with our ability to deliver
defence programs on time and on budget as
‘The Australian Shipbuilder’, positions Austal
well to win our share of work. The task ahead is
to translate this optimism into contracts.
The other significant leg of our shipbuilding
activities is the high-speed commercial ferry
market, which we reported on last year as
showing signs of revival. This revival appeared
to gather momentum in the year, evidenced by
the award of two new ferry sales and substantial
progress on further vessels likely to be signed in
the near future.
There were a number of commercial and
operational highlights during the year which
include:
$1.309 billion Group Revenue and EBIT of
$45.538 million, which was in line with
guidance provided at the start of FY2017.
The award of LCS 28 from the US Navy in a
contract valued at up to $779 million,
bringing total LCS orders to date to
approximately $7.2 billion and deliveries
out to FY2022.
Award of EPF 11 and EPF 12 from the US
Navy under a contract worth $431 million,
taking total orders for this class of vessel to
approximately $2.7 billion and deliveries
out to FY2020.
Delivery of two vessels to the US Navy –
the USS Gabrielle Giffords (LCS 10) and
USNS Yuma (EPF 8). LCS 12 undertook
acceptance trials and is expected to be
delivered in the first half of FY2018.
HIEF EXECUTIVE OFFICER’S REPORT
Delivery of Cape Inscription and
Cape Fourcroy to the Royal Australian Navy
(Cape Class Patrol Boats 9 and 10). Austal
has now built and delivered 74 patrol
vessels domestically and for five overseas
markets, with a further 19 patrol vessels
under contract.
Delivery of the second 72-metre High Speed
Support Vessel built in Australia for the
Royal Navy of Oman, heralding a new class
of ships for export markets based on the
successful US-built EPF.
Delivery of two crew transfer vessels – the
‘Rashid Behbudov’ to Caspian Marine
Services and the ‘Pacific Kestrel’ to Swire
Pacific Offshore. These vessels were
designed to allow their crew to safely
transfer onto offshore oil and gas platforms
in rough sea conditions using walk to work
capabilities, creating a viable cost effective
alternative to helicopter crew transfer.
Award of a 56 metre high-speed catamaran
passenger ferry from FRS Group of
Germany and the award of a 40 metre high
speed passenger ferry from Blue Sea Jet,
the first ferry contract awarded to Austal’s
shipbuilding joint venture in China.
Award of the Armidale remediation contract
from the Royal Australian Navy. Austal
completed a major overhaul of two ships in
FY2017 under this contract, with further
vessels due for refurbishment in FY2018.
Austal entered into a teaming agreement with
ASC Shipbuilding in June 2017, to offer an
Australian shipbuilding solution to the three
shortlisted international designers in the Royal
Australian Navy’s Future Frigate program. ASC
Shipbuilding and Austal will act as one in
seeking to support the Frigate program, pooling
our complementary strengths, skills and
experience under this agreement.
Financial results
Revenue for the year decreased by 2.2 per
cent from $1,339.970 million in FY2016 to
$1,310.128 million.
FY2017 earnings before interest, tax,
depreciation and amortisation (EBITDA)
was $77.060 million compared to
$(90.966) million in FY2016.
Austal reported a net profit after tax of
$15.350 million in FY2017, compared to a
net loss after tax of $(84.182) million in
FY2016.
4 | AUSTAL LIMITED ANNUAL REPORT 2017
NPAT was suppressed by a high effective
tax rate as a result of double taxation on
inter-company royalties imposed by the
Australian Tax Office and no recognition of
carry forward tax losses from Australia.
This tax treatment is explained in Note 9.
USA operations remained the largest
contributor to revenue and earnings,
delivering $1,172.066 million in revenue
(FY2016: $1,133.024 million) and
$76.061 million EBIT (FY2016: $(90.457)
million EBIT loss).
Australia operations declined in FY2017,
with revenue of $113.744 million
(FY2016: $187.054 million) and an EBIT loss
of $(2.059) million (FY2016: $6.756 million).
Philippines operations reported revenue of
$33.832 million (FY2016: $33.899 million)
and EBIT of $0.330 million
(FY2016: $(3.766) million EBIT loss).
Financial summary
Revenue 1
EBITDA
Depreciation
Amortisation
EBIT
Finance income
Finance cost
2017
’000
2016
’000
$
1,308,603
$
1,338,864
$
77,060
$
(90,966)
$
(30,379)
(1,143)
$
(28,461)
(1,438)
$
45,538
$
(120,865)
$
1,525
(7,198)
1,106
(6,605)
Profit / (loss) before income tax
$
39,865
$
(126,364)
Income tax benefit / (expense)
$
(24,515)
$
42,182
Profit / (loss) after tax
$
15,350
$
(84,182)
% EBIT 2 / Revenue
Basic earnings per share ($ per share)
Net assets
3.5%
0.04
456,914
$
$
(9.0%)
(0.24)
457,552
$
$
1. Revenue from customers only
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.
HIEF EXECUTIVE OFFICER’S REPORT
Board and Executive management
People
I wish to thank and acknowledge our
hardworking employees for their consistent
efforts and ongoing loyalty after a significant
year, with many achievements to be proud of.
Finally, my sincere thanks goes to Austal’s
shareholders for your ongoing support of the
Company.
John Rothwell AO
Chairman
LCS 8 arrives in San Diego after commissioning
Austal undertook an extensive global search for
an additional independent board member during
the year, to strengthen and broaden our
capability. Our objective is to infuse more
advanced technological capability into both our
ships and our shipbuilding operations aimed at
‘smart ship’ control systems and developing the
‘digital shipyard’. Our search for a new Board
member was focused on someone who
understood this world as well as being able to
contribute more broadly.
The Board intends to appoint Sarah Adam
Gedge as an Independent, Non-Executive
Director. Ms Gedge is currently Managing
Director of Avanade, a company dedicated to
solving complex business issues for clients
using the leading technologies of the Microsoft
ecosystem. She has also held senior roles at IBM
and PwC.
The Executive Management team was
strengthened by the addition of Patrick Gregg in
FY2017, who joined as Chief Operating Officer
covering Australia and the Philippines. We also
appointed Rusty Murdaugh as Chief Financial
Officer for Austal USA following an extensive
search.
Collectively the Executive Leadership Team
continues to implement our strategic plan and
deliver against our key operational 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.
5 | AUSTAL LIMITED ANNUAL REPORT 2017
Chief Executive Officer’s report
Austal is the largest aluminium shipbuilder in
the world, with more than 300 ships either
delivered or under construction for
100 customers in 54 countries globally. Austal
is the world leader in large aluminium
catamarans and the only successful builder of
trimarans for the military and commercial
ferry industries.
Austal’s focus on innovation and
manufacturing efficiency has driven the
Company’s success, most aptly characterised
by its expansion from building commercial
vessels in Australia to running two prime
shipbuilding programs for military vessels in
the United States. In fact, Austal is the only
foreign company to deliver prime
shipbuilding contracts to the US Navy since
American independence, in what is arguably
the world’s most demanding market. These
achievements mark out a successful past and
provide a strong foundation for the next
phase of Austal’s development.
Austal is currently undergoing one of its most
strategically active and defining periods in the
Company’s 29 year history. The Australian
government issued tendering documents for
two major shipbuilding programs during the
last year, the Offshore Patrol Vessel (OPV) and
the Future Frigate. These programs will define
the shape of the domestic market and with it,
Austal’s future structure in Australia for
decades to come.
Austal bid for the next award of Littoral
Combat Ships (LCS) from our USA operations
in FY2017, a program which remains our
largest single generator of revenue. Austal
was successful in the first phase of this
through the award of its 14th LCS (LCS 28) in
June 2017, with the strong likelihood of more
to come.
I indicated in the 2016 Annual Report that the
market for new passenger and vehicle ferries
was showing signs of resurgence after several
years in the doldrums in the wake of the
financial crisis. This trend has continued and
we have been making plans and investing in
this part of our business as a result.
We strengthened our determination to retain
Austal’s leading position in fast aluminium
vessels during FY2017, taking the Company’s
already efficient shipyards to a completely
new level through employing more of the
advanced manufacturing techniques that have
6 | AUSTAL LIMITED ANNUAL REPORT 2017
become available or that we have pioneered.
This investment will benefit all of our
shipyard locations and many of our products,
be they military or civil.
We are resolute in remaining the product
leader in trimaran vessels, high speed
catamarans, and on-board systems that
deliver real maintenance, operational, and
fuel efficiency benefits in each vessel we
deliver. The upcoming programs in the US
and Australian navies and the growing fast
ferry markets are the targets for these
investments to ensure that we retain and
develop our leading position and offer
superior products to our customers.
Australia operations
The Australian government has committed
$89 billion to a re-equipment program for the
Royal Australian Navy, which includes new
submarines, frigates, and patrol vessels. The
first program was for the Pacific Patrol Boat
Program, a $305 million contract awarded to
Austal by the Commonwealth of Australia in
May 2016 to design, construct, and sustain
(for an initial seven year period) 19 steel
vessels destined for deployment to 12 Pacific
Island nations for maritime protection. The
contract is significant because it will be the
first major steel navy fleet built by Austal and
as such increases capability and credibility for
the company outside of its core aluminium
construction heritage. The program is on time
and has met all of its key milestone events
thus far, with the first vessel under
construction and heading towards its planned
delivery in October 2018. This program is
strategically important because both the
Offshore Patrol Vessel (OPV) and Future
Frigate programs are steel ships.
Austal teamed with Fassmer GmbH, a world-
class German ship designer and builder –
lodged a bid for the OPV contract in March
2017. The program is to build twelve 80-
metre vessels in a continuous shipbuilding
plan for the next decade and a half,
underpinning operations at our Henderson
shipyard for that entire period. The result of
the OPV Competitive Evaluation Program will
be known by the end of calendar year 2017.
We have also been strategically positioning
Austal to deliver the much larger Future
Frigate program during FY2017. The
Australian Department of Defence (DoD) has
down selected three foreign designs for the
future frigate and is currently undertaking a
tendering process to define which vessel and
which industrial solution for its construction
they wish to pursue. Austal’s unique success
story as an Australian builder and designer of
ships is undisputed, however we do not have
a large steel ship pedigree nor operated in
South Australia, the designated build location
for these vessels.
Consequently, Austal has entered into a
teaming agreement with the Government-
owned shipyard, ASC to develop a compelling
all-Australian option to the Government for
the vessel construction. ASC has recent
practical experience in building the Hobart
class destroyers in Adelaide. We are also
strengthening our steel shipbuilding expertise
through the Pacific Patrol Boat Program. This
approach is being marketed to both the
Department of Defence and the Government
as a locally capable, all-Australian alternative
to a foreign-managed construction.
United States operations
Austal’s US operations remained the biggest
revenue and profit driver for the business in
FY2017 as we continued to deliver on two
significant shipbuilding programs for the US
Navy. Austal has designed and built the most
modern and highly advanced naval shipyard
in America which uses a modular
construction system that incorporates
production flow line techniques, similar in
nature to the modern large aircraft industry.
The primary focus for Austal USA during the
year was on improving operational efficiency,
particularly for our LCS program as we move
down the construction learning curve. Our
ability to achieve this was driven by a US
team of people who embody the culture of
absolute determination. LCS costs to
completion have trended to the budgets we
set following our reset to the program in
FY2016, and our confidence in a successful
outcome has increased. For example, the
operations team reduced labour hours used in
constructing LCS 12 by almost 20% from LCS
6 (4 vessels).
7 | AUSTAL LIMITED ANNUAL REPORT 2017
This was achieved through a relentless
program of maximising the use of the Module
Manufacturing Facility, where efficiency is
naturally high, to reduce work required at the
completion facility or wharf side activity,
where costs are always much higher. The
significantly lower level of vessel
modifications being required by the US Navy
combined with the efficiency gains combined
to deliver positive outcomes in FY2017. We
expect that the LCS program will
progressively mature to the reliable delivery
performance exemplified by the
Expeditionary Fast Transport (EPF) vessel,
which continued to deliver strong financial
performance in the year.
Austal USA has been preparing for the next
stage of its journey in this environment. The
US Navy announced its intention to truncate
the LCS program, potentially in 2019, to
transition the small surface combatant
concept to a frigate – FFG(X) – which is able to
provide lethal support for carrier group
operations. Austal USA undertook funded
design concept work on a modified version of
LCS to meet the conceptual frigate
requirement announced at the Sea Air and
Space Exhibition in Washington during the
second half of FY2017. The US Navy issued a
Request for Information for the FFG(X) to
potential contenders, including Austal, shortly
after the end of FY2017.
Philippines operations
Our aim in the Philippines is to ensure that
our Cebu shipyard develops into the most
cost efficient yard for our commercial
customers, using designs for vessels from our
proven design centre in Henderson, Australia.
We completely re-organised our management
team in Cebu during the year and this has
reaped immediate rewards with the team
successfully delivering two vessels on time
and at better than budget performance. Two
additional vessels are also nearing
completion.
Austal is also completing plans to increase
capacity at the shipyard to cope with an
expected increase in ship orders. This may
include a new construction hall and launch
facility. Our intention is to start construction
of the new facilities in FY2018 if we are
successful in securing new orders which are
currently under negotiation.
Ship support
Outlook
Austal continues to focus on building its
service and support businesses to sustain
vessels, primarily delivered to navies, that will
provide a steady stream of recurring revenue.
Total support revenue grew by 37.7% to
$187.357 millions in FY2017, from activities in
Australia and the USA. The opportunity to
drive activity in post-delivery and in-service
support of these vessels has increased as the
US Navy fleet of LCS grows with the delivery
of each vessel. The recent commencement of
deployment of the ships overseas has
prompted Austal to open a service centre in
Singapore, our first in that country.
Support revenue in Australia in FY2017 was
generated predominantly from a mid-life hull
remediation and configuration changes
program for the Armidale class patrol boats
(ACPB) and planned, in-service maintenance
for the Border Force fleet of Cape class patrol
boats. The ACPB sustainment program was a
significant success story as Austal won it in
competition against an incumbent
Singaporean-based company who had a
positive track record on the vessels. Austal
won this competition on price, in a victory for
Australian excellence, and has delivered the
program to date on time and at the target
margins.
Austal has also expanded its presence in the
north of Australia where many of the Austal-
built Bay, Cape, and Armidale class patrol
boats are based. Austal’s Darwin service
centre was expanded to further strengthen
our capability during the year, while we
opened a vessel sustainment office in Cairns
early in FY2018 which includes significantly
expanded infrastructure that is servicing our
customers’ needs.
Progress on all fronts in FY2017 provides us
with increasing optimism for the future. We
remain acutely aware that new construction
programs must be won and current programs
must be delivered on time and on cost if this
optimism is to crystallise into results for our
shareholders.
The procurement decisions to be made in the
Australian defence sector in the new financial
year will define the nature of Austal’s
operations in Australia for decades to come.
Equally, the new Frigate program in the USA,
offers long term opportunity and business
continuity in a similar way, albeit with an
outcome unlikely before FY2020. In the
meantime, the business must and will
continue to deliver its current order book
efficiently and profitably.
Signature
David Singleton
Managing Director and Chief Executive Officer
EPF 8 USNS Yuma
8 | AUSTAL LIMITED ANNUAL REPORT 2017
EPF 8, USNS Yuma was delivered in April 2017
after successfully completing acceptance trials in
January 2017 and EPF 9, USNS City of Bismarck,
was launched in June 2017. EPF 10 and 11 were
under construction during FY2017.
The EPF program is mature with progressive
improvements in efficiency and profit generation
from each successive vessel that is delivered.
Austal opened a Singapore service centre
during FY2017, providing support to US
Navy operations of LCS & EPF.
LCS 10 USS Gabrielle Giffords was delivered in
December 2016 and seven LCS (12 - 24) were at
various stages of construction in FY2017; LCS 12
is undergoing sea trials and will be delivered in
FY2018 H1, LCS 14 is preparing for sea trials, and
LCS 16 was launched in March 2017. Assembly is
well underway for LCS 18 and LCS 20 whilst
modules for the future LCS 22 and LCS 24 are
under construction in the modular manufacturing
facility (MMF).
Austal continued to profitably expand its LCS and
EPF Sustainment business, within the United
States and elsewhere around the world. Austal
USA opened a service centre in Singapore to
support the forward deployment of US Navy EPF
and LCS vessels.
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
2017
$’000
2016
$’000
$
1,172,066
$
1,133,024
76,061
6.5%
(90,457)
N/A
USA EBIT of $76.061 million was a significant
turnaround after the change of estimate for the
costs to completion of the LCS (6 – 26) program
during FY2016 with shipbuilding margin of 6.80%
positioned towards the upper end of the guidance
range provided in July 2016.
The USA operations had 12 vessels under
construction during the year and delivered two
vessels to the US Navy in FY2017 – one Littoral
Combat Ship (LCS 10) and one Expeditionary Fast
Transport vessel (EPF 8).
The total USA workforce has reduced to
approximately 4,000 as a direct result of driving
greater efficiency on of the two vessel programs
down the learning curve. The entire workforce is
focussed on identifying and exploiting
opportunities for productivity improvements with
results in keeping with internal expectations.
USA bid for 13 additional LCS during FY2017 with
a reset material and labour cost base. Award of all
13 vessels would extend production activities until
2030. LCS 28, the first of the 13 vessels,
was awarded to Austal in June 2017, with the
possibility of a second award (LCS 30) during
FY2018.
The order book was also replenished by the full
contract award of EPF 11 & 12 which extended the
Expeditionary Fast Transport (EPF) program
beyond the original ten vessels.
There was significant progress in both major
programs during the year from a construction
perspective.
9 | AUSTAL LIMITED ANNUAL REPORT 2017
Australia operations
Year ended 30 June
Revenue
EBIT
EBIT Margin
2017
$’000
2016
$’000
$
113,744
$
187,054
(2,059)
N/A
6,756
3.6%
Austal’s Australia operations were impacted by a
forecasted contraction in production activity and
profit generation as a result of three key drivers
which are described in further detail below:
The Pacific Patrol Boat fleet was under design
with construction commencing late in FY2017
A significant research and development
phase for the Mols 109 metre ferry which was
under design with construction commencing
late in FY2017
Construction of Cape Class Patrol Boats 9 &
10 for the Royal Australian Navy (RAN) under
a financing arrangement with the National
Australia Bank (NAB) which resulted in no
profit recognition until a three year charter
commenced late in FY2017.
Profitability in Australia was also significantly
impacted by the recognition of an overall loss of
$(3.974) million including a $(3.233) million loss
provision for the Cape Class Patrol Boat (CCPB) In
Service Support contract that was deemed to be
onerous at the end of the financial year. (Refer
provisions Note 21).
The 19 vessel PPB-R program is the first
multi-vessel steel program Austal has
undertaken and largest ever contract, by
number of vessels.
10 | AUSTAL LIMITED ANNUAL REPORT 2017
Austal received a $65 million order to construct a
further two CCPB (9 & 10) for the Royal Australian
Navy (RAN) in December 2015. Construction of
both vessels commenced during FY2016 and was
completed in late FY2017 with both vessels placed
into service with the RAN. The RAN is chartering
the vessels from the National Australia Bank
under an initial contractual term of three years.
Austal won a $305 million contract to design,
construct and sustain nineteen 40 metre steel
Pacific Patrol Boats (PPB) for the Commonwealth
of Australia (CoA) in May 2016. The CoA is gifting
the vessels to 12 Pacific Island nations.
A detailed PPB design review was completed and
approved by the CoA during FY2017 H2 which
permitted construction to commence.
Austal opened a dedicated facility for the
construction of the steel Pacific Patrol Boats in
March 2017 and a keel laying ceremony was held
for the first vessel after year end in July 2017.
The PPB contract is Austal’s first significant order
for steel vessels which will both enhance and
demonstrate the company’s broader capability
across multiple hull forms and hull materials.
The second of two 72 metre High Speed Support
Vessels (HSSV) for the Royal Navy of Oman, was
delivered in September 2016. Both HSSV are
being sustained by Austal’s Oman service centre
in Muscat.
Construction of a 70 metre fast crew boat for
Caspian Marine Services of Azerbaijan was
completed in September 2016. 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 an
interval from commencement of construction to
launch of just eight months.
Austal successfully applied a ‘hybrid’ construction
strategy, which integrated the Australia and
Philippines shipyards and the company’s global
supply chain.
Austal was awarded a $100 million contract to
design and construct a new 109 metre high speed
aluminium ferry for Mols Linien of Denmark in
June 2016. A significant research & development
program was undertaken to significantly reduce
structural weight and improve fuel efficiency.
The majority of the design was completed during
FY2017 and construction commenced in
April 2017 with the first cutting of aluminium
plate.
Australia was awarded significant remediation
contracts for four Armidale Class Patrol Boats
(ACPB) during FY2017 with two vessels completed
and returned to service with the RAN, one
undertaking seas trials and one still under
remediation at reporting date.
Austal Philippines secured a contract to build two
30 metre ferries new contracts for Philippines
operator 2Go’ in June 2016. Both vessels were
designed, constructed, launched, commissioned
and contractually delivered to the customer in
June 017.
Austal teamed with Fassmer GmbH of Germany
to jointly bid for the RAN Offshore Patrol Vessel
(SEA1180) program, comprising 12 vessels to be
These vessels mark an important milestone as the
first Austal ships to be constructed and delivered
to a customer in the Philippines.
Austal was also awarded a contract to build a
50 metre ferry for Seaspovill of South Korea in
June 2016. The vessel was designed and
constructed during FY2017 with commissioning
and contractual delivery completed after year end
in July 2017.
These three vessels are valued collectively at
approximately $30 million.
The Philippines was awarded a $21 million
contract to build a 56 metre ferry for FRS in
Germany in December 2016.
The design was completed and construction
commenced during FY2017 H2. Delivery is
scheduled for mid 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 crew transfer
vessel for Caspian Marine Services in Azerbaijan.
Safety performance
Safety is and must remain the most important
value for everyone at Austal. To this end, we
continue to develop our ‘Zero Harm' approach to
health and safety, underscoring Austal’s
commitment to customers, employees, regulators
and the communities in which it operates.
Austal USA was awarded their 8th Safety Award
from the Shipbuilders Council of America for
Excellence in Safety in April 2017. Austal USA
also saw a year on year (FY2017 versus FY2016)
reduction of recordable injuries of just over 20%.
Austal USA's safety performance leads the
industry and our current incident rate is less than
half of the industry average.
Mid-life remediation works began on four
Armidale class patrol boats in Western
Australia. Up to three more will be
contracted in FY2018.
built in South Australia and Western Australia.
The bid was submitted in March 2017 and was
under review by the CoA at reporting date. The
CoA has stated that it intends to negotiate and
award a contract by December 2017.
Philippines operations
Year ended 30 June
Revenue
EBIT
EBIT Margin
2017
$’000
2016
$’000
$
33,832
$
33,899
330
1.0%
(3,766)
N/A
Austal Philippines delivered three commercial
vessels during FY2017.
A 57 metre offshore crew transfer vessel was
delivered in FY2017 H1 after commencement in
FY2016.
11 | AUSTAL LIMITED ANNUAL REPORT 2017
Our Zero Harm initiative was reinforced
across operations in Australia with
messages targeted to reduce accidents
and injuries in the workplace.
We manage the risk of safety incidents by
understanding those risks and driving a culture
where safety is a core value. Whilst systems,
procedures and people's behaviours are all
important, it is a focus on building a sustainable
safety culture across the business where every
person looks after their own safety and the safety
of others.
We have seen encouraging signs in our safety
performance indicators over the course of this
year, with trends remaining steady with FY2017
Lost Time Injury Frequency Rate at 1.92 injuries
per million hours worked compared to our FY2016
result of 1.75.
107.0
65.8
60.1
38.9
17.8 14.3 16.0 19.7 21.7
14.1 14.2 11.4
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Medical Treatment Injury Frequency Rate
(Injuries per million hours worked)
6.35
5.38
6.05 5.90
3.92 3.90
2.20 2.30 2.30
2.10
1.75 1.92
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Lost Time Injury Frequency Rate
(Injuries per million hours worked)
12 | AUSTAL LIMITED ANNUAL REPORT 2017
Directors’ report
The Board of Directors of Austal Limited submit their report for the year ended 30 June 2017.
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 strong 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. Jim was Chief Executive
Officer at BAE Systems Australia prior to this, 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. Jim worked for 18 years at aerospace company Bombardier Shorts in
legal, commercial, and marketing positions before commencing at BAE Systems.
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.
13 | AUSTAL LIMITED ANNUAL REPORT 2017
Giles Everist – Independent Director
Giles has a breadth of board and executive experience with a range of industrial 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 and Audit & Risk
Committee Chair in November 2015. Giles holds a mechanical engineering degree
and is a qualified chartered accountant. He was Chairman of ASX listed Decmil Group
Limited between 2011 and 2014 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 during his career with Rio Tinto in the United
Kingdom and Australia, as well as major US design engineering group Fluor
Corporation.
Giles has held a number of other Non-Executive Director and Audit & Risk Committee Chair roles with ASX
listed, private and not for profit organisations, and is currently a Non-Executive Director of Macmahon
Holdings Limited and Norwood Systems.
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.
David was the Chief Executive Officer of Alenia Marconi Systems (AMS) in the
intervening years; a joint venture between BAE Systems and Finmeccanica that had
turnover of circa €1.4 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 (command, control, communications, computers and intelligence), ground and naval radars, naval
command and control training systems and long term naval support.
David started his career with the UK Ministry of Defence with an Honours degree in Mechanical
Engineering from University College London, 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.
14 | AUSTAL LIMITED ANNUAL REPORT 2017
Interests in the shares and options of the company and related corporate bodies
The interests of the Directors in the shares of Austal Limited at the date of this report were as follows:
Director
Ordinary Shares
Number
Share Rights
Performance Rights
John Rothwell
Jim McDowell
Giles Everist
David Singleton
32,807,692
33,751
10,000
28,600
-
-
-
-
-
-
289,100
1,194,121
Principal activities
The principal activities of entities within the consolidated entity during the year were the design,
manufacture and support of high performance vessels. These activities are unchanged from the previous
year.
Results
The net profit after tax of the consolidated entity for the financial year was $15.350 million after income tax
(FY2016: net loss after tax of $84.182 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.
Share price
The closing share price was $1.83 for the year ended 30 June 2017 (Year ended 30 June 2016: $1.21).
Dividends
A dividend of 2 cents per share was paid after the FY2017 H1 results (FY2016 H1: 2 cents per share) and a
further dividend of 2 cents per share has been proposed for FY2017 (FY2016 final: 2 cents per share).
Significant events after the balance date
The Directors have declared a fully franked dividend of 2 cents per share in respect of the year ended
30 June 2017. 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 3 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.
15 | AUSTAL LIMITED ANNUAL REPORT 2017
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 2017.
Share options and performance rights
There were 1,374,196 un-issued ordinary shares under options and 4,543,728 un-vested performance rights
at year end. Refer to Note 30 for further details of the options outstanding. There were no options
exercised during the year. There were 191,740 share rights granted as part of the CEO remuneration during
FY2017.
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 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.
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
Jim McDowell
Giles Everist 1
Nomination & Remuneration
Jim McDowell 1
Giles Everist
John Rothwell
1. Designates the Chairman of the committee
16 | AUSTAL LIMITED ANNUAL REPORT 2017
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
Audit & Risk
Remuneration
Nomination &
Board
Committee
Committee
6
6
6
6
6
4
-
4
4
4 1
3
3
3
3
3 1
Number of meetings held
Number of meetings attended:
John Rothwell
Jim McDowell
Giles Everist
David Singleton
1. Attended as a guest
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.
The new Cairns service centre
opened in July 2017, to provide
local support to the Australian
Border Force and Royal
Australian Navy Cape class fleets
operating across Northern
Australia.
The office is also preparing for
the Cairns based sustainment of
the new Guardian Patrol Boat
fleet (under construction by
Austal), to be gifted by Australia
to 12 Pacific Islands from 2018.
17 | AUSTAL LIMITED ANNUAL REPORT 2017
Message from the Nomination & Remuneration Committee (NRC)
Dear Shareholder,
We are pleased to present Austal’s Remuneration Report for the year ending 30 June 2017.
Austal’s remuneration framework, is designed to create value for all stakeholders, to differentiate rewards
based on the Group and individual performance and to provide competitive rewards that attract, motivate
and retain talented individuals. Similarly, the framework ensures a focus on achieving short term targets
whilst ensuring critical positioning for the longer term success of the Company.
The NRC and Board have been successful in redesigning Austal’s remuneration governance practices over
the past three years. Future modifications are expected to be minor in nature as the NRC ensures the
ongoing relevance and success of the structure that has been implemented.
The NRC will maintain an engagement with Godfrey Remuneration Group (GRG) for FY2018 to ensure that
Austal maintains contemporary remuneration practices that support the strategic objectives of the
business.
New executive appointments
Austal has further strengthened the level of calibre within Executive Management with the appointment of
new Management Personnel (KMP) during the year following the appointment of Mr David Singleton as
Chief Executive Officer in April 2016.
Mr Patrick Gregg was appointed to the role of Chief Operating Officer in February 2017. Mr Patrick Gregg
began his career with BAE Systems in the UK where his final position was Head of Project for the second
of class hunter killer nuclear submarine, HMS Ambush. He left BAE Systems after delivering this project
and joined Network Rail as Route Delivery Director for the Western and Wales region with responsibility
for multi-million pound upgrades in rail infrastructure.
Remuneration outcomes
Austal is committed to having remuneration outcomes that are aligned with performance and the creation
of shareholder value. Specific incentive metrics have been selected to realise the Company’s strategies,
including the focus on becoming Australia’s sovereign ship builder and extension of the US vessel
programs.
Austal finished FY2017 with a strong return to profitability, fundamentally driven by stabilisation of the
LCS program and continued strong profit generation from the EPF program, both in the USA. Total
Shareholder Return for FY2017 was 54.5%.
The estimated vesting of STI and LTI for key management personnel (KMP) for the FY2017 year is:
72% of the maximum achievable STI
Vesting of ~ 217,307 performance rights from the FY2014 and FY2015 LTI Grants which represents
30% of the maximum achievable.
18 | AUSTAL LIMITED ANNUAL REPORT 2017
Changes to remuneration structures
The Nomination and Remuneration Committee has a strong focus on the relationship between business
performance, risk management and remuneration, and regularly reviews the executive remuneration
structure to ensure that it remains appropriate.
Austal’s remuneration strategy is designed to motivate, attract and retain employees to deliver on the
Company’s strategic objectives, both on a short and long term basis. This includes ensuring a higher
proportion is fundamentally aligned to shareholder returns. The strategy drives management
accountability for the achievement of stretch targets for the business.
The Board of Directors has approved a change to the measure of Total Shareholder Return (TSR) for the
FY2018 Long Term Incentive (LTI) Program. The indexed TSR (iTSR) metric will be replaced with relative
TSR (rTSR) for future grants because the Board considers that it represents a more transparent and
stronger basis for measuring and rewarding performance. Further details are provided within the
Remuneration Report.
Conclusion
It is hoped that shareholders will support the Remuneration report at the coming Annual General Meeting
given the significant efforts of the Board to review and improve remuneration practices, to consult with
stakeholders, and having demonstrated the improved alignment of incentives with external assessments of
company performance.
We thank you for your feedback and continued support.
Yours sincerely,
Signature
Jim McDowell
Chairman, Nomination & Remuneration Committee
Austal’s design team has hit a century,
with our 100 th designer joining the
team in May 2017.
Austal now boasts the largest naval
architecture and design team in
Australia.
19 | AUSTAL LIMITED ANNUAL REPORT 2017
Remuneration report (audited)
This Remuneration Report for the year ended 30 June 2017 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.
2.
Persons covered by this report ........................................................................................................................... 21
Remuneration governance framework and strategy ......................................................................................... 22
3.
Executive KMP remuneration policy .................................................................................................................. 24
4.
Non-Executive Director remuneration ................................................................................................................ 31
5.
6.
Remuneration of KMP ......................................................................................................................................... 32
Equity instruments held by KMP ........................................................................................................................ 34
7.
Other related matters ........................................................................................................................................... 42
20 | AUSTAL LIMITED ANNUAL REPORT 2017
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 2017 were:
Executive Director
Mr David Singleton
Chief Executive Officer and Managing Director since 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 Patrick Gregg
Chief Operating Officer Australia and Philippines since February 2017
The following person ceased to be an executive KMP of Austal during FY2017:
Mr Joselito Turano
President Philippines until July 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
21 | AUSTAL LIMITED ANNUAL REPORT 2017
2. Remuneration governance framework and strategy
The following framework and strategy broadly outlines the principles and policies that the Board applies in
overseeing KMP remuneration.
1.
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 (NRC) 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 Short Term Incentive (STI) and Long Term Incentive (LTI)
plans.
The remit of the Nomination & Remuneration Committee also includes succession planning
which was reviewed by the Board again in FY2017.
The Charter specifies that the NRC is to be composed of at least three members with the
majority being independent directors.
2.
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.
3.
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 the ERC. The policy is intended
to ensure independence of advice and ensure that the NRC 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.).
22 | AUSTAL LIMITED ANNUAL REPORT 2017
4.
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.
Certain incentive metrics are utilised on the Remuneration framework to capture the impact of the Group’s strategy.
Our Goal:
Strike the right balance between meeting shareholders' expectations, paying our employees competitively,
and responding appropriately to the regulatory environment.
Our Approach:
Governance
Clearly defined and documented governance procedure
Independent NRC
Independent ERC
Annual assessment of Remuneration Policy
Individual Remuneration
Reward annual performance of Group relative to 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
Individual Remuneration Determination
Total remuneration based approach
Facilitate competitiveness by paying remuneration levels for comparable roles and experience, subject to
performance
Promote meritocracy by recognising individual performance, with an emphasis on contribution, ethics and safety
Equal remuneration opportunity
Remuneration Structure
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
23 | AUSTAL LIMITED ANNUAL REPORT 2017
3. Executive KMP remuneration policy
1.
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.
2.
Base remuneration KMP
i.
Framework
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 this point in the data set.
Total Remuneration Package (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).
ii.
Total Fixed Remuneration (TFR) – CEO effective from February 2016
The CEO’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 (not subject to
performance conditions since it is part of TFR) payable in share rights. The number of
share rights will be based upon the volume weighted average closing price of Austal
Limited 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 would be
paid in share rights for FY2017 and again in FY2018.
24 | AUSTAL LIMITED ANNUAL REPORT 2017
3.
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 business unit, 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 determined after the end of the financial year and the full year
accounts have been approved by the Board.
STI payments are at the full discretion of the Board.
i.
Purpose
The purpose of the STI Plan is to incentivise KMP, Senior Executives and Managers to
deliver and outperform key performance indicators (KPI) and annual business plans that
are challenging but achievable. 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.
ii. Measurement Period
3The 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 Manager and reflect the nature of
their role, whilst creating shared objectives where appropriate.
Weightings are applied to the KPI selected for each participant to reflect the relative
importance of each KPI.
Satisfaction of KPIs performance conditions are assessed qualitatively and quantitatively
against the targets defined at the start of the financial year.
25 | AUSTAL LIMITED ANNUAL REPORT 2017
iv.
FY2017 Key Performance Indicators (KPI)
KPI measures and weightings set for the KMP in FY2017 were as follows:
David Singleton - CEO
Group EBIT1
Group Cashflow1
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
Group EBIT1
Group Cashflow1
Group New Vessel Orders1
Deliver IT strategy including digital shipyard transition
Group Strategy Development & Execution
Implementation of Business Improvement Initiatives
Total
Craig Perciavalle - President USA
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
- Reduce vessel shipbuilding and procurement costs 1
Total
Patrick Gregg - COO Australia & Philippines
Group EBIT1
Group Cashflow1
Group New Vessel Orders1
Implementation of Business Improvement Initiatives
- Phillipines productivity and cost efficiency
- Australia productivity and cost efficiency
- OPV implementation plan
Total
1. Figures not released due to commercial confidentiality.
Weight
30%
10%
20%
20%
20%
100%
Weight
30%
10%
20%
10%
20%
10%
100%
Weight
40%
10%
10%
10%
10%
20%
100%
Weight
30%
10%
20%
40%
100%
26 | AUSTAL LIMITED ANNUAL REPORT 2017
v.
FY 2018 Key Performance Indicators (KPI)
KPI measures and weightings set for the KMP in FY2018 are as follows:
David Singleton - CEO
Group EBIT1
Group Cashflow1
Group New Vessel Orders
- New LCS orders in USA1
Group Strategy Development & Execution
- Down selection for the CoA OPV contract as shipbuilder
- Design compelling frigate solution for USN based on LCS
- Increase value of support activities in USA & Australia defence
Implementation of Business Improvement Initiatives
- Implement AP yard expansion
- Meet 'Advanced Manufacturing' goals in Australia to drive down costs
- LCS to targets or better1
Total
Greg Jason - CFO
Group EBIT1
Group Cashflow1
Group New Vessel Orders1
Deliver IT strategy including digital shipyard transition
Group Strategy Development & Execution
Implementation of Business Improvement Initiatives
Total
Craig Perciavalle - President USA
USA financial performance1
USA Cashflow1
New orders including LCS 30 & EPF 13
Progress LCS conversion to Frigate FFG(x)
Implementation of Business Improvement Initiatives1
- LCS cost and productivity performance
- Safety target for total reportable incidents
- Growth of Sustainment business
Total
Patrick Gregg - COO Australia & Philippines
Group EBIT1
Group Cashflow1
Group New Vessel Orders1
Implementation of Business Improvement Initiatives1
- Philippines productivity and cost efficiency
- Australia productivity and cost efficiency
- OPV implementation upon successful award
- Growth of Sustainment business
Total
1. Figures not released due to commercial confidentiality.
Weight
30%
10%
20%
30%
10%
100%
Weight
30%
10%
20%
10%
20%
10%
100%
Weight
40%
10%
10%
10%
30%
100%
Weight
30%
10%
20%
40%
100%
27 | AUSTAL LIMITED ANNUAL REPORT 2017
vi.
Determination of STI 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. This demonstrates the Board’s commitment to aligning
remuneration with the expectations and experience of shareholders.
vii.
Target and maximum STI award
Target and maximum awards are applied to base remuneration.
FY2017
% of TFR
FY2018
% of TFR
Position
Incumbent
Target
Maximum
Estimated
Target
Maximum
Chief Executive Officer
Mr David Singleton
Chief Financial Officer
Mr Greg Jason
President USA
Chief Operating Officer
President Philippines
Mr Craig Perciavalle
Mr Patrick Gregg
Mr Joselito Turano 1
50%
30%
25%
20%
-
100%
60%
50%
40%
-
80%
48%
33%
13%
-
50%
30%
25%
30%
-
100%
60%
50%
60%
-
1. Mr Joselito Turano forfeited his STI upon resignation on 13 July 2016
4.
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, payable in equity in the Company and based on an assessment of
long term performance over not less than three years.
The board implemented a number changes in FY2016 after undertaking a review of the LTI plan.
Those changes were described in the FY2015 Annual Report and they 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 long term Group
performance that will lead to sustainable superior returns for shareholders and to
modulate the remuneration of Senior Executives relative to this performance.
ii.
Form of incentive
The LTI should be based on Performance Rights that vest based on an assessment of
performance against objectives. No dividends are payable or accrued on Performance
Rights which are unvested.
iii. Measurement period
The standard measurement period has been three years from FY2017 onwards, however
the Board has discretion to modify the duration of the measurement period if it deems an
extension to be appropriate. An extension of the measurement period will only apply to
measures that may be pro-rata increased in difficulty to take account of the additional
time.
28 | AUSTAL LIMITED ANNUAL REPORT 2017
iv. Measures of long term performance
The Company uses two long term performance measures:
Total Shareholder Return (TSR) 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. Absolute TSR can be influenced by macro-economic factors that are not
specific to the Austal Group, and therefore the FY2016 & FY2017 LTI grants were offered
to executives based on Indexed TSR iTSR).
iTSR determines the shareholders returns of Austal relative to a market index rather than
capturing the absolute performance of the Group. Setting an appropriate iTSR
performance level (e.g. 200% stretch in FY2016 & FY2017 grants) is inherently difficult
because of the focus on a single market average rather than the breadth of market results.
The Board assessed a peer group of companies that include TSR within their LTI schemes
and greater than 90% of companies in the peer group utilise Relative TSR (rTSR) which
sets performance hurdles in reference to percentiles of TSR for stocks included in the All
Ordinaries Total Return Index (XAOA).
The Board has resolved to adopt rTSR for all LTI grants from FY2018 because rTSR is
considered to represent a more transparent and understandable basis for measuring
performance which is therefore easier to articulate and explain to beneficiaries and
shareholders. Achieving company TSR that is below the 50th percentile of the market is
considered to be substandard whilst delivering a TSR that is in the top quartile is clearly
strong performance that should be rewarded.
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.
29 | AUSTAL LIMITED ANNUAL REPORT 2017
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 and the difficulty of hurdles.
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 all shares awarded as a result of LTI performance
rights vesting. Recipients are prevented from selling their shares during this period. This
effectively extends the incentive period to four years and increases the accumulation of
equity by executives to strengthen their alignment with shareholders.
ix.
Reduction or cancellation
The LTI Plan Rules give the Board broad discretion to amend either the Plan Rules or the
terms of an offer made to an executive in order to correct errors (such as errors in the
financial statements on which an allocation of Performance Rights was made) or for other
legal purposes. The Board may also determine that a Participant’s entitlement to
Performance Rights is forfeited or reduced under the Plan Rules, in the event of serious
misconduct, fraudulent behaviour or dishonesty. The Board also considers the 1 year
holding period discussed above (in addition to the 3 year Performance Period) provides
an additional safeguard against participants benefiting unjustly from financial
misstatements or misconduct.
x.
Target and maximum award
Target and maximum LTI awards are applied to base remuneration, valued at their grant
calculation date.
Position
CEO
Incumbent
Mr David Singleton
Chief Financial Officer
Mr Greg Jason
President USA
Chief Operating Officer
President Philippines
Mr Craig Perciavalle
Mr Patrick Gregg
Mr Joselito Turano 1
1. Mr Joselito Turano resigned effective 13 July 2016
FY2017 Grant Vesting
Target
Maximum
FY2018 Grant Vesting
Target
Maximum
50%
35%
35%
0%
-
100%
70%
70%
0%
-
50%
35%
35%
35%
-
100%
70%
70%
70%
-
30 | AUSTAL LIMITED ANNUAL REPORT 2017
4. Non-Executive Director remuneration
1.
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.
2.
Remuneration structure
Remuneration is composed of:
Board fees
Committee fees
Both fee types include superannuation to the extent applicable to the incumbent.
3.
Fees
i.
Fee cap
The Remuneration for Non-Executive Directors will be managed within the aggregate fee
limit (AFL) of $3,000,000 approved by shareholders of the Company. The cap has
remained unchanged since listing on the Australian Securities Exchange (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 the
Board decided to set the remuneration fee at $200,000 per annum during FY2017.
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 FY2018.
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.
4.
Termination benefits
Termination benefits are not paid to NED by the Company.
31 | AUSTAL LIMITED ANNUAL REPORT 2017
5. Remuneration of KMP
Year ended 30 June 2017
Short-Term Benefits
Post
Employment
Benefits
Super-
Long
Term
Benefits
FY2017
Other
annuation /
Salary &
STI
Monetary
Fees
Accrued
Benefits
Social
Security
Leave
Termination
Share Based
Payments Expense
Long
Term
%
Share Based
%
Payments
Performance
STI
FY2016
STI
Paid 3
FY2017
Unpaid
STI
Accrued
Benefits
Fixed
Incentive
Total
Expense
Related
Non-executive directors
John Rothwell
Giles Everist
Jim McDowell
Executive directors
$
185,540
$
-
$
-
$
14,460
$
-
$
-
$
-
$
-
$
200,000
114,529
112,192
-
-
-
-
7,971
7,808
-
-
-
-
-
-
-
-
122,500
120,000
-
-
-
-
-
-
$
-
$
-
-
-
-
-
David Singleton
$
650,885
$
841,072
$
-
$
35,000
$
46,302
$
-
$
324,234
$
200,509
$
2,098,002
25.0
49.6
$
-
$
841,072
Other key management personnel
Greg Jason
Craig Perciavalle
Patrick Gregg 1
Joselito Turano 2
$
364,649
$
198,969
$
-
$
19,308
$
40,760
$
-
$
-
$
101,380
$
725,066
629,556
162,066
14,673
204,606
59,178
-
21,011
-
1,394
80,402
7,617
-
12,746
1,019
-
94,795
-
-
149,795
1,085,370
-
(20,759)
241,607
91,122
14.0
13.8
-
(22.8)
41.4
32.7
24.5
(22.8)
$
-
$
198,969
-
-
-
204,606
59,178
-
$
2,234,090
$
1,303,825
$
22,405
$
172,566
$
100,827
$
94,795
$
324,234
$
430,925
$
4,683,667
$
-
$
1,303,825
1 Mr Patrick Gregg was appointed Chief Operating Officer on 24 February 2017.
2 Mr Joselito Turano resigned on 13 July 2016
3 Final STI paid is based on whether the KMP is still in employment at the end of the financial year, and have met their respective KPIs
32 | AUSTAL LIMITED ANNUAL REPORT 2017
Year ended 30 June 2016
Non-executive directors
John Rothwell
Giles Everist
Jim McDowell
Executive directors
David Singleton 1
Andrew Bellamy 2
Short-Term Benefits
Salary &
Fees
FY2016
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
FY2015
STI
Paid 5
FY2016
Unpaid
STI
$
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 Directors 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 employment at the end of the financial year, and have met their respective KPIs
33 | AUSTAL LIMITED ANNUAL REPORT 2017
6. Equity instruments held by KMP
1.
FY2014 Performance Rights Vesting
i.
FY2014 Performance Rights Grant
147,013 performance rights were granted to KMP in FY2014, who were still employed by
Austal and remain unvested at 30 June 2017.
Mr Joselito Turano forfeited 46,760 performance rights upon resignation in FY2017.
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 to extend the measurement period of performance rights due to vest
at 30 June 2016 by one year after FY2016 year end. 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.
The Group used a Monte Carlo model to value the extension of the performance rights:
Monte Carlo simulation method assumptions:
Discount Rate
Share Price Volatility
Grant Date
Expected life of option (years)
Measurement Period 2
1.4% p.a.
45% p.a.
1 September 2016
1
Summarised results based on performance conditions:
TSR
ROIC
Total
Number of performance rights issued to all participants
74,901
174,768
249,669
Fair value per performance right - with vesting conditions
$
1.26
Fair value per performance right - without vesting conditions
$
1.43
Share price at grant date
Total value of performance rights
Number of performance rights expected to vest1
$
1.45
$
1.45
$
1.45
$
94,375
$
249,918
$
344,294
74,901
-
74,901
Total value of performance rights expected to vest
$
94,375
$
-
$
94,375
1. There was no prospect of ROIC rights vesting because of the magnitude of the Group EBIT loss in FY2016.
34 | AUSTAL LIMITED ANNUAL REPORT 2017
iii.
FY2014 Grant Performance Criteria
The revised 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%
<= 20.5%
0%
At or below Threshold
Absolute TSR
(CAGR)
ROIC
70%
Total
100%
27.5%
>= 34.7%
6.0%
8.0%
10.0%
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 FY2014 Grant
The actual TSR performance for the extended measurement period from
1 July 2013 – 30 June 2017 was calculated to be 186% which exceeds the stretch target.
The actual ROIC performance for the measurement period from
1 July 2013 – 30 June 2017 vesting of performance will be calculated using the FY2017
audited accounts. The estimated ROIC performance for the measurement period from
1 July 2013 – 30 June 2017 is 3.5% which will not meet the minimum threshold for award.
Measurement Period 2
Rights
Granted
Forfeiture
Resigned
Lapsed2
Estimated Vesting
ROIC
TSR
Total
Estimated Result
Weight
Award
Vesting %
Employee
Greg Jason
Craig Perciavalle
Joselito Turano1
Chief Financial Officer
President USA
President Philippines
62,674
84,339
46,760
-
-
(46,760)
(43,872)
(59,038)
-
Total
193,773
(46,760)
(102,910)
1. Mr Joselito Turano resigned on 13 July 2016 and forfeited all of his performance rights
2. Did not meet vesting performance criteria
3%
186%
70%
30%
100%
-
-
-
-
-
-
100%
30%
30%
30%
18,802
25,301
-
18,802
25,301
-
44,103
44,103
35 | AUSTAL LIMITED ANNUAL REPORT 2017
2.
FY2015 Performance Rights Vesting
i.
FY2015 Performance Rights Grant
251,980 performance rights were granted to KMP in FY2015, who were still employed by
Austal and remain unvested at 30 June 2017.
Mr Joselito Turano forfeited 73,130 performance rights upon resignation in FY2017.
ii. Measurement Periods
There were 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
The Board decided to extend the measurement period of performance rights due to vest
at 30 June 2016 by one year post FY2016 year end. 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.
The Group used a Monte Carlo model to value the extension of the performance rights:
Monte Carlo simulation method assumptions:
Discount Rate
Share Price Volatility
Grant Date
Expected life of option (years)
Measurement Period 1
1.4% p.a.
45% p.a.
1 September 2016
1
Summarised results based on performance conditions:
TSR
ROIC
Total
Number of performance rights issued to all participants
35,603
83,074
118,677
Fair value per performance right - with vesting conditions
$
1.10
Fair value per performance right - without vesting conditions
$
1.43
Share price at grant date
Total value of performance rights
Number of performance rights expected to vest1
$
1.45
$
1.45
$
1.45
$
39,163
$
118,796
$
157,959
35,603
-
35,603
Total value of performance rights expected to vest
$
39,163
$
-
$
39,163
1. There was no prospect of ROIC rights vesting because of the magnitude of the Group EBIT loss in FY2016.
36 | AUSTAL LIMITED ANNUAL REPORT 2017
iii.
FY2015 Grant Performance Criteria
The ROIC and TSR performance criteria relating to the FY2015 grant of performance
rights to KMP are detailed below.
Measure
Weight
Threshold
Vesting %
Performance
Austal
30%
<= 15%
0%
At or below Threshold
Absolute TSR
(CAGR)
ROIC
70%
Total
100%
20%
>= 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 extended measurement period from
1 July 2014 – 30 June 2017 was calculated to be 82% which exceeds the stretch target.
The actual ROIC performance for the measurement period from
1 July 2014 – 30 June 2017 vesting of performance will be calculated using the FY2017
audited accounts. The estimated ROIC performance in the measurement period from
1 July 2014 – 30 June 2017 is 1.6% which will not meet the minimum threshold for award.
Measurement Periods 1 & 2
Rights
Granted
Forfeiture
Resigned
Lapsed2
Estimated Vesting
ROIC
TSR
Total
Actual Result
Weight
Award
Vesting %
Employee
Greg Jason
Craig Perciavalle
Joselito Turano1
Chief Financial Officer
President USA
President Philippines
109,288
142,692
73,130
-
-
(73,130)
(76,502)
(99,885)
-
Total
325,110
(73,130)
(176,387)
1. Mr Joselito Turano resigned on 13 July 2016 and forfeited all of his performance rights
2. Did not meet vesting performance criteria
2%
70%
-
-
-
-
-
-
82%
30%
100%
30%
100%
30%
30%
32,786
42,807
-
32,786
42,807
-
75,593
75,593
37 | AUSTAL LIMITED ANNUAL REPORT 2017
3.
FY2016 Performance Rights Grant
i.
FY2016 Performance Rights Grant
385,455 performance rights were granted to KMP in FY2016, who were still employed by
Austal and remain unvested at 30 June 2017.
Mr Joselito Turano forfeited 61,921 performance rights upon resignation in FY2017.
ii. Measurement Periods
100% of the performance rights granted in FY2016 have a 3 year measurement period
from 1 July 2015 – 30 June 2018.
iii.
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 TSR of the All Ordinaries Total Return Index (XAOA).
38 | AUSTAL LIMITED ANNUAL REPORT 2017
4.
FY2017 Performance Rights Grant
Performance rights granted to KMP in FY2017 are depicted in the table below.
Name
David Singleton
Greg Jason
Craig Perciavalle
Total
Grant
date
Rights
granted
Fair value per right
ROIC
TSR
Value at
grant date
28 Oct 2016
1 Sep 2016
1 Sep 2016
1,194,121
262,887
402,621
1,859,629
$
1.11
0.97
0.97
$
1.45
1.37
1.37
$
1,049,632
210,047
321,694
$
1,581,373
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
Indexed TSR
Weight
40%
Threshold1
Vesting %
Performance
<= 100%
0%
At or below Threshold
Pro-rata
100% < iTSR < 200%
50%
Target
>= 200%
Pro-rata
100%
Stretch or Above
ROIC
60%
< 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 TSR of the All Ordinaries Total Return Index (XAOA).
ii. Measurement Period
100% of the performance rights granted in FY2017 have a 3 year measurement period
from 1 July 2016 – 30 June 2019.
39 | AUSTAL LIMITED ANNUAL REPORT 2017
5.
FY2018 Performance Rights Grant
i.
FY2018 Grant Performance Criteria
The ROIC and rTSR performance criteria relating to the prospective FY2018 grant of
performance rights to KMP are detailed below.
Measure
Weight
Threshold
Vesting %
Performance
Relative TSR1
40%
< 50th percentile
= 50th percentile
>= 75th percentile
0%
50%
Pro-rata
100%
Below Threshold
Threshold
Stretch or Above
ROIC
60%
< 6.6%
0%
At or below Threshold
6.6%
7.4%
> 8.3%
Pro-rata
25%
Pro-rata
50%
Pro-rata
100%
Threshold
Target
Stretch or Above
Total
100%
1. Percentile for TSR of stocks listed included in the All Ordinaries Total Return Index (XAOA).
ii. Measurement Period
100% of the performance rights granted in FY2018 will have a 3 year measurement period
from 1 July 2017 – 30 June 2020.
6.
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 a bonus nor performance based (i.e. on a salary sacrifice basis). The share
rights were approved by shareholders during the 2016 Annual General Meeting.
Name
Period earned
Measurement
date
Earned
Fair value
per right
Fair value
David Singleton
FY2017
28 Oct 2016
191,740
$
1.53
$
293,362
40 | AUSTAL LIMITED ANNUAL REPORT 2017
7.
Rights holdings
Balance at
Balance at
Vested and
30 June 2016
Granted
Forfeited
Expired
Exercised
30 June 2017
Exercisable
Unvested
FY2017 Movements
Directors
David Singleton
Share Rights
Performance Rights
Executives
Greg Jason
97,360
-
191,740
1,194,121
Performance Rights
324,206
262,887
Craig Perciavalle
Performance Rights
460,242
402,621
Patrick Gregg
Performance Rights
-
Joselito Turano 1
Performance Rights
181,811
-
-
1 Mr Joselito Turano resigned on 13 July 2016
8.
Shareholdings
-
-
-
-
-
(181,811)
-
-
-
-
-
-
-
-
-
-
-
-
289,100
1,194,121
289,100
-
-
1,194,121
587,093
862,863
-
-
-
-
-
-
587,093
862,863
-
-
Balance at
Share
Rights
30 June 2016
Exercised
Performance
Rights
Vested
Acquired /
No longer
Balance at
(Disposed)
KMP
30 June 2017
FY2017 Movements
Non - Executive Directors
John Rothwell
Jim McDowell
Giles Everist
Executives
David Singleton
Greg Jason
Craig Perciavalle
Patrick Gregg
32,500,745
33,751
10,000
28,600
62,671
84,336
-
Total
32,720,103
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
306,947
-
-
-
(29,226)
-
-
277,721
-
-
-
-
-
-
-
32,807,692
33,751
10,000
28,600
33,445
84,336
-
32,997,824
None of the shares held by key management personnel are held nominally.
41 | AUSTAL LIMITED ANNUAL REPORT 2017
7. Other related matters
1.
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 three
independent Non-Executive Directors on the Board should remain following the FY2017 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.
2.
Details of contractual provisions for KMP
Name
Employing company
David Singleton
Greg Jason
Austal Limited
Austal Limited
Craig Perciavalle
Austal USA LLC
Patrick Gregg
Austal Limited
Contract
Duration
Unlimited
Unlimited
Unlimited
Unlimited
Termination Notice Period
Group
Individual
3 months
12 weeks
0 months
3 months
3 months
12 weeks
0 months
3 months
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.
3.
Loans to KMP
There were no loans to Directors nor other key management personnel at any time during the
year ended 30 June 2017.
4.
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.
42 | AUSTAL LIMITED ANNUAL REPORT 2017
5.
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.
Godfrey Remuneration Group (GRG) were engaged by the NRC during FY2017 to conduct an
analysis of TSR metrics utilised in long term incentive plans. GRG did not provide a specific
recommendation however the NRC and Board utilised the data to inform the decision to change
from indexed TSR (iTSR) to relative TSR (rTSR).
GRC was remunerated $26,470 for services provided during the period FY2017.
End of Remuneration Report
2 Go Super Cat ferries built at Austal Philippines and delivered June 2017
43 | AUSTAL LIMITED ANNUAL REPORT 2017
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 2017, 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
25 August 2017
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
44 | AUSTAL LIMITED ANNUAL REPORT 2017
Consolidated statement of profit or loss and other comprehensive income for
the year ended 30 June 2017
Notes
2017
’000
2016
’000
Continuing operations
Revenue
Cost of sales
Gross Profit
Other income and expenses
Administration expenses
Marketing expenses
Finance costs
Share of profit / (loss) from joint venture
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
27
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 / (loss) 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
$
1,310,128
$
1,339,970
(1,192,969)
(1,396,921)
$
117,159
$
(56,951)
$
2,356
$
13,289
(55,850)
(16,493)
(7,198)
(109)
(61,488)
(14,609)
(6,605)
-
$
39,865
$
(126,364)
$
(24,515)
$
42,182
$
15,350
$
(84,182)
$
15,350
$
(84,281)
-
99
$
15,350
$
(84,182)
$
8,639
$
2,829
2,010
(4,482)
13,789
(3,800)
$
6,167
$
12,818
$
(11,073)
$
14,323
-
(21)
$
(11,073)
$
14,302
$
-
$
29,667
-
(10,710)
$
-
$
18,957
Other comprehensive income net of tax for the period
$
(4,906)
$
46,077
Total comprehensive income for the year
$
10,444
$
(38,105)
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
Total
Earnings per share ($ per share)
$
10,444
$
(38,204)
-
99
$
10,444
$
(38,105)
- 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
$
0.044
$
(0.242)
0.044
(0.242)
The consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.
45 | AUSTAL LIMITED ANNUAL REPORT 2017
Consolidated statement of financial position as at 30 June 2017
SHAREHOLDER INFORMATION
Notes
2017
’000
2016
’000
Assets
Current
Cash and cash equivalents
Trade and other receivables
Inventories
Prepayments
Derivatives
Assets held for sale
Income tax refundable
Total
Non - Current
Other financial assets
Investment in joint venture
Derivatives
Property, plant and equipment
Intangible assets and goodwill
Deferred tax assets
Total
Total
Liabilities
Current
Trade and other payables
Derivatives
Interest bearing loans and borrowings
Provisions
Deferred grant income
Income tax payable
Progress payments received in advance
Total
Non - Current
Derivatives
Interest bearing loans and borrowings
Provisions
Deferred grant income
Deferred tax liabilities
Total
Total
Net Assets
Equity
Equity attributable to owners of the parent
Contributed equity
Reserves
Retained earnings
Total
Total
10
14
16
22
9
20
27
22
18
19
9
17
22
11
21
13
9
15
22
11
21
13
9
$
150,471
$
224,318
100,444
170,422
6,077
1,051
2,529
706
128,340
108,974
5,408
147
2,908
-
$
431,700
$
470,095
$
9,626
$
7,638
1,847
1,985
500,304
8,909
5,630
-
340
490,798
9,296
34,959
$
528,301
$
543,031
$
960,001
$
1,013,126
$
(154,914)
$
(229,774)
(4,052)
(9,868)
(46,586)
(7,934)
-
(15,554)
(10,690)
(2,545)
(42,291)
(8,543)
(98)
(12,812)
$
(238,908)
$
(306,753)
$
(1,073)
$
(5,712)
(186,487)
(2,864)
(62,881)
(10,874)
(170,066)
(1,052)
(71,991)
-
$
(264,179)
$
(248,821)
$
(503,087)
$
(555,574)
$
456,914
$
457,552
$
116,384
$
114,738
91,637
248,893
100,672
242,142
$
456,914
$
457,552
$
456,914
$
457,552
The consolidated statement of financial position should be read in conjunction with the accompanying notes.
46 | AUSTAL LIMITED ANNUAL REPORT 2017
Consolidated statement of changes in equity for the year ended 30 June 2017
SHAREHOLDER INFORMATION
Foreign
Currency
Employee
Cash Flow Common
Asset
Issued
Capital
’000
Reserved
Shares 1
Retained
Transl'n
Benefits
Hedge
Control
Reval'n
Earnings
Reserve
Reserve
Reserve
Reserve
Reserve
’000
’000
’000
’000
’000
’000
’000
Total
’000
Non
Controlling
Interest
’000
Total
Equity
’000
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
Repayment of shareholder loans
Acquisition of minority stake
Vesting performance rights
Share based payments expense
1,608
-
-
-
378
-
-
-
229
-
-
-
-
(17,375)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(378)
796
-
-
-
-
-
-
-
-
-
(1,669)
-
-
-
-
-
-
-
-
$
1,608
$
-
$
1,608
(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 1 July 2016
$
123,739
$
(9,001)
$
242,142
$
77,978
$
6,434
$
(6,860)
$
(17,594)
$
40,714
$
457,552
$
-
$
457,552
Comprehensive Income
Profit for the year
$
-
$
-
$
15,350
$
-
$
-
$
-
$
-
$
-
$
15,350
$
-
$
15,350
Other Comprehensive Income
-
-
-
(11,073)
-
6,167
-
-
(4,906)
-
(4,906)
Total
$
-
$
-
$
15,350
$
(11,073)
$
-
$
6,167
$
-
$
-
$
10,444
$
-
$
10,444
Other equity transactions
Shares issued
$
1,690
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
1,690
$
-
$
1,690
Dividends
Transfer between reserves 2
Transfer between reserves 3
Transfer between reserves 4
Tax expense - employee share plan
Share based payments expense
-
-
2,891
-
(44)
-
-
-
(2,891)
-
-
(13,795)
5,196
-
-
-
-
-
(256)
(2)
-
-
-
-
(4,940)
-
-
-
1,067
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2
(13,795)
-
-
-
(44)
1,067
-
-
-
-
-
-
(13,795)
-
-
-
(44)
1,067
Total
$
4,537
$
(2,891)
$
(8,599)
$
(258)
$
(3,873)
$
-
$
-
$
2
$
(11,082)
$
-
$
(11,082)
Equity at 30 June 2017
$
128,276
$
(11,892)
$
248,893
$
66,647
$
2,561
$
(693)
$
(17,594)
$
40,716
$
456,914
$
-
$
456,914
1. Reserved Shares are held in relation to the Austal Group Management Share Plan.
2. Transfer of expired awards that have not been exercised.
3. Transfer of vested Reserved Shares.
4. Transfer between reserves.
The consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
47 | AUSTAL LIMITED ANNUAL REPORT 2017
Consolidated statement of cash flows for the year ended 30 June 2017
SHAREHOLDER INFORMATION
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Income tax refunded / (paid)
Net cash from / (used in) operating activities
Cash flows from investing activities
Receipts of government infrastructure grants
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
Investment in joint venture
Notes
2017
’000
2016
’000
$
1,256,187
$
1,536,356
(1,302,771)
(1,425,455)
1,525
(5,033)
12,198
1,106
(5,098)
(4,843)
$
(37,894)
$
102,066
4
7
$
1,134
$
14,463
110
(9,195)
(823)
(42,776)
-
(1,956)
2,469
(12,793)
(995)
(18,023)
(10,098)
-
Net cash from / (used in) investing activities
$
(53,506)
$
(24,977)
Cash flows from financing activities
Repayment of borrowings
Loans received for Cape Class Patrol Boats 9 & 10
Dividends paid (net of dividend reinvestment program)
$
(13,455)
$
(11,992)
38,074
(12,260)
23,046
(15,767)
Net cash from / (used in) financing activities
$
12,359
$
(4,713)
Net increase / (decrease) in cash and cash equivalents
$
(79,041)
$
72,376
Cash and cash equivalents
Cash and cash equivalents at beginning of year
Net foreign exchange differences
Net increase / (decrease) in cash and cash equivalents
$
224,318
$
148,468
5,194
(79,041)
3,474
72,376
Cash and cash equivalents at end of year
10
$
150,471
$
224,318
The consolidated statement of cash flows should be read in conjunction with the accompanying notes.
48 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
Notes to the financial statements
Basis of preparation
Corporate information
The financial report of the Austal Limited Group of Companies (the Group) for the year ended 30 June 2017
was authorised for issue in accordance with a resolution of the Directors on 25 August 2017.
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:
1.
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.
2.
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.
49 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
3. 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.
4.
Infrastructure & other assets
This section focuses on property, plant & equipment as well as intangible assets of the Group.
5.
Other liabilities
This section focuses on provisions such as employee benefits and future warranty costs.
6.
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.
7.
Unrecognised items
This section focuses on commitments and contingencies that are not recognised in the
financial statements and events occurring after the balance date.
8.
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 2017.
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.
50 | AUSTAL LIMITED ANNUAL REPORT 2017
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
1.
New and amended standards adopted by the Group
The Group has applied all new and amended accounting standards and interpretations
effective from 1 July 2017, including:
Australian Accounting Standards Board (AASB) 2014-9 amendments to Australian
Accounting Standards – Equity Method in Separate Financial Statements. The
amendments to AASB 127 Separate Financial Statements allow an entity to use the equity
method as described in AASB 128 to account for its investments in subsidiaries, joint
ventures and associates in its separate financial statements.
Australian Accounting Standards Board (AASB) 2015-1 amendments to Australian
Accounting Standards – Annual Improvements to Australian Accounting Standards 2012–
2014 Cycle.
The amendments clarify certain requirements in:
AASB 7 Financial Instruments: Disclosures - servicing contracts; applicability of the
amendments to AASB 7 to condensed interim financial statements
AASB 119 Employee Benefits - regional market issue regarding discount rate
AASB 134 Interim Financial Reporting - disclosure of information ‘elsewhere in the
interim financial report
51 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative:
Amendments to AASB 101. This Standard amends AASB 101 Presentation of Financial
Statements to clarify existing presentation and disclosure requirements and to ensure
entities are able to use judgement when applying the Standard in determining what
information to disclose, where and in what order information is presented in their
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 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:
1.
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.
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.
52 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
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.
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.
53 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
2.
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).
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.
Austal has undertaken implementation project to analyse the impact of AASB 15 Revenue
from Contracts with Customers which replaces the existing revenue recognition standards
AASB 111 Construction Contracts.
As at 30 June 2017, assessment of the impact of AASB 15 on Austal revenue recognition is
ongoing. Determination of the transition approach is also under evaluation.
3.
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.
54 | AUSTAL LIMITED ANNUAL REPORT 2017
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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.
4.
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.
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.
5.
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.
55 | AUSTAL LIMITED ANNUAL REPORT 2017
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6.
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.
7.
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 2017
SHAREHOLDER INFORMATION
Current year performance
Operating segments
Australia
’000
USA
’000
Philippines
Unallocated Adjustments
’000
’000
’000
Total
’000
Elimination /
Year ended 30 June 2017
Revenue
External customers
$
99,671
$
1,172,066
$
33,698
$
3,080
$
88
$
1,308,603
Inter-segment
Finance income
Total
Profit / (loss) before tax
14,073
-
-
-
134
-
-
1,525
(14,207)
-
-
1,525
$
113,744
$
1,172,066
$
33,832
$
4,605
$
(14,119)
$
1,310,128
Earnings before interest and tax
$
(2,059)
$
76,061
$
330
$
(28,932)
$
138
$
45,538
Finance income
Finance expenses
-
-
-
-
-
-
1,525
(7,198)
-
-
1,525
(7,198)
Profit / (loss) before income tax
$
(2,059)
$
76,061
$
330
$
(34,605)
$
138
$
39,865
Depreciation and amortisation
$
(1,544)
$
(26,572)
$
(1,502)
$
(1,904)
$
-
$
(31,522)
Balance sheet
Segment assets
Segment liabilities
Year ended 30 June 2016
Revenue
$
180,727
$
705,163
$
27,379
$
50,659
$
(3,927)
$
960,001
(118,163)
(359,895)
(9,128)
(15,901)
-
(503,087)
Australia
’000
USA
’000
Philippines
Unallocated Adjustments
’000
’000
’000
Total
’000
Elimination /
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
$
117,227
$
745,056
$
23,379
$
132,206
$
(4,742)
$
1,013,126
(93,816)
(453,224)
(6,695)
(9,781)
7,942
(555,574)
Inter-segment revenues, investments, receivables and payables are eliminated on consolidation.
57 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
2017
’000
2016
’000
$
2,068
$
4,425
1,012
1,525
1,658
1,106
$
4,605
$
7,189
$
(606)
$
923
-
(379)
-
(13,154)
(11,865)
(12,383)
48
(109)
9,516
1,525
(7,198)
(208)
(1,630)
(10,966)
-
(10,489)
(8,559)
(1,109)
-
-
1,106
(6,605)
$
(34,605)
$
(37,537)
$
23,848
$
87,917
4,099
417
10,903
1
5,589
1,075
2,529
1,847
351
4,618
31
-
13
33,765
945
2,908
-
2,009
$
50,659
$
132,206
$
(10,893)
$
(27)
-
(2)
(48)
(4,958)
(1,039)
(4,379)
(62)
(4,274)
Analysis of Unallocated
Revenue
Support / sustainment
Charter vessel revenue
Finance income
Total
Profit / (loss) before tax
Foreign exchange gains / (losses)
Net profit / (loss) on sale of vessel
Write down of charter vessels
Warranty Provision
Settlement of Warranty Defects
Administration expenses
Marketing expenses
Charter vessel profit / (loss)
Share of profit / (loss) from joint venture
Research and development credit
Finance income
Finance expenses
Total
Segment assets
Cash
Property, plant and equipment
Inventories
Other receivables
Derivatives
Deferred tax assets
Income tax receivable
Assets held for sale
Investment in joint venture
Other
Total
Segment liabilities
Deferred tax liabilities
Income tax payable
Derivatives
Progress payments received in advance
Creditors & provisions
Total
$
(15,901)
$
(9,781)
58 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
One customer in the USA segment generated revenue of $1,172.217 million during FY2017
(FY2016: $1,133.024 million).
Revenue from external customers by geographical
location of customers
North America
Europe
Asia
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
2017
$’000
2016
$’000
$
1,172,154
$
1,155,769
20,740
29,932
70,630
15,147
-
66,157
-
32,431
84,507
-
$
1,308,603
$
1,338,864
2017
$’000
2016
$’000
$
379,513
$
411,399
20,719
3,987
104,994
22,157
4,430
62,108
$
509,213
$
500,094
$
500,304
$
490,798
8,909
9,296
$
509,213
$
500,094
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.
59 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
ii
Reportable segments
The Group’s reportable segments are Australia, USA and Philippines:
1.
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.
2.
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.
3.
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
Property, plant and equipment relating to the parent entity
60 | AUSTAL LIMITED ANNUAL REPORT 2017
Revenue
Revenue
Vessel construction and support
Charter vessels
Total Revenue from customers
Finance income
Total
SHAREHOLDER INFORMATION
2017
’000
2016
’000
$
1,306,178
2,425
$
1,313,465
25,399
$
1,308,603
$
1,338,864
$
1,525
$
1,106
$
1,310,128
$
1,339,970
i
Recognition and measurement
Revenue is recognised and measured at the 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:
1.
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.
2.
Charter vessel revenue
Charter revenue is generated from operating rentals received on charter of vessels and is
recognised when the control over the right to revenue is achieved.
3.
Finance income
Finance income 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.
61 | AUSTAL LIMITED ANNUAL REPORT 2017
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ii
Significant accounting judgements and estimates
1.
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.
The percentage of completion is calculated on actual project costs to date, divided by the sum
of projected costs to complete. 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
FY2017 and future years.
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.
All other projects’ revenue and cost estimates at completion were updated with no material
impact to the Group.
2.
USA LCS Program
The US Navy completed physical “shock trials” of LCS 6 in July 2016 to measure and assess
the impact of an explosive charge detonated at a specified proximity to the vessel whilst
underway at sea. The specific results of these trials remain classified by the US Navy, and are
unlikely to ever be released to either Austal or the public in light of the extreme sensitivity of
the vessel’s capability to withstanding the impact of shock.
Austal has not been advised of any material issues regarding vessel performance by the US
Navy, however the analysis conducted by the US Navy has not been finalised which means
that the risk of incurring additional cost to address issues that may be identified by the
analysis cannot be discounted entirely.
The residual risk regarding the performance of LCS and the shock trial analysis will reduce
over time as the vessel continues to demonstrate its capabilities.
62 | AUSTAL LIMITED ANNUAL REPORT 2017
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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 / (losses)
Sale of scrap materials
Other income
Settlement of warranty defects
Write down of assets held for sale
Write down of charter vessels
Write down of other inventory
Total
Finance costs
Interest to unrelated parties
Amortisation of capitalised loan origination costs
Total
Share of profit from joint venture
Share of profit / (loss) of Aulong Shipbuilding Co Ltd Joint Venture
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
2017
’000
2016
’000
$
8,522
$
4,877
3,864
(23)
(742)
3,486
782
(13,154)
(379)
-
-
5,351
(200)
834
3,558
1,872
-
-
(1,903)
(1,100)
$
2,356
$
13,289
$
(5,998)
$
(5,377)
(1,200)
(1,228)
$
(7,198)
$
(6,605)
$
(109)
-
$
(109)
$
-
$
(30,379)
$
(28,461)
(1,143)
(1,438)
$
(31,522)
$
(29,899)
$
(385,986)
$
(415,183)
(5,340)
(1,067)
(6,609)
(18,467)
(709)
(4,766)
(796)
(10,450)
(20,062)
(1,265)
$
(418,178)
$
(452,522)
Employee benefits listed above includes expenses that are disclosed in cost of sales.
Research & development credit recognised in cost of sales
Research & development credit
$
11,517
$
1,311
Auditor's remuneration
Amounts received or due and receivable by Ernst & Young Australia for:
2017
$
2016
$
An audit or review of the financial report of the entity and any other entity in the Group
$
(319,731)
$
(297,404)
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
(604,072)
(892,079)
63 | AUSTAL LIMITED ANNUAL REPORT 2017
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:
1.
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.
2.
Research and Development (R&D) Tax Credit
R&D tax incentives in excess of the statutory tax rate are accounted for in accordance with the
Group’s accounting policies as a government grant under AASB 120 rather than as an income
tax benefit under AASB 112.
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 entire credit is recognised in cost of sales and changes the calculation of percent complete
which impacts the timing of Revenue recognition for the projects.
The net impact to profit before tax in FY2017 is $11.517 million.
3.
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 FY2017.
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.
4.
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.
5.
Employee benefits
Refer to accounting policies for employee benefits in Note 21.
6.
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.
64 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
7.
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.
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.
Gains and losses on cash flow hedges that were deemed to be ineffective during the accounting
period.
iii
Significant accounting judgements and estimates
1.
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 and in accounting for
R&D as a government grant under AASB 120 rather than as an income tax benefit.
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.
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 2017
SHAREHOLDER INFORMATION
Earnings per share
Net profit / (loss) after tax
Net profit attributable to ordinary equity holders of the parent from continuing operations
$’000
$
15,350
$
(84,281)
2017
2016
Weighted average number of ordinary shares
Basic
Effect of dilution
Diluted
Earnings per share
Basic earnings per share
Diluted earnings per share
i
Measurement
Number
Number
Number
345,094,616
347,665,088
2,893,640
-
347,988,256
347,665,088
$ / share
$ / share
$
0.044
$
(0.242)
$
0.044
$
(0.242)
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 dilutive potential ordinary shares into ordinary shares.
ii
Information concerning the classification of securities
1.
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 1,266,289 performance rights which are not dilutive to earnings
per share.
Further information about the performance rights is provided in Note 30.
2.
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 they are considered to be part of his
base remuneration. This arrangement was approved by shareholders at the 2016 Annual
General Meeting for a period ending 31 December 2019. The share rights are included in the
calculation of basic earnings per share. 191,740 share rights were issued during the year.
Further information about the share rights is provided in Note 30.
66 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
3.
Options
Austal Limited issued two 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 dilutive to earnings per share.
Further information about the options is provided in Note 30.
4.
Austal Group Management Share Plan (AGMSP)
The trustee holds a total of 4,015,539 shares at balance date on behalf of the AGMSP plans.
3,702,000 shares allocated under Plans 1 and 2 are not dilutive to earnings per share.
Further information about the options is provided in Note 30.
5.
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 2017
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
2017
’000
2016
’000
$
15,350
$
(84,182)
$
31,522
$
29,899
379
23
1,067
742
(8,522)
1,903
200
796
(834)
(4,877)
Total
$
25,211
$
27,087
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
$
39,424
$
(52,370)
203
(854)
2,779
3,979
24,590
(61,448)
(669)
(1,988)
(80,986)
2,742
(5,030)
(1,197)
515
9,736
4
(1,821)
(26,922)
230,729
913
(3,854)
15,111
(13,365)
(1,799)
2,284
Total
$
(78,455)
$
159,161
Net cash (outflow) / inflow from operating activities
$
(37,894)
$
102,066
68 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
Dividends paid and proposed
i
Dividends on ordinary shares
2017
’000
2016
’000
Dividends paid on Ordinary Shares
Fully franked final dividend for the prior year, 2 cents per share (2016: 2 cent per share)
$
(6,968)
$
(10,422)
Fully franked interim dividend for the current year, 2 cents per share (2016: 2 cent per share)
(6,982)
(6,953)
Total
$
(13,950)
$
(17,375)
Dividend declared subsequent to the reporting period end (not recorded as liability)
Fully franked final dividend 2 cents per share (2016: 2 cents per share)
$
(6,989)
$
(6,968)
ii
Franking credit balance
2017
’000
2016
’000
Opening Balance
$
11,104
$
5,871
Franking credits movement from the payment / (refund) of income tax
$
(1,697)
$
12,680
Franking credits distributed
Movement
Closing Balance
(5,979)
(7,447)
$
(7,676)
$
5,233
$
3,428
$
11,104
69 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
Income and other taxes
i
Income tax expense
Major components of tax (expense) / benefit for the years ended 30 June 2017 and 2016 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)
2017
’000
2016
’000
$
3,189
$
(2,987)
7,461
(765)
$
10,650
$
(3,752)
$
(25,709)
$
44,861
(9,456)
1,073
$
(35,165)
$
45,934
$
(24,515)
$
42,182
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
$
(4,482)
$
(3,800)
Current gains and losses in FCTR
Deferred gains on revaluation of property, plant and equipment
-
-
(21)
(10,710)
Total (expense) / benefit charged to OCI
$
(4,482)
$
(14,531)
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
$
39,865
$
(126,364)
Income Tax at the Group’s statutory income tax rate of 30% (2016: 30%)
$
(11,960)
$
37,909
Adjustment for Austal USA statutory income tax rate of 36.9% (2016: 36.9%)
$
(5,851)
$
5,182
Other foreign tax rate differences
Branch (profit) / loss
US section 199 domestic manufacturing deduction
Non assessable research & development credit to cost of sale
WHT leakage due to losses in Australia
Non-deductible share based payments expense
Australian Tax Group losses not recognised
Transfer pricing adjustments in respect of intercompany royalties
Other non-assessable or non-deductible items
Adjustments in respect of current and deferred income tax of the previous year
138
(145)
123
1,416
(454)
(256)
(3,412)
(1,361)
(758)
(1,995)
126
(847)
-
-
-
(684)
-
-
188
308
Total Adjustments
$
(12,555)
$
4,273
Income tax (expense) / benefit reported in Consolidated statement of profit or loss
$
(24,515)
$
42,182
Income tax payable
Income tax receivable / (payable)
$
706
$
(98)
70 | AUSTAL LIMITED ANNUAL REPORT 2017
ii
Analysis of temporary differences
SHAREHOLDER INFORMATION
Statement of Financial Position
Consolidated Profit & Loss
2017
’000
2016
’000
2017
’000
2016
’000
Deferred income tax - USA
Deferred tax assets
Trade & other receivables
Payables
Provisions
Deferred grant income
Losses available for offset against future taxable income - Federal
Losses available for offset against future taxable income - State
Work opportunity tax credits
Charitable donations
Alternative minimum tax
Inventories
Deferred gains and losses on foreign currency contracts
$
8,658
$
-
$
8,863
$
1,214
199
8,895
25,723
-
2,537
-
-
1,738
108
1,041
10,572
4,615
28,925
45,501
2,026
215
42
-
72
3,461
(10,279)
4,526
(2,372)
(45,140)
586
(213)
(41)
1,778
34
51
3,824
385
(1,644)
42,998
1,901
-
-
-
(565)
-
Total
$
48,899
$
95,429
$
(42,207)
$
48,113
Deferred tax liabilities
Property, plant and equipment
$
(59,318)
$
(65,897)
$
4,663
$
(2,699)
Deferred gains and losses on foreign currency contracts
(455)
(33)
-
-
Total
$
(59,773)
$
(65,930)
$
4,663
$
(2,699)
Net deferred tax asset / (liability)
$
(10,874)
$
29,499
$
(37,544)
$
45,414
Deferred income tax - Australia
Deferred tax assets
Trade & other receivables
Payables
Provisions
Deferred gains and losses on foreign currency contracts
Undeducted section 40 - 880 costs
Assets classified as held for sale
Financial liabilities
Inventories
Losses available for offset against future taxable income
$
53
$
36
$
18
$
(1,738)
400
7,953
538
3
439
140
34
-
166
6,428
2,100
184
-
-
320
180
233
1,523
119
(180)
439
140
(284)
(181)
(607)
2,510
(6)
(176)
-
-
238
(51)
Total
$
9,560
$
9,414
$
1,827
$
170
Deferred tax liabilities
Property, plant and equipment
$
(3,291)
$
(3,841)
$
552
$
542
Deferred gains and losses on foreign currency contracts
(639)
(113)
-
(192)
Total
$
(3,930)
$
(3,954)
$
552
$
350
Net deferred tax asset / (liability)
$
5,630
$
5,460
$
2,379
$
520
Net deferred tax asset / (liability)
$
(5,244)
$
34,959
$
(35,165)
$
45,934
71 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
iii
Recognition and measurement
1.
Current tax assets and liabilities
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 balance date.
2.
Deferred income tax
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.
3.
Deferred income tax asset recognition
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 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.
4.
Deferred income tax asset and liability measurement
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.
5.
Income taxes relating to equity items
Income taxes relating to items recognised directly in equity are recognised in equity and not in
the statement of comprehensive income.
72 | AUSTAL LIMITED ANNUAL REPORT 2017
iv
Tax consolidation
SHAREHOLDER INFORMATION
Austal Limited (the Company) is the head entity in a Tax Consolidated Group comprising the
Company and its 100% owned Australian resident subsidiaries. The implementation date of the tax
consolidated system for the Tax Consolidated Group was 1 July 2002. Members of the Group have
entered into a tax sharing arrangement in order to allocate income tax expense to the wholly owned
subsidiaries on a pro-rata basis.
The agreement provides for the allocation of income tax liabilities between the entities 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 likely outcomes 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.
73 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
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.
A deferred tax asset has not been recognised in relation to unused tax losses that were generated in
the Australian Consolidated Tax Group, primarily during FY2017. The Australian Consolidated Tax
Group includes the Australia segment and the majority of the Group Corporate overhead which is
reported within the Unallocated segment (refer Note 3). The generation of future taxable profit in
Australia is dependent upon the award of new vessel contracts and hence the recognition criteria for
a deferred tax asset were not met.
vi
Other taxes
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 2017
SHAREHOLDER INFORMATION
Capital structure
Cash and cash equivalents
2017
’000
2016
’000
Current
Cash at bank and in hand
$
150,471
$
224,318
Total Cash per Cash Flow Statement
$
150,471
$
224,318
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 2017
SHAREHOLDER INFORMATION
Interest bearing loans and borrowings
2017
’000
2016
’000
Current
Finance Leases
$
(2,532)
$
(2,545)
Vessel finance for Cape Class Patrol Boats 9 & 10
(7,336)
-
Total
Non - Current
Finance Leases
Go Zone Bonds
Vessel finance for Cape Class Patrol Boats 9 & 10
Total
Total
$
(9,868)
$
(2,545)
$
(5,329)
$
(8,110)
(123,303)
(57,855)
(136,113)
(25,843)
$
(186,487)
$
(170,066)
$
(196,355)
$
(172,611)
i
Recognition and measurement
All loans, borrowings and finance leases 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 Austal USA between FY2008 & FY2013.
Go Zone Bonds are tax-exempt municipal bonds in the United States and attracted an average
coupon rate of 0.70% in FY2017. GZB bondholders are secured by letters of credit issued by Austal’s
banking syndicate with a maturity date of 30 November 2018. The average cost of the letters of credit
in FY2017 was 1.54%.
Austal has redeemed (repaid) a cumulative amount of ~ US$127.960 million of GZB funds and owes
US$97.040 million at 30 June 2017.
iii
Finance leases
Austal USA entered into 5 year Finance leases in FY2015 to fund mobile equipment and a plot of
land in Mobile, Alabama, USA, and the following average interest rates were incurred in FY2017:
mobile equipment 2.0%
land 2.3%
76 | AUSTAL LIMITED ANNUAL REPORT 2017
iv
Vessel finance for Cape Class Patrol Boats 9 & 10
SHAREHOLDER INFORMATION
Austal entered into a finance arrangement with National Australia Bank (NAB) and the Australian
Border Force (ABF) for the construction of two Cape Class Patrol Boats (9 & 10) in December 2015.
National Australia Bank financed the purchase of the vessels and is now leasing them to the ABF for
an initial 3 year term. Whilst extensions or a future sale of the two vessels is probable, the contract
contains a put option granting NAB the right to sell the vessels back to Austal at an option price
equal to the residual value of $21 million per vessel at the end of the 3 year term. The notional
effective interest rate incurred in FY2017 was 2.54%.
v
Banking facilities
Austal has a Syndicated Facility Agreement which matures in October 2018. The Agreement includes
US$97.040 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.
Contingent non-financial instruments (excluding the letters of credit supporting the Go Zone Bonds)
are issued to support concepts such as refund payment guarantees, performance bonds, warranty
bonds (refer to Note 25).
Facilities used at reporting date
Finance Leases
Go Zone Bonds
Contingent Instrument Facility
Total
Facilities unused at reporting date
2017
’000
2016
’000
$
(7,861)
(123,303)
(57,597)
$
(10,655)
(136,113)
(133,602)
$
(188,761)
$
(280,370)
Contingent Instrument & Cash Loan Facility
$
(112,403)
$
(36,398)
Total
$
(112,403)
$
(36,398)
Total Facilities Available
Finance Leases
Go Zone Bonds
Contingent Instrument & Cash Loan Facility
Total
$
(7,861)
(123,303)
(170,000)
$
(10,655)
(136,113)
(170,000)
$
(301,164)
$
(316,768)
vi
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 2017
SHAREHOLDER INFORMATION
Contributed equity and reserves
Ordinary Shares on Issue
1 July
Shares
’000
2017
2016
2017
2016
348,393,449
346,923,451
$
123,739
121,753
Shares issued during the year
1,079,194
1,469,998
$
1,690
$
1,986
Transfer of vested Reserved Shares
Tax expense on employee share plan (AGMSP1)
-
-
-
-
2,891
(44)
-
-
30 June
349,472,643
348,393,449
$
128,276
$
123,739
Reserved Shares
1 July
(4,015,539)
(4,015,539)
$
(9,001)
$
(9,230)
Movement in Reserved Shares
Transfer of vested Reserved Shares
-
-
-
-
$
-
$
229
(2,891)
-
(4,015,539)
(4,015,539)
$
(11,892)
$
(9,001)
345,457,104
344,377,910
$
116,384
$
114,738
30 June
Net
1. Austal Group Management Share Plan
i
Recognition and measurement
1.
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.
A transfer was booked between Reserved Shares and Ordinary Shares on issue with zero
movement in total Contributed Equity.
2.
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 2017
ii
Movements in ordinary share capital
SHAREHOLDER INFORMATION
Ordinary Shares on Issue
1 July
Dividend reinvestment plan
Performance rights exercised
30 June
Shares
2017
2016
348,393,449
346,923,451
1,079,194
-
972,814
497,184
349,472,643
348,393,449
The movement in ordinary shares during year ended 30 June 2017 is comprised of shares issued as
part of dividends declared and paid during the year.
The Group announced a FY2016 final dividend of 2 cents per share with an option for dividend
reinvestment of $1.52 per share on 23 September 2016, followed by a FY2017 interim dividend of 2
cents per share with an option for dividend reinvestment of $1.65 per share, which was announced
on 27 March 2017.
iii
Nature & purpose of reserves
1.
Foreign currency translation reserve (FCTR)
This reserve is used to record exchange differences arising from the translation of the financial
statements of foreign subsidiaries.
2.
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.
3.
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.
4.
Common control reserve
This reserve represents the premium paid on the acquisition of the minority interest in a
controlled entity.
5.
Asset revaluation reserve
This reserve is used to record increases in the fair value of land and buildings.
79 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
Government grants relating to assets
Deferred Grant Income
Current
2017
’000
2016
’000
Infrastructure Development
$
(7,934)
$
(8,543)
Total
Non - Current
$
(7,934)
$
(8,543)
Infrastructure Development
$
(62,881)
$
(71,991)
Total
Total
Movements in Grants
Opening Balance
Grants received during the year
Amortised to the profit and loss
Exchange rate adjustment
$
(62,881)
$
(71,991)
$
(70,815)
$
(80,534)
$
(80,534)
$
(66,966)
$
(1,134)
$
(16,746)
8,522
2,331
4,877
(1,699)
Closing Balance
$
(70,815)
$
(80,534)
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 2017
SHAREHOLDER INFORMATION
Working capital
Trade and other receivables
Current
Trade amounts owing by unrelated entities
Allowance for doubtful debts
Total
2017
’000
2016
’000
$
100,701
$
128,505
(257)
(165)
$
100,444
$
128,340
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 2017
iii
Ageing analysis of current trade & other receivables
SHAREHOLDER INFORMATION
Days outstanding
0-30
31-60
61-90
90+
Impaired
Total
2017
2016
’000
$
83,295
$
2,713
$
6,352
$
8,341
$
(257)
$
100,444
’000
122,506
3,171
1,501
1,327
(165)
128,340
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.
iv
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 2017
SHAREHOLDER INFORMATION
Vessel construction and support contracts in progress
2017
’000
2016
’000
Work in Progress
Construction and support revenue recognised to date
$
8,010,526
$
6,983,610
less Progress payments received & receivable
(7,842,168)
(6,876,021)
Total due from customers
$
168,358
$
107,589
Progress Payments Received in Advance
Construction and support revenue recognised to date
$
77,146
$
22,572
less Progress payments received & receivable
(92,700)
(35,384)
Total due to customers
$
(15,554)
$
(12,812)
Total due from / (to) customers
$
152,804
$
94,777
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 2017
SHAREHOLDER INFORMATION
Inventories and work in progress
Current
Work in progress
Other inventory
Total
Notes
2017
’000
2016
’000
15
$
168,358
$
107,589
2,064
1,385
$
170,422
$
108,974
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 2017
SHAREHOLDER INFORMATION
Trade and other payables
Current
Trade & other payables owed to unrelated entities 1
Total
$
(154,914)
$
(229,774)
$
(154,914)
$
(229,774)
1. Trade payables are unsecured, non-interest bearing and are normally settled on 45 day terms.
2017
’000
2016
’000
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 2017
SHAREHOLDER INFORMATION
Infrastructure & other assets
Property, plant and equipment
i
Net carrying amount
Balance 30 June 2016
Gross carrying amount at fair value
Gross carrying amount at cost
Accumulated Depreciation & Impairment
(52,989)
Freehold
Land &
Leasehold
Plant &
Capital
Buildings
Improvements
Equipment
’000
’000
’000
WIP
’000
Total
’000
$
420,638
$
-
$
-
$
-
$
420,638
46,283
(5,822)
159,453
(94,831)
18,066
-
223,802
(153,642)
Net Carrying Amount
$
367,649
$
40,461
$
64,622
$
18,066
$
490,798
Balance 30 June 2017
Gross carrying amount at fair value
Gross carrying amount at cost
Accumulated Depreciation & Impairment
$
362,869
$
44,879
$
-
$
-
$
407,748
-
-
218,761
(14,607)
(12,328)
(104,940)
5,670
-
224,431
(131,875)
Net Carrying Amount
$
348,262
$
32,551
$
113,821
$
5,670
$
500,304
ii
Reconciliation of movement for the year
Freehold
Land &
Leasehold
Plant &
Capital
Buildings
Improvements
Equipment
’000
’000
’000
WIP
’000
Total
’000
Balance 1 July 2015
$
338,795
$
19,839
$
72,184
$
11,704
$
442,523
Depreciation charge for the year
(10,353)
(2,873)
Additions
Transfer in / (out)
Transfer to Assets Held for Sale
Disposals
Impairment
Revaluation
Exchange Adjustment
Total
$
905
$
215
$
14,212
$
28,815
$
44,147
463
22,703
-
-
-
-
-
28,675
9,164
-
954
(377)
242
(2,908)
(3,598)
(15,235)
(1,903)
-
1,628
(23,408)
-
-
-
-
-
955
-
(2,908)
(3,598)
(28,461)
`
(1,903)
29,629
11,370
$
28,854
$
20,622
$
(7,562)
$
6,362
$
48,276
Balance 1 July 2016
$
367,649
$
40,461
$
64,622
$
18,066
$
490,798
Additions
Transfer in / (out)
Disposals
Depreciation charge for the year
Exchange Adjustment
$
124
$
6
$
49,097
$
3,597
$
52,824
522
-
(9,892)
(10,141)
11
-
(6,817)
(1,110)
15,416
(100)
(13,670)
(1,544)
(15,949)
-
-
(44)
0
(100)
(30,379)
(12,839)
Total
$
(19,387)
$
(7,910)
$
49,199
$
(12,396)
$
9,506
Balance 30 June 2017
$
348,262
$
32,551
$
113,821
$
5,670
$
500,304
86 | AUSTAL LIMITED ANNUAL REPORT 2017
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
2017
’000
2016
’000
$
381,122
$
391,399
(77,063)
(69,169)
$
304,059
$
322,230
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
1.
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 in Note 19 for
impairment testing of goodwill and non-current assets.
87 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
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. 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.
2.
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 – Lease term
The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted
at the end of each financial year if appropriate.
3.
Revaluation of land and buildings
The Company’s land and buildings consist of office properties in Australia and USA.
Management determined that these constitute one class of asset under AASB 13, based on the
nature, characteristics and risk of the property.
The valuation methodology utilised a market comparison approach based on highest and best
use (refer to 0) which is consistent with the Group’s current use of the assets.
The cycle of review for independent revaluation has been determined by management to
occur every three to five years. In the years between obtaining independent valuations,
management undertakes an assessment to ensure that the latest independent valuation
remains appropriate and representative of fair value as at balance sheet date.
The last independent revaluation of the Company’s land and buildings occurred during
FY2016 by independent licensed valuers. The Land and Buildings assets were not revalued
during the FY2017 year. There has not been any indication of impairment nor any material
change in the valuation of the assets since they were last revalued.
88 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
Intangible assets and Goodwill
i
Net carrying amount
Balance 1 July 2016
Cost
Accumulated Amortisation & Impairment
Net Carrying Amount
Balance 30 June 2017
Cost
Accumulated Amortisation & Impairment
Net Carrying Amount
ii
Reconciliation of movement for the year
Balance 1 July 2015
Additions
Amortisation for the year
Exchange Adjustment
Total
Computer
Software
Goodwill
’000
’000
Total
’000
$
17,233
$
6,463
$
23,696
(14,400)
-
(14,400)
$
2,833
$
6,463
$
9,296
$
17,525
$
6,463
$
23,988
(15,079)
(15,079)
$
2,446
$
6,463
$
8,909
Computer
Software
Goodwill
’000
’000
Total
’000
$
3,174
$
6,463
$
9,637
$
994
$
-
$
994
(1,438)
103
-
-
(1,438)
103
$
(341)
$
-
$
(341)
Balance 30 June 2016
$
2,833
$
6,463
$
9,296
Balance 1 July 2016
Additions
Amortisation for the year
Exchange Adjustment
Total
$
2,833
$
6,463
$
9,296
$
822
$
-
$
822
(1,143)
(66)
-
-
(1,143)
(66)
$
(387)
$
-
$
(387)
Balance 30 June 2017
$
2,446
$
6,463
$
8,909
iii
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.
89 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
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:
1.
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 to 5 years.
2.
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 Cash Generating Unit (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.
3.
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.
The recoverable amounts have been assessed at the CGU level as identified below:
Australia
USA
Philippines
Corporate assets have been allocated to CGU to the extent that they relate to the CGU.
Goodwill, with a carrying amount of $6.4 million at 30 June 2017, acquired through business
combinations has been allocated to the Australia segment (refer to Note 3 for details).
The recoverable amounts, excluding charter vessels that are assessed independently, 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. Key
inputs into the budget include contracted and projected vessels.
Management concluded that the recoverable amount is greater than the carrying amount and
that no impairment charge is required as a result of this analysis.
90 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
iv
Significant accounting judgement and estimates
1.
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
0.0%
13.7%
2.0%
0.0%
15.6%
1.5%
0.0%
12.2%
2.5%
2.
Growth assumptions
Growth assumptions are based on future vessel construction and service projects to be
awarded. These contracts are based on tender price or historical experience on the size of the
vessel.
3.
Perpetuity growth rate
Management has taken a conservative view and included a 0% perpetuity growth rate in
calculation of the terminal value.
4.
Pre-tax discount factor
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.
5.
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.
6.
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 (excluding charter vessels that are assessed
independently). 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.
91 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
Other financial assets
Other financial assets
Collateral 1
Security deposits
Total
2017
’000
2016
’000
$
9,467
$
7,476
159
162
$
9,626
$
7,638
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. Collateral and security deposits are classified as receivables and measured
at amortised cost.
92 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
Other liabilities
Provisions
Employee
Workers'
Benefits
Compensation Warranty
’000
’000
’000
Other
’000
Total
’000
Provisions at 30 June 2016
$
(23,193)
$
(3,591)
$
(14,388)
$
(2,171)
$
(43,343)
Arising during the year
$
(76,267)
$
(6,718)
$
(6,315)
$
(57,708)
$
(147,008)
Utilised
Unused amounts reversed
Effects of foreign exchange
71,985
1,020
483
6,400
-
115
5,987
1,160
22
53,657
-
72
138,029
2,180
692
Movement
$
(2,779)
$
(203)
$
854
$
(3,979)
$
(6,107)
Provisions at 30 June 2017
$
(25,972)
$
(3,794)
$
(13,534)
$
(6,150)
$
(49,450)
Employee
Workers'
Benefits
Compensation Warranty
’000
’000
’000
Other
’000
Total
’000
$
(22,141)
$
(3,591)
$
(14,388)
$
(2,171)
$
(42,291)
(1,052)
-
-
-
(1,052)
$
(23,193)
$
(3,591)
$
(14,388)
$
(2,171)
$
(43,343)
$
(24,628)
$
(3,794)
$
(13,534)
$
(4,630)
$
(46,586)
(1,344)
-
-
(1,520)
(2,864)
$
(25,972)
$
(3,794)
$
(13,534)
$
(6,150)
$
(49,450)
2016
Current
Non-Current
Total
2017
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.
93 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
ii
Information about individual provisions and significant accounting estimates
1.
Employee 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.
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.
2. 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.
3. 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.
4.
Others
Loss provisions are established when it is probable that a contract may be deemed onerous.
An onerous contract arises when estimated total contract costs will exceed estimated total
contract revenue, in which case the estimated loss must be immediately recognised in the
Statement of Comprehensive Income (Profit & Loss).
Other provisions at 30 June 2017 includes a $(3.233) m loss provision for the Cape Class Patrol
Boat In Service Support Contract (CCPB ISS) with the Australian Border Force (ABF) which was
deemed onerous at 30 June 2017. The cost of resources required to deliver upon the
contracted services through to the maturity date on 1 August 2019 were estimated to exceed
the contract revenues at reporting date and hence a provision was booked with a
corresponding expense in Profit & Loss. The ABF has an option to extend the contract in
unspecified increments up to a total duration of 12 years from 1 August 2019. A loss provision
for an extension period beyond 1 August 2019 has not been recognised on the basis that the
option to extend has not been exercised, and the total duration of extensions is indeterminate
at reporting date. Austal would protest the extension of an onerous contract beyond the
original term and the cost of estimating an exit or continuation cannot be reliably measured at
reporting date. There is a risk that Austal may bear additional cost associated with this
contract.
94 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
5.
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 2016 (FY2016 H1: 2 cents).
A final fully franked dividend of “2” cents per share is proposed and not recognised as a
liability for the year ended 30 June 2017 (FY2016 final fully franked proposed and not
recognised: 2 cents).
Mols is the largest passenger ferry to be constructed at Henderson since 2013 and the largest ever
by volume, by Austal in 29 years.
95 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
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
2017
Cash and cash equivalents
Trade & other receivables
Other financial assets
Derivatives
Total
2016
Cash and cash equivalents
Trade & other receivables
Other financial assets
Derivatives
Total
10
14
20
23
10
14
20
23
$
-
$
150,471
$
150,471
-
-
3,036
100,444
9,626
-
100,444
9,626
3,036
$
3,036
$
260,541
$
263,577
$
-
$
224,318
$
224,318
-
-
487
128,340
7,638
-
128,340
7,638
487
$
487
$
360,296
$
360,783
Financial Liabilities
Derivatives used
Liabilities at
for hedging
at fair value
Notes
’000
amortised
cost
’000
Total
’000
2017
Trade & other payables
Derivatives
Interest bearing borrowings
Total
2016
Trade & other payables
Derivatives
Interest bearing borrowings
17
23
11
17
23
11
$
-
$
(154,914)
$
(154,914)
(5,125)
-
-
(196,355)
(5,125)
(196,355)
$
(5,125)
$
(351,269)
$
(356,394)
$
-
$
(229,774)
$
(229,774)
(16,402)
-
-
(172,611)
(16,402)
(172,611)
Total
$
(16,402)
$
(402,385)
$
(418,787)
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 2017
SHAREHOLDER INFORMATION
1.
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.
Balance 30 June 2017
Notes
Level 1
’000
Level 2
’000
Level 3
’000
Total
’000
Financial assets
Derivatives
Financial liabilities
23
$
-
$
3,036
$
-
$
3,036
Derivatives
23
$
-
$
(5,125)
$
-
$
(5,125)
Balance 30 June 2016
Financial assets
Derivatives
Financial liabilities
23
$
-
$
487
$
-
$
487
Derivatives
23
$
-
$
(16,402)
$
-
$
(16,402)
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. The fair value of derivative asset
positions at 30 June 2017 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.
Level 3
The instrument is included in level 3 if one or more of the significant inputs is not based on
observable market data.
97 | AUSTAL LIMITED ANNUAL REPORT 2017
ii
Impairment – Financial assets
SHAREHOLDER INFORMATION
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.
Balance 30 June 2017
Notes
Level 1
’000
Level 2
’000
Level 3
’000
Total
’000
Land & buildings
18
$
-
$
-
$
348,262
$
348,262
Balance 30 June 2016
Land & buildings
18
$
-
$
-
$
367,649
$
367,649
There were no transfers between any of the levels for recurring fair value measurements during the
year.
98 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
2.
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 2017
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 2016
Financial assets
Land and buildings
31 Dec 2015
$
-
$
-
$
392,419
$
392,419
Total
$
-
$
-
$
392,419
$
392,419
3.
Valuation inputs and relationships to fair value
The following table summarises the quantitative information about the significant
unobservable inputs used in recurring level 3 fair value measurements.
Description
Fair value at
30 June 2017
'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.
99 | AUSTAL LIMITED ANNUAL REPORT 2017
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 gearing levels
through business cycles
Excess cash investment within
high interest deposit accounts
Forward foreign exchange
contracts, Forward currency
options
Monitoring credit allowances
Credit risk
Liquidity
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
i
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.
ii
Market risk
1.
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.
100 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
2.
Interest rate risk exposure
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
renewal 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
2017
’000
2016
’000
$
5,227
138,481
6,791
$
79,165
137,713
7,440
$
150,499
$
224,318
US variable rate interest
$
(134,116)
$
(151,028)
Total
Net Exposure
$
(134,116)
$
(151,028)
$
16,383
$
73,290
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 FY2017 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)
2017
’000
2016
’000
$
37
$
383
(37)
(383)
$
31
$
(83)
(31)
83
101 | AUSTAL LIMITED ANNUAL REPORT 2017
iii
Interest rate risk strategies, policies and procedures
SHAREHOLDER INFORMATION
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.
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
and Philippines operations. 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 exposed to foreign currency risk at the end of the
reporting period were as follows:
102 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
All values are stated in AUD equivalents
AUD
’000
USD 1
’000
EUR
’000
Other
’000
Total
’000
$
41
$
11,230
$
1,951
$
1,714
$
14,936
-
717
1,311
874
2,548
3,482
668
53
4,527
5,126
$
758
$
13,415
$
7,981
$
2,435
$
24,589
Balance 30 June 2017
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivatives
Total
Financial liabilities
Trade and other payables
$
(769)
$
(2,689)
$
(232)
$
(534)
$
(4,224)
Derivatives
Total
(398)
(9)
(2,524)
(106)
(3,037)
$
(1,167)
$
(2,698)
$
(2,756)
$
(640)
$
(7,261)
Balance 30 June 2016
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivatives
Total
Financial liabilities
All values are stated in AUD equivalents
AUD
’000
USD 1
’000
EUR
’000
Other
’000
Total
’000
$
12
$
3,744
$
2
$
1,135
$
4,893
-
2,778
11,216
2,724
2,308
10,834
1,447
60
14,971
16,396
$
2,790
$
17,684
$
13,144
$
2,642
$
36,260
Trade and other payables
$
(17,651)
$
(3,804)
$
(9)
$
(423)
$
(21,887)
Derivatives
Total
(102)
(41)
(322)
-
(465)
$
(17,753)
$
(3,845)
$
(331)
$
(423)
$
(22,352)
1. Spot USD / AUD rate at 30 June 2017 was 0.7686 (30 June 2016: 0.7450)
2. Spot EUR / AUD rate at 30 June 2017 was 0.6722 (30 June 2016: 0.6705 )
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)
2017
’000
2016
’000
2017
’000
2016
’000
USD / AUD
+10%
-10%
EUR / AUD
+10%
-10%
$
1,581
$
971
$
2,097
$
1,408
(1,581)
(971)
(2,217)
(1,639)
$
-
$
-
$
(4,385)
$
(4,037)
-
-
5,360
4,934
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.
103 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
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.
Speculative 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. The Group’s policy is 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.
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 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
executed a new syndicated banking facility during FY2016. The syndicated facility agreement
matures in October 2018, and hence all liabilities relating to the facility agreement have been
disclosed as non-current at the reporting date.
104 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
The contractual maturities of financial liabilities, including interest payments are as follows:
Balance 30 June 2017
Derivative financial assets / (liabilities)
Carrying
Amount
’000
0 - 1
’000
Years to maturity
1 - 2
’000
2 - 5
’000
> 5
’000
Contractual
Cash
Flows (ii)
’000
Outflow
Inflow
$
(253,996)
$
(160,799)
$
(76,004)
$
(21,362)
$
-
$
(258,165)
217,666
139,341
63,872
17,957
-
221,170
Net derivative financial assets / (liabilities)
$
(36,330)
$
(21,458)
$
(12,132)
$
(3,405)
$
-
$
(36,995)
Non Derivative financial liabilities
Trade & other payables
Go Zone Bond facility (i)
Finance lease
Vessel finance for Cape Class Patrol Boats 9 & 10 (iii)
$
(154,914)
$
(154,914)
$
-
$
-
$
-
$
(154,914)
(123,303)
(7,861)
(65,192)
(10,908)
(2,684)
-
(11,412)
(2,631)
-
(35,449)
(2,795)
(42,000)
(68,457)
-
-
(126,226)
(8,110)
(42,000)
Total
$
(351,270)
$
(168,506)
$
(14,043)
$
(80,244)
$
(68,457)
$
(331,250)
(i) Go Zone Bonds are classified with 1 to 2 years to maturity because the letters of credit securing the bonds mature in October 2018.
(ii) Contractual cash flows include interest
(iii) Contractual cashflows are equal to the residual value of the vessels. Refer to Note 11 for further information.
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
’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
Finance lease
Revolving Credit Facility
Total
$
(229,774)
$
(229,774)
$
-
$
-
$
-
$
(229,774)
(136,113)
(10,655)
(25,843)
(4,210)
(2,544)
-
(4,210)
(141,725)
(2,631)
(11,221)
(7,769)
(15,478)
-
(333)
-
(150,145)
(13,277)
(26,699)
$
(402,385)
$
(236,528)
$
(18,062)
$
(164,972)
$
(333)
$
(419,895)
The Group had $112.403 million (FY2016: $36.398 million) of unused credit facilities available for
immediate use at balance date (Note 11) and $150.471 million (FY2016: $224.318 million) in cash and
cash equivalents, which can be used to meet its liquidity needs.
105 | AUSTAL LIMITED ANNUAL REPORT 2017
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.
106 | AUSTAL LIMITED ANNUAL REPORT 2017
iii
Fair value hedge accounting
SHAREHOLDER INFORMATION
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.
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.
107 | AUSTAL LIMITED ANNUAL REPORT 2017
v
Summary of forward foreign exchange contracts
SHAREHOLDER INFORMATION
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.
2017
2016
Average
Forward
Rate
Buy
'000
AUD
Average
Forward
Rate
Sell
'000
AUD
0.8527
0.8373
0.7569
0.6471
0.6467
0.6294
1.2309
1.2030
1.2136
$
8,018
0.7584
$
(132)
3,782
11,668
-
-
-
-
$
23,468
$
(132)
$
7,701
13,764
51,071
$
72,536
EUR
$
1,827
38,062
24,383
$
64,272
0.6505
0.6300
-
1.0577
1.0691
-
$
(80)
(23)
-
$
(103)
EUR
$
(3,061)
(7,050)
-
$
(10,111)
Average
Forward
Rate
0.8047
0.8214
0.8228
-
-
0.6355
Buy
'000
AUD
$
8,456
24,853
13,832
$
47,141
$
-
-
69,333
$
69,333
-
-
-
$
-
-
-
$
-
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)
$
(349)
(2,676)
(103)
$
(3,128)
$
(253)
(50,831)
(67,222)
$
(118,306)
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
vi
Offsetting financial instruments
The Group presents its assets and liabilities on a gross basis. Derivative financial instruments
entered into by the Group are subject to enforceable master netting arrangements such as
International Swaps and Derivatives Associations (ISDA) master netting agreement. All outstanding
transactions under an ISDA agreement are terminated in certain circumstances, for example, when a
credit event such as a default occurs. The termination value is assessed and only a single net
amount is payable in settlement of all transactions.
The amounts set out in the table above represent the derivative financial assets and liabilities of the
group that are subject to the above arrangements and are presented on a gross basis.
108 | AUSTAL LIMITED ANNUAL REPORT 2017
Unrecognised items
SHAREHOLDER INFORMATION
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.
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
No material commitments
Total
Guarantees
2017
’000
2016
’000
$
(2,552)
$
(2,947)
(6,244)
(6,291)
$
(8,796)
$
(9,238)
$
-
$
-
$
-
$
-
Bank performance guarantees1
$
(57,597)
$
(133,602)
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.
Events after the balance date
i
Dividend proposed
A fully franked final dividend of 2 cents per share (FY2016 final: 2 cents) has been proposed.
109 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
The Group, management and related parties
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
Hydraulink (NT) Pty Ltd
KM Engineering (NT) Pty Ltd
Austal Systems Pty Ltd
Austal UK Ltd
Austal Holdings Inc
Austal USA LLC
Austal USA Service LLC
Austal Philippines Pty Ltd
Austal Middle East Pty Ltd
Austal Holdings China Pty Ltd1
Oceanfast Luxury Yachts Pty Ltd
Oceanfast Pty Ltd
Seastate Pty Ltd
1.Austal China Holdings Pty Ltd incoporated in FY2017
i
Investment in joint venture
Country of
Incorporation
Equity Interest
2017
2016
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%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
100%
100%
100%
Investment In Joint Venture
2017
’000
2016
’000
Investment in Aulong Shipbuilding Co Ltd Joint Venture1
$
1,847
$
-
Total
$
1,847
$
-
Share of profit of joint venture
Share of profit / (loss) of joint venture
Total
2017
’000
2016
’000
$
(109)
$
-
$
(109)
$
-
The investment in Aulong joint venture represents the Group's 40% interest in the Chinese joint
venture, Aulong Shipbuilding Co Ltd. The remaining 60% of the joint venture is held by Chinese
company Jianglong Shipbuilding Co Ltd.
110 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
Related party disclosure
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
2017
’000
2016
’000
$
3,560
$
3,303
173
95
101
755
191
839
143
307
$
4,684
$
4,783
Detailed remuneration disclosures are provided in the Remuneration Report commencing on page 18.
LCS 8 delivered June 2016
111 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
Share based payments
i
Long Term Incentive (LTI) Plan
The long term incentive 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 will implement a change to the LTI plan for FY2018 to ensure that the scheme continues
to drive long term executive performance as well as meet normal industry practice. The Total
Shareholder Return (TSR) measure will be changed from indexed TSR (iTSR) to relative TSR (rTSR)
for the FY2018 grant and all other future awards following market feedback and advice from the
remuneration consultant.
iTSR determines the shareholders returns of Austal relative to a market index rather than capturing
the absolute performance of the Group. Setting an appropriate iTSR performance level (e.g. 200%
stretch in FY2016 & FY2017 grants) is inherently difficult because of the focus on a single market
average rather than the breadth of market results.
The Board assessed a peer group of companies that include TSR within their LTI schemes and
greater than 90% of companies in the peer group utilise Relative TSR (rTSR) which sets performance
hurdles in reference to percentiles of TSR for stocks included in the All Ordinaries Index.
The Board resolved to adopt rTSR for all LTI grants from FY2018 because rTSR is considered to
represent a more transparent and understandable basis for measuring performance which is
therefore easier to articulate and explain to beneficiaries and shareholders. Achieving company TSR
that is below the 50th percentile of the market is considered substandard whilst delivering a TSR that
is in the top quartile is clearly strong performance that should be rewarded.
1.
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.
2.
Form of incentive
The LTI should be based on Performance Rights that vest based on an assessment of
performance against objectives
3. 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.
4. Measures of long term performance
The Company uses two long term performance measures:
Total Shareholder Return (TSR)
Return on Invested Capital (ROIC)
112 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
5.
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 FY2017 are as follows:
6.
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 FY2017 LTI Plan is determined by ROIC .
Performance Level
Below Threshold
Threshold
ROIC
< 6.6%
6.6%
Between Threshold and Target
> 6.6% ROIC > 7.4%
Target
Between Target and Stretch
Stretch
7.4%
> 7.4 % ROIC < 8.3%
>= 8.3%
Vesting %
0%
25%
Pro-rata
50%
Pro-rata
100%
7.
Total Shareholder Return (TSR) measure
Indexed Total Shareholder Return (iTSR): 40% of the FY2017 LTI plan performance rights
issued will be assessed against Austal’s iTSR. This is calculated by comparing the actual
shareholder return of Austal Limited, measured over the three year measurement period, to
the All Ordinaries Total Return Index (XAOA) 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%
113 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
8.
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.
9.
Holding period
A one year holding period applies to shares that are awarded as a result of Performance
Rights vesting.
10. Rights issued and valuation
3,103,111 (FY2016: 1,566,127) performance rights were issued during the year.
Balance at
Grant
30 June 2016
Issued
Exercised
Forfeited
/ Lapsed
Balance at
Tranche 1
Tranche 2
30 June 2017
Expiry date
Expiry date
FY2014
FY2015
FY2016
FY2017
Total
296,429
547,845
821,133
-
3,103,111
1,665,407
3,103,111
-
-
-
-
-
(46,760)
(73,130)
(61,921)
(42,979)
249,669
474,715
759,212
3,060,132
30 Jun 2015
30 Jun 2017
30 Jun 2017
30 Jun 2017
30 Jun 2018
30 Jun 2019
-
-
(224,790)
4,543,728
The board has the discretion to decide if performance rights will lapse or vest.
The Group uses the Monte Carlo model to value the performance rights. The following table
lists the inputs to the valuation model used:
Cape Class Patrol Boat 9 (Cape Inscription) launch in Henderson, Western Australia
114 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
FY2017
Monte Carlo simulation method assumptions:
Discount Rate
Share Price Volatility
Grant Date
Assumptions
Tranche A
Tranche B
1.4% p.a.
45% p.a.
1.7% p.a.
45% p.a.
1 September 2016
28 October 2016
Expected life of option (years)
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
$0.97
$1.37
$1.45
$1.11
$1.45
$1.53
FY2016
Monte Carlo simulation method assumptions:
Assumptions
Tranche A
Tranche B
Tranche C
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
115 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
11. Extension of FY2014 & FY2015 LTI measurement periods
The Board 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.
The Group used a Monte Carlo model to value the extension of the performance rights:
Monte Carlo simulation method assumptions:
Discount Rate
Share Price Volatility
Grant Date
Expected life of option (years)
Measurement Period 2
1.4% p.a.
45% p.a.
1 September 2016
1
Summarised results based on performance conditions:
TSR
ROIC
Total
Number of performance rights issued to all participants
74,901
174,768
249,669
Fair value per performance right - with vesting conditions
$
1.26
Fair value per performance right - without vesting conditions
$
1.43
Share price at grant date
Total value of performance rights
Number of performance rights expected to vest1
$
1.45
$
1.45
$
1.45
$
94,375
$
249,918
$
344,294
74,901
-
74,901
Total value of performance rights expected to vest
$
94,375
$
-
$
94,375
1. There was no prospect of ROIC rights vesting because of the magnitude of the Group EBIT loss in FY2016.
Monte Carlo simulation method assumptions:
Discount Rate
Share Price Volatility
Grant Date
Expected life of option (years)
Measurement Period 1
1.4% p.a.
45% p.a.
1 September 2016
1
Summarised results based on performance conditions:
TSR
ROIC
Total
Number of performance rights issued to all participants
35,603
83,074
118,677
Fair value per performance right - with vesting conditions
$
1.10
Fair value per performance right - without vesting conditions
$
1.43
Share price at grant date
Total value of performance rights
Number of performance rights expected to vest1
$
1.45
$
1.45
$
1.45
$
39,163
$
118,796
$
157,959
35,603
-
35,603
Total value of performance rights expected to vest
$
39,163
$
-
$
39,163
1. There was no prospect of ROIC rights vesting because of the magnitude of the Group EBIT loss in FY2016.
116 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
ii
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.
iii
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:
597,846 shares allocated under Plans 1 and 2 with a weighted average price of $1.27 each, with
no contractual life; and
3,417,693 shares that are unallocated.
1.
Plan 1
The Group established the first Austal Group Management Share Plan (Plan 1) in 1998 so that
Directors and key managers could participate in owning shares in the Company. The features
of the Plan are:
Austal offered loans to participants for up to 100% of the purchase consideration for their
shares on a limited recourse basis.
The shares were made available to the participants at market value.
The Board determined the number of shares that were made available to each participant.
The shares are required to be held by a trustee on behalf of the participant.
All shares have vested and may be transferred to participants provided that any loan in
respect of these shares has been repaid.
Dividends on shares held under the Plan must be applied to pay interest on the loans with
any surplus in excess of the interest expense distributed to participants. 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.
117 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
2.
Plan 2
Plan 2 was established by the Group in 2000. Plan 2 is similar to Plan 1 with one main point 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 is calculated as 60% of any dividends paid on any
shares acquired by the person to whom the loan was made.
3.
Summary of movement
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
1 July
Exercised
Lapsed
30 June
All remaining options were fully vested and exercisable throughout the year
iv
CEO fixed remuneration share rights issue
2017
’000
2016
’000
684
-
(86)
598
684
-
-
684
The structure of Base Remuneration for the CEO, David Singleton, for the period ended 30 June 2017
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.
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. 191,740 share rights were earned for
FY2017. 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 right is based on the closing share price of $1.53 / share on the date of the 2016 Annual
General Meeting when the arrangement was approved for a period up to 31 December 2019.
v
Recognition - equity settled transactions
The Group provides benefits to employees (including executive Directors and key management
personnel) of the Group in the form of share-based payments, whereby employees render services
in exchange for shares or rights over shares (equity settled transactions).
Equity settled benefits have been provided to senior management and Directors under the following
plans in the current and prior years:
The Austal Group Management Share Plan (AGMSP)
The Long Term Incentive Plan (LTI Plan)
CEO shares
118 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
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.
vi
Recognised share-based payment expenses
The expense recognised for share based payments during the year is shown in the table below:
Share Based Payments Expense
Expense arising from equity-settled share-based payment transactions
$
(1,067)
$
(796)
2017
’000
2016
’000
119 | AUSTAL LIMITED ANNUAL REPORT 2017
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
2017
’000
2016
’000
$
42,860
$
80,583
292,440
289,944
$
335,300
$
370,527
$
(3,918)
$
(7,786)
(3,537)
(3,996)
$
(7,455)
$
(11,782)
$
327,845
$
358,745
$
116,384
$
114,738
2,561
10,656
(153)
198,397
5,688
10,656
(1,577)
229,241
$
327,845
$
358,746
Net Profit / (Loss) after tax
Total Comprehensive Income
$
(22,246)
$
14,031
(20,822)
35,048
Austal Limited provides parent company guarantees in respect of contract performance by various
members of the Austal Group including Austal USA LLC, Austal Ships Pty Ltd and
Austal Philippines Pty Ltd.
120 | AUSTAL LIMITED ANNUAL REPORT 2017
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 2017 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 2017.
John Rothwell AO
Chairman
on behalf of the Board
25 August 2017
Austal USA has established a new office in Singapore to provide in-theatre support to the US Navy’s Littoral Combat Ship (LCS) and
Expeditionary Fast Transport (EPF) fleets. A full-time on-site technical representative, augmented by fly-away teams from the US is supporting
the USS Coronado in Guam and three EPFs operating in the vicinity of Singapore.
121 | AUSTAL LIMITED ANNUAL REPORT 2017
Independent audit report to the members of Austal Limited
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Report on the audit of the financial report
Opinion
We have audited the financial report of Austal Limited (the Company) and its subsidiaries (collectively the Group), which comprises
the consolidated statement of financial position as at 30 June 2017, 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 to the
financial statements, including a summary of significant accounting policies, and the directors' declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:
a)
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2017 and of its consolidated
financial performance for the year ended on that date; and
b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further
described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the
Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are
relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with
the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report
of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our
opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our
report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to
our assessment of the risks of material misstatement of the financial report. The results our audit procedures, including the of
procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report.
122 | AUSTAL LIMITED ANNUAL REPORT 2017
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1. Recognition of revenues and profits on long-term contracts
Why significant
How our audit addressed the key audit matter
The Group’s business involves entering into contractual relationships with
customers to provide construction services and other maintenance services.
A significant proportion of the Group’s revenues and profits is derived from
long-term contracts.
Revenue recognition on these long-term contracts involves judgment, with
estimates being made to:
•
•
•
Assess the estimated total contract costs over the life of the contract;
Assess the stage of completion of the contract; and
Forecast the contract revenues after taking into consideration scope
and price variations to the original contract.
The Group’s disclosures are detailed in Note 4 – Revenue, Note 15-Vessel
Construction and Support contracts in progress and Note 16 - Inventories
and work in progress to the financial report.
We examined all key contracts and made enquiries of the Group to obtain a full
understanding of the specific terms and risks, which in turn allowed us to assess
whether revenue was appropriately recognised.
We evaluated and tested the design and operating effectiveness of relevant
controls that underpin the underlying contract related cost balances including the
purchase to pay, and payroll cycles.
We tested the accuracy and timing of revenue recognised in the financial report. In
obtaining sufficient audit evidence, we:
•
•
•
Tested the revenue and billing cycles for material contracts including vouching
material cash receipts and comparing forecast revenue to contracts and
approved variations;
Tested the accuracy of the computation of the revenue recognition based on
percentage completion for material contracts on a sample basis; and
Recalculated the profit margin on material contracts and made inquiries of
key executives regarding any changes in margin from the prior period.
For the material contracts we performed the following additional procedures:
•
•
•
•
•
Obtained an understanding of the performance and status of the contracts
through inquiry of key executives having oversight over the various contract
portfolios;
Tested the contract status through the examination of externally generated
evidence, such as customer correspondence;
Performed physical observations of the stage of completion of key vessel
contracts;
Involved our government contract services specialists to evaluate the Group’s
cost estimates for key contracts; and
Assessed the Group’s accounting policies and the adequacy of its related
disclosures as detailed in the financial report.
2. Carrying value of non-current assets and intangible assets including goodwill
Why significant
How our audit addressed the key audit matter
The Group has significant property, plant and equipment and intangible
assets including goodwill totalling $509.2 million as at 30 June 2017.
An assessment is required to be made annually by the Group to determine
whether there are indicators that the carrying value of these assets is
impaired.
If indicators are identified, and for goodwill intangibles, the assessment of
impairment involves judgment, with estimates being made in relation to
cash flow projections, growth rates and discount rates.
The Group identified impairment indicators relating to two Cash Generating
Units (‘CGUs’) being Australia and the Philippines.
The Group’s disclosures relating to the recognition and measurement of non-
current assets and intangibles and impairment are included in Note 18 -
Property, plant and equipment and Note 19 –Intangible assets and goodwill
to the financial report.
We examined the impairment assessment prepared by the Group. We made
enquiries of the Group regarding market, technological and economic factors as
well as any planned business changes to understand the basis for the assessment
of impairment indicators.
We examined the Group’s model for assessing impairment in the two CGU’s and,
together with our valuation specialists, we assessed and tested:
•
•
•
•
The appropriateness of the methodology adopted in the model;
The assumptions underpinning the cash flow projections of the CGUs as well
as considered the historical reliability the Group’s cash flow forecasting
process;
The assumptions underpinning the terminal value growth rate by performing a
historical budget analysis and a sensitivity analysis; and
The appropriateness of the discount rate applied.
We assessed the adequacy of the Group’s disclosures relating to the recognition
and measurement of non-current assets and intangibles and impairment.
123 | AUSTAL LIMITED ANNUAL REPORT 2017
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3. Warranty obligation
Why significant
How our audit addressed the key audit matter
The Group recognises a warranty obligation upon the delivery of vessels to
customers based on the estimated future cost of warranty repairs on vessels.
The warranty obligation is estimated using the value of historical claims and
known potential claims relating to vessel contracts excluding those
contracts in the USA.
Warranty obligation relating to USA contracts is recognised in Inventory as
part of estimated total contract costs over the life of the construction, rather
than as a provision in the financial report.
The determination of the warranty obligation involves judgment, with
estimates being made to determine the value of future potential claims.
The Group’s disclosures relating to warranty provisions are included in Note
21–Provisions to the financial report.
We tested the Group’s assessment of the value of historic claims and known
potential claims relating to warranty repairs by vouching warranty repair costs
incurred subsequent to the year end, where applicable.
We made inquiries of key executives having oversight over the various contract
portfolios, regarding the adequacy of the warranty obligation based on the likely
outcome of claims, and the estimated cost of repairs including labour hours and
materials.
We assessed the adequacy of the Group’s disclosures relating to warranty
provisions.
4. Taxation
Why significant
How our audit addressed the key audit matter
The Group’s geographic operations results in significant income tax
expense, across two main jurisdictions, being USA and Australia.
Together with our tax specialists we assessed the Group’s tax-related balances and
the underlying assumptions and calculations on which these were derived.
In addition, significant deferred tax assets and liabilities are recognised by
the Group.
We examined correspondence from the Group’s tax advisers in both Australia and
the USA and correspondence between the Group and the ATO.
During the year an audit was completed by the Australian Taxation Office
(‘ATO’). Amended tax assessments have been issued by the ATO in respect of
the matters and the tax years that the audit focused on. The Group has
provided for any additional tax or penalties arising from the ATO audit.
The Group’s disclosures relating to taxation are included in Note 9 –Income
and other taxes to the financial report.
We also assessed the independence and competence of the Group’s tax advisers.
We involved our tax specialists to assist in evaluating the potential exposure to
additional tax or penalties that may become payable as a result of the tax audit,
and the Group’s provision for additional tax or penalties. We assessed the
adequacy of the Group’s disclosures relating to taxation.
Information other than the financial report and auditor’s report thereon
The directors are responsible for the other information. The other information comprises the information included in the Company’s
2017 Annual Report, but does not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise
appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
124 | AUSTAL LIMITED ANNUAL REPORT 2017
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Responsibilities of the directors 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 control as the directors determine is
necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement,
whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern,
disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial
report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain
professional scepticism throughout the audit. We also:
•
•
•
•
•
•
Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform
audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for
our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the
Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the
financial report represents the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the
Group audit. We remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we identify during our audit.
125 | AUSTAL LIMITED ANNUAL REPORT 2017
A member firm of Ernst & Young Global Limited
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We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence,
and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and
where applicable, related safeguards.
From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the
financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless
law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
Report on the audit of the remuneration report
Opinion on the remuneration report
We have audited the Remuneration Report included in pages 20 to 43 of the directors' report for the year ended 30 June 2017.
In our opinion, the Remuneration Report of Austal Limited for the year ended 30 June 2017, complies with section 300A of the
Corporations Act 2001.
Responsibilities
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.
Ernst & Young
Robert A Kirkby
Partner
Perth
25 August 2017
126 | AUSTAL LIMITED ANNUAL REPORT 2017
A member firm of Ernst & Young Global Limited
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SHAREHOLDER INFORMATION
Shareholder information
The following information was extracted from the Company’s register at 28 July 2017.
Distribution of shares
Individual shareholding
1 - 1000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Total
Twenty largest shareholders
Number of
shares
% of Total
issued capital
Number of
holders
755,882
5,382,949
6,123,448
20,704,908
316,505,456
0.22%
1.54%
1.75%
5.93%
90.57%
349,472,643
100.00%
1,695
1,999
805
809
68
5,376
Rank
Shareholder
Number of
shares
% of Total
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
BNP Paribas Noms Pty Ltd
Zero Nominees Pty Ltd
Onyx (WA) Pty Ltd
Austal Group Management Share Plan Pty Ltd
Mr William Robert Chambers
Mr Garry Heys & Mrs Dorothy Heys
Sandhurst Trustees Ltd
Lavinia Shipping Limited
Mossisberg Pty Ltd
Lujeta Pty Ltd
AMP Life Limited
ACE Property Holdings Pty Ltd
Aust Executor Trustees Ltd
Kenny Nominees (NT) Pty Ltd
Warbont Nominees Pty Ltd
Total
Voting rights
107,629,283
59,208,602
40,860,758
32,807,692
23,427,053
8,812,137
6,984,807
6,800,000
4,015,539
3,260,791
2,844,670
2,648,607
1,970,000
1,912,000
1,300,000
1,124,036
1,000,000
998,476
815,783
578,688
Yes
Yes
Yes
Yes
Yes
30.80%
16.94%
11.69%
9.39%
6.70%
2.52%
2.00%
1.95%
1.15%
0.93%
0.81%
0.76%
0.56%
0.55%
0.37%
0.32%
0.29%
0.29%
0.23%
0.17%
308,998,922
88.42%
All ordinary shares issued by Austal Limited carry one vote per share without restriction.
127 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
Corporate governance statement
The Company has elected to post its Corporate Governance Statement on its website in accordance with
ASX Listing Rule 4.10.3. The Corporate Governance Statement can be found at the following URL:
www.austal.com/corporategovernance.
Enterprise Risk
Austal manages a number of material risks to its business on an ongoing basis. The impact of these risks
could reasonably be expected to have a material impact on the value of the business if they were to occur
and to the ongoing viability of the Company in exceptional circumstances. Investors are advised to take
these risks into account when investing in Austal and be mindful that such risks can materialise at short
notice.
LCS program in the USA
LCS is Austal’s biggest single contract and could be cancelled or curtailed by the US Government at any
time. Austal currently has firm orders for ships up to LCS 28 (vessels up to and including LCS 10 have been
delivered thus far) and expects further orders in US fiscal year 2017 and 2018 but these orders are not
guaranteed to materialise. The US Government has also announced an early curtailment of the LCS
version of the small surface combatant programme to be replaced by a FFG(X) program in 2020 which may
or may not be based upon the LCS platform.
The US Navy completed physical “shock trials” of LCS 6 in July 2016 to measure and assess the impact of
an explosive charge detonated at a specified proximity to the vessel whilst underway at sea. The specific
results of these trials remain classified by the US Navy, and are unlikely to ever be released to either Austal
or the public in light of the extreme sensitivity of the vessel’s capability to withstanding the impact of
shock.
Austal has not been advised of any material issues regarding vessel performance by the US Navy,
however the analysis conducted by the US Navy has not been finalised which means that the risk of
incurring additional cost to address issues that may be identified by the analysis cannot be discounted
entirely.
The residual risk regarding the performance of LCS and the shock trial analysis will reduce over time as the
vessel continues to demonstrate its capabilities.
EPF program in the USA
The currently stated acquisition program for the EPF vessel is for 10 ships although 12 vessels have been
ordered to date. The US fiscal year 2017 budget contains no plans for further vessel orders. Austal is of the
view that further vessels may be ordered in future but this presents a significant risk and may not occur.
Offshore Patrol Vessel (OPV) in Australia
The OPV contract represents the single most important program for the Henderson shipyard operations in
Australia due to the size and duration of the potential contract. Austal is in a joint venture with Fassmer of
Germany for this contract in competition with 2 other consortia. Failure to win the contract will seriously
impede the future viability of the Australian operations and could lead to partial or full closure of the
Henderson shipyard operations when current contracts come to an end.
Commercial Ferries
The commercial high speed aluminium ferry business is a key market for Austal and provides significant
workload to both the Philippines and Australia business units. Whilst there is strong current evidence of
significant growth in this market, this cannot be guaranteed. The ferry industry can be adversely affected
by economic, political, social, security and other factors which delay or eliminate future orders for vessels
or even cancellations of current vessels as was experienced following the financial crisis of 2008. Closure
of this market could force a closure of shipyards or severe curtailment of operations.
128 | AUSTAL LIMITED ANNUAL REPORT 2017
SHAREHOLDER INFORMATION
Product Liability
Austal’s products are typically large and complex. A high degree of expertise is required in their
construction but also in their operation and sustainment. The customers to which Austal sells its vessels
and the environments in which our vessels are used – whether defence, paramilitary or commercial – are
equally demanding. The risk of product failure or fault applies to every manufacturing business, however
the unique complexities of large vessel design and construction, and the particularly taxing conditions in
which Austal’s vessels operate generally mean that the potential consequences of any issues with either
construction or operation are significant. Austal has a comprehensive insurance portfolio in place to
mitigate this risk but coverage is subject to typical limitations, so material claims arising from either
construction issues, or by third parties following operational issues, could require Austal to either
undertake significant remedial or restorative work at its own expense, or potentially pay compensation to
third parties if insurance coverage is restricted, delayed or not available.
Banking Arrangements
Austal has financial facilities provided by a syndicate of four banks with financial covenants that must be
adhered to at all times. A material adverse change in the financial performance of the Austal Group could
result in a breach of these covenants which would place Austal in default of its banking arrangements. A
financial breach could result in Austal needing to raise capital from debt or equity markets on unfavourable
terms or result in the Directors of Austal or the banking syndicate placing Austal in administration,
receivership or liquidation.
Health, safety and environment
Austal is exposed to typical health and safety risks associated with the operation of major manufacturing
facilities like shipbuilding yards. Potential safety events include those arising from working from heights
and in confined spaces, operation of lifting machinery, fabrication tools and the use of hazardous
substances. There is also risk of impacting the surrounding environment given the nature of Austal’s
operations and their close proximity to waterways.
Austal has a number of measures in place to mitigate these risks. Austal has Safety, Health and
Environment (SHE) Management Plans that underpin all of Austal’s operations and clearly outline its
health, safety and environment strategies. The SHE Plans are monitored by SHE teams at each
shipbuilding facility. Austal’s ongoing focus is achieving ‘Zero Harm and Zero Waste’ and ensuring it
meets applicable health and safety and environmental legislative standards.
Austal has a certified management system to OHSAS 18001 and AS/NZS 4801. Austal also has a formal
Risk Management Framework, designed in accordance with ISO31000: Risk Management – Principles and
Guidelines, which is aligned to Australian Defence standard ABR6492 and the Royal Australian Navy
Technical Regulations Manual. Austal considers itself an industry leader in overall safety performance
however it is acknowledged that a degree of risk will always be present as an industrial manufacturer.
Cyber security
Austal’s production of vessels for the USA and Australian governments and other governments of other
countries means that it handles sensitive information. Austal has established information handling policies
and standards and cyber security measures that seek to prevent the disclosure and theft of such
information, however, we have seen the ability of parties to hack into even the most well protected
systems around the world and sometimes create high levels of interference or public disclosure, which
may include but are not limited to demands of large financial payments or interruption of service. Such a
breach could inflict severe damage on the Company given Austal's position in defence contracting in the
USA, Australia and around the world and, affect its ability to continue operations in an extreme outcome.
Tax treatment in Australia, USA and other jurisdictions
Austal believes that it has materially met its tax obligations in the jurisdictions that it operates which
includes cross border tax arrangements currently under scrutiny by authorities around the world including
the ATO (Australia) and the IRS (USA). Austal is currently reviewing its tax arrangements which could alter
its tax treatment both in Australia and overseas and is therefore seeking tax rulings and agreements
between international revenue authorities to reduce the risk of non-compliance.
129 | AUSTAL LIMITED ANNUAL REPORT 2017
Directors
Executive Directors
Mr David Singleton
Non-Executive Directors
Mr John Rothwell
Mr Giles Everist
Mr Jim McDowell
Auditors
Ernst & Young
The Ernst & Young Building
11 Mounts Bay Road
Perth 6000
Western Australia
Company Secretary
Mr 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
SHAREHOLDER INFORMATION
Corporate directory
Pacific Patrol Boat Replacement (PPB-R) under construction at
Austal Australia
PPB-R new facility ribbon cutting by The Honourable
Christopher Pyne, Australian Minister for Defence Industry
Swire Pacific built in Austal Philippines
130 | AUSTAL LIMITED ANNUAL REPORT 2017