▮ Contents
▮ Contents ............................................................................................................................................................................................................. 2
▮ Index to the notes to the financial statements ...................................................................................................................................... 3
▮ Chairman’s report ......................................................................................................................................................................................... 16
▮ Chief Executive Officer’s report................................................................................................................................................................ 18
▮ Review of operations .................................................................................................................................................................................. 20
▮ Directors’ report ............................................................................................................................................................................................24
▮ Remuneration report [audited] ..................................................................................................................................................................31
▮ Auditor independence .................................................................................................................................................................................. 51
▮ Consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2018 ............. 52
▮ Consolidated statement of financial position as at 30 June 2018 ................................................................................................. 53
▮ Consolidated statement of changes in equity for the year ended 30 June 2018..................................................................... 54
▮ Consolidated statement of cash flows for the year ended 30 June 2018 ................................................................................... 55
▮ Notes to the financial statements ............................................................................................................................................................56
▮ Directors’ declaration ................................................................................................................................................................................ 123
▮ Independent audit report to the members of Austal Limited ........................................................................................................ 124
▮ Shareholder information ........................................................................................................................................................................... 130
▮ Corporate governance statement ........................................................................................................................................................... 131
▮ Corporate directory ..................................................................................................................................................................................... 131
2 Austal Limited | Annual Report 2018
▮ Index to the notes to the financial statements
Basis of preparation ........................................................................................................................................................................................56
Current year performance ............................................................................................................................................................................. 61
Capital Structure .............................................................................................................................................................................................. 81
Working Capital ................................................................................................................................................................................................ 88
Infrastructure & other assets ....................................................................................................................................................................... 92
Other liabilities ................................................................................................................................................................................................ 100
Financial Risk Management ........................................................................................................................................................................ 106
Unrecognised items ........................................................................................................................................................................................ 115
The Group, management and related parties ......................................................................................................................................... 116
Austal Limited | ▮ Index to the notes to the financial statements 3
4 Austal Limited | Annual Report 2018
Austal Limited | ▮ Index to the notes to the financial statements 5
6 Austal Limited | Annual Report 2018
Austal Limited | 7
8 Austal Limited | Annual Report 2018
Austal Limited | 9
10 Austal Limited | Annual Report 2018
Austal Limited | 11
12 Austal Limited | Annual Report 2018
Austal Limited | 13
14 Austal Limited | Annual Report 2018
Austal Limited | 15
▮ Chairman’s report
Financial Year Highlights
Austal’s 30th Year.
Littoral Combat Ship (LCS) program now stable
and reliable.
Growth of a potentially multi decade ship
support business.
Growing workforce of over 5000 highly
committed people.
It is my pleasure to present to shareholders the
2018 Annual Report on behalf of the Board of
Austal Limited in the year that we have celebrated
the 30th birthday of the company.
In particular the board is pleased that Austal’s
FY2018 Earnings Before Interest Tax Depreciation
and Amortisation (EBITDA) and Net Profit After Tax
(NPAT) are some of the better results posted by the
Company in those 30 years. FY2018 EBITDA of
$102.319 million was 32.8 per cent higher than the
FY2017 result and was the second time that it has
reached the $100 million mark. The Company’s
NPAT of $39.028 million was 25.6 per cent higher
than the prior corresponding period.
16 Austal Limited | Annual Report 2018
We have maintained momentum right across the
business in FY2018 with significant operational
improvements; achieved stronger financial results;
and progressed our strategic milestones.
This progress, has been built on the order book and
production efficiency achievements of the last
couple of years and points to a cycle of development
that Austal should benefit from over the next few
years.
Our FY2018 financial result was primarily driven by
our US shipbuilding activities on relatively stable US
revenue of $1.163 billion. The major part of our
business both operationally and financially is in the
United States of America, which is focused on two
shipbuilding programs for the US Navy, the Littoral
Combat Ship (LCS) and Expeditionary Fast Transport
(EPF). We are now well into these programs and
therefore the significant risk during the start-up of a
new vessel class of this magnitude is now largely
behind us. Operational performance has continued
to improve to a point where we now have good,
consistent and highly predictable production with
ever increasing levels of efficiency. The US
management team has done a superb job driving
this operational performance, in delivering the
financial results and in maintaining a healthy and
productive relationship with the US Navy.
Less obvious to the external observer are the efforts
that have gone in to developing our service and
support business, which will create a long term
revenue stream maintaining the vessels that we have
built. It takes around three years to build a ship but
maintenance of the vessel will last for up to another
25 years and as our delivered vessel numbers grow
inexorably so does the potential for service and
support revenue growth. We need to be close to our
customer to maintain a high quality of support and
so we have undertaken a major expansion of our
maintenance centre for the LCS in San Diego where
the LCS vessels are home ported.
For the future, the utility of both of the vessel
classes that we produce in the USA is becoming
clearer, with new variants of the EPF being
discussed in addition to the development program
for the FFG(X) frigate.
Austal CEO David Singleton, began to inform the
market of a resurgence in our core high speed ferry
market in early 2016. This market continued to
gather momentum through last year and is delivering
construction opportunities and contracts in advance
of our previous expectations.
Our analysis of international ferry fleet renewal
requirements plus route expansions indicates a
favourable outlook for civil ferry construction for
several years to come at least. In response, we have
implemented a major expansion of our Asian-based
shipbuilding facilities which will increase our
capacity in the region fourfold.
This increase includes the tripling of our capacity in
the Philippines, where we have been building high
speed catamarans since 2012. Not only has
capacity increased, but this yard will be able to
build the biggest vessels currently planned at Austal
at costs which are internationally competitive. In
addition, we have committed to new purpose built,
leased, facilities in Vietnam and are nearly two years
into our joint venture in China to build high speed
aluminium vessels for that market. This new
capacity, combined with our existing facilities in
Henderson Western Australia, will collectively deliver
the 30 non-USA ships in our order book out to
2023.
Whilst our quality and delivery performance from
Asia and Australia has been exemplary, our financial
performance in these two regions has yet to reflect
those operational benchmarks. However, we now
believe that the volume of work coupled with the
margins the work has been priced at will enable a
significant turnaround over the next year and will
therefore add to the financial performance of our US
operations.
Not everything has gone to plan, and certainly the
loss of the Royal Australian Navy’s Offshore Patrol
Vessel contract was a disappointment in a year of
many achievements. We certainly gave this project
our best shot having teamed with a vessel design
that we were told was acceptable to the Navy.
We were surprised at the outcome given that our
tender price was lower than the winning tender, a
product of our construction efficiency, and lament
the impact it will have on Australia’s sovereign
shipbuilding capability which appears to have been
ceded largely to foreign companies.
Nonetheless, Austal never gives up, and the bounce
back in orders and performance is testament to that.
Whilst one door has closed, others have opened.
Board and Executive Management.
We received the resignation of Jim McDowell as a
non-executive director of Austal Limited in early
August 2018. Jim joined the Board more than three
years ago, but has recently taken up a role as the
Chief Executive of the Department of Premier and
Cabinet for the Government of South Australia. Jim
has had to retire from all of his non-executive
positions as a result. I am pleased to report that the
Board has recommended Chris Indermaur for the
vacant role and he will be offered up for election by
the shareholders at the AGM in October. Chris
trained as both an engineer and lawyer and in
addition, brings a wealth of strategic skills to the
Board as we drive the future expansion of the
company.
The executive management team has stayed virtually
unchanged over the last year, which provides a
stable base to achieve our long term goals.
Collectively the CEO and the Executive Leadership
Team is continuing to implement our strategic plan
and deliver against our key operational objectives.
People
I wish to thank and acknowledge the efforts and
achievements of our hard working people, employed
in five separate shipyards and four service centres
across the globe. Our company’s achievements over
the last 30 years is outstanding and testament to
the determination that our people are renowned for.
My sincere thanks to you all in the many countries
that we are represented around the world, whether
you are a 20 plus year veteran or a new starter.
John Rothwell AO
Chairman
Austal Limited | 17
▮ Chief Executive Officer’s report
That program, whilst not overly large financially,
would have created a strong and stable base for
our people and operations in Henderson, Western
Australia.
Out of adversity however, new opportunities can
emerge and we are continuing to see Austal’s
commercial shipbuilding business benefiting from
a renewed focus as we develop new advanced
vessels, develop exciting technologies and as a
result work with high quality customers.
Our service and sustainment business also
continues to build, growing with the number of
military vessels delivered into service in recent
years, with a long pipeline of more vessels to
come. Whilst a ship may be built over a couple of
years, sustainment can provide solid income for
the group for the next quarter of a century.
Defence
The standout achievement in this financial year
has been our defence business in the USA, which
has emerged in great shape from what was a
challenging period. The almost inevitable, first-
in-class issues on both vessel programs we are
building for the US Navy are now behind us, with
Austal now into the efficient production and
delivery of LCS and EPF. Production, quality and
safety performance in the shipyard in Alabama
has been exemplary and provides a firm base for
years to come as efficiency continually improves
demonstrated by the 30 per cent improvement on
the LCS program to date. This focus on
construction efficiency will continue to define the
nature of this operation.
We continued to progress well on the Guardian
Patrol Boat Program which is being constructed in
Australia and gifted by the Commonwealth of
Australia to Pacific island nations. This program
was extended from 19 to 21 ships in FY2018,
bringing its total value to $335 million for
shipbuilding and associated in-service support.
The program is now entering full scale
production, with the first Guardian Class Patrol
Boat, GCPB 1, launched in May 2018 and
construction on GCPB 4 started in June 2018.
Financial Year Highlights
Austal USA delivery and financial
performance ahead of expectations.
New orders for LCS with more funded in the
US 2018 Defense budget.
Commercial Order book success a precursor
to future financial performance.
Investment in facility expansion in Australia,
Philippines and Vietnam.
The 2018 financial year has featured significant
improvements in a number of key areas of our
business which will not only hold us in good stead
for the next few years but will shape the nature of
our business for many years to come.
Financially, it was a strong year for the business,
with Austal delivering a near-record NPAT of
$39.028 million driven by the strong
performance of our US shipyard. There were
some disappointments however, primarily around
our Australian defence business, in particular the
awarding of the Offshore Patrol Vessel (OPV)
program to an overseas competitor.
18 Austal Limited | Annual Report 2018
Commercial
The improved efficiency and margin performance
in the USA is also reflected in our commercial
operations, where our highly differentiated
position and the 30 years of building our
intellectual property has led us to a record
$444 million commercial order book. For the first
time last year our order book for large vessels
included 3 commercial trimarans.
This is a vessel type developed by Austal to
provide better passenger comfort in rough seas
and is an area where Austal is uniquely placed as
the only designer and builder of the complex
vessel for the high speed ferry industry.
In addition to the record order book, our
continuing confidence in the vessel pipeline has
driven expansion of build capacity across our
operations. We took the decision this year to triple
the size of our operations in the Philippines and
invest in infrastructure that would enable the yard
to build the very largest commercial vessels we
bid for. This comes on top of an expansion of our
Henderson Operations with a dedicated facility for
the construction of the steel Guardian Patrol
Boats.
We also announced a major expansion into new,
purpose built, leased facilities in Vietnam to
further expand our commercial capacity post year
end. We chose this site because of the availability
of a largely Austal trained management team and
significant local expertise and expect employment
levels to be in the hundreds by the end of the
next financial year. We have also seen our joint
venture company in China, Aulong, establish
itself by completing its first vessel delivery to an
Austal design, and add a further five vessels to its
order book.
Strategy
The key to Austal is to understand its
differentiated position against the vast number of
shipbuilders around the globe. Austal remains the
largest aluminium shipbuilder in the world and
the leading builder of large high-speed vessels in
that market. Aluminium’s key characteristic is
significantly lower weight which translates into
faster and more efficient vessels at a time when
travel around the world continues to develop, as
witnessed by the unrelenting growth of the
commercial aircraft industry.
Achieving maximum performance from aluminium
ships requires highly optimised designs to a level
not normally seen in steel ships, meaning Austal
also employs some of the best marine designers
and engineers in the industry.
Austal has the largest vessel design capability in
Australia as well as a major centre in the United
States and smaller but growing capabilities in the
Philippines and Vietnam. This capability,
integrated with our extensive shipbuilding
capacity and 30 years of experience is what
makes Austal the company it is today.
Austal is one of only two designers and builders of
large high-speed catamarans and the only builder
of aluminium trimarans in the world, a technology
developed at Austal’s home base in Henderson.
We will continue to invest significantly in new
vessel types and technologies to ensure that the
performance edge we have today continues into
the future. All of this has contributed to an order
book of 47 ships with deliveries out to 2023,
14 of which are currently in construction and
5 ships delivered during the financial year.
Defence and border protection vessels provide
Austal with the ability to use those leading design
and technology systems to provide efficient vessel
construction; superior ride control and to equip
vessels with greater payloads, optionality and/or
firepower compared to rival designs.
Outlook
The stable vessel programs in the USA coupled
with the inevitable growth of our sustainment
business, as more vessels are delivered, is now
bringing a much greater level of predictability to
our earnings, which will continue, we believe,
over the next few years. It is a fundamental aim of
the business to achieve this whilst continuing our
successful development of the commercial
business which, by its nature is less predictable.
However, barring any external shocks, we believe
that the commercial high-speed vessel industry,
in which Austal is well positioned, will remain
strong for several more years. This will create
significant opportunities to grow throughput and
earnings across the Group.
David Singleton
Managing Director and Chief Executive Officer
Austal Limited | 19
▮ Review of operations
Group financial results
US operations
Total revenue for the year increased by 6.2 per
cent to $1,391.977 million in FY2018.
FY2018 earnings before interest, tax,
depreciation and amortisation (EBITDA)
increased by 32.8 per cent to $102.319 million
compared to $77.060 million in FY2017.
Austal reported a net profit after tax (NPAT) of
$39.028 million in FY2018 compared to
$15.350 million in FY2017.
Revenue from customers
$
1,391,672
$
1,308,603
2018
’000
2017
’000
EBITDA1
Depreciation
Amortisation
EBIT2
Finance income
Finance cost
$
102,319
$
77,060
$
(35,712)
(1,596)
$
(30,379)
(1,143)
$
65,011
$
45,538
$
305
(8,532)
$
1,525
(7,198)
Profit / (loss) before income tax
$
56,784
$
39,865
Income tax benefit / (expense)
$
(17,756)
$
(24,515)
Profit / (loss) after tax
$
39,028
$
15,350
% EBIT2 / Revenue
Basic earnings per share ($ per share)
Net assets
4.7%
0.113
548,960
$
$
3.5%
0.044
456,914
$
$
1. Earnings before interest, tax, depreciation and
amortisation (EBITDA).
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.
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.
20 Austal Limited | Annual Report 2018
Year ended 30 June
Revenue
EBIT
EBIT Margin
2018
$’000
2017
$’000
$
1,162,624
$
1,172,066
82,977
7.1%
76,061
6.5%
USA EBIT of $82.977 million represented further
year on year improvement in profitability.
This significant increase was a result of continuing
improvements being delivered in the Littoral Combat
Ship (LCS) vessel program headlined by a circa 35%
efficiency improvement since LCS 6 and the
increasing impact of recent vessel awards.
The Expeditionary Fast Transport (EPF) program has
continued to perform very well in both delivery and
construction efficiency.
The LCS order book was further increased in FY2018
with the award of LCS 30 in October 2017, which
followed the award of LCS 28 in June 2017.
The 2018 US Federal Defense budget has allocated
funds for 3 more LCS to be procured in FY2019.
Austal USA has responded to a request for proposal
(RFP) and expects to be notified of the outcome in the
next few months. The 2019 Federal Defense Budget
was being drafted at the time of this report and is
expected to include funds for further LCS.
The 2018 US Federal Defense Budget also included
the appropriation of funds for EPF 13, for which USA
is bidding at this time. The relatively low cost coupled
with the versatility of the EPF is leading to ongoing
interest in the platform for various operations beyond
the sealift activities of earlier vessels. This could lead
to further extensions of the program as the US seeks
to increase the number of vessels in the Navy fleet to
355. EPF acquisitions are likely to happen on an
annual basis in accordance with the normal
acquisition process of the United States Government
as with the LCS program.
Contracted work in Mobile will continue until CY2024
if the new vessel contracts identified above are
awarded as anticipated.
USA was awarded a US$15 million Fast Frigate
FFG(X) design development contract in February 2018
along with four other contenders. This award was
further extended with US$6.4 million supplementary
contract in July 2018.
Re-calibrating the overhead cost base towards
commercial contracts and border patrol vessels
and away from a pure Defence focus.
Increasing throughput as the Guardian Class
Patrol Boat Program (GCPB) reaches peak
production and construction of the commercial
order book expands with significantly higher
revenue expected in the next financial year.
Negotiating a reasonable commercial position for
the presently unprofitable Cape Class Patrol Boat
(CCPB) sustainment contract with the Australian
Border Force.
Construction activity for the $335 million contract to
design, construct and sustain twenty one 40 metre
steel GCPB for the Commonwealth of Australia (CoA)
increased during FY2018. Construction activity will
reach peak production during FY2019 and be
maintained at that level over the next three years.
The first vessel was launched in May 2018, marking a
significant milestone for the program. Commissioning
of vessel systems commenced in June and sea trials
began in August 2018 on time as expected. Delivery
of this vessel is expected to occur during FY2019 H1.
Construction of a 109 metre high speed aluminium
ferry for Mols Linien of Denmark was significantly
progressed during FY2018 with the hull and super
structure nearing completion. Final vessel integration
and commissioning is expected to be completed on
time in early FY2019 H2.
The Australian operations team have delivered a
significant efficiency improvement during construction
of the 109 metre catamaran which is changing the
way we build ships. The team has recorded a circa
30% efficiency improvement to date over previous
completed vessels and is continuing to focus on
further schedule and efficiency gains.
Significant remediation contracts were completed for
another five Armidale Class Patrol Boats during
FY2018. The Armidale program is now complete
which will liberate shipyard capacity for the new
vessel construction programs.
Austal is demonstrating the versatility and adaptability
of the LCS to meet the Frigate requirements specified
by the US Navy with a highly capable and affordable
platform but at an affordable cost. The FFG(X)
acquisition plan indicates a requirement for 2 vessels
per annum. The development work will continue into
FY2019 with the next steps being Requests for
Proposals to be issued by the US Navy in FY2019 Q3
and Contract Award scheduled in FY2020 Q1.
The USA operations had 12 vessels under
construction during the year and delivered four vessels
to the US Navy in FY2018, LCS 12, 14 & 16 and
EPF 9.
LCS 18 was being prepared for sea trials at year end
for delivery during FY2019 H1, LCS 20 was
Christened in May 2018 with sea trials also scheduled
for FY2019 H1, construction and assembly of
LCS 22, 24, 26 & 28 was progressed, and
construction of LCS 30 will commence during
FY2019.
EPF 10, 11 & 12 were all in construction during
FY2018, maintaining a high rate of production
although further awards of EPF 13 and EPF 14 will be
necessary to keep the production line at its full
tempo.
Austal USA continued to organically expand the LCS
and EPF Sustainment business, most notably
expanding its service presence in San Diego,
California, the home port for the Independence class
LCS constructed by Austal.
Austal USA enhanced its growth by completing the
acquisition of ElectraWatch based out of
Charlottesville, Virginia, creating adjacencies in
current markets.
Australia operations
Year ended 30 June
Revenue
EBIT
EBIT Margin
2018
$’000
2017
$’000
$
198,546
$
113,744
(6,672)
N/A
(2,059)
N/A
The Australian operations which reported an EBIT loss
of $(6.672) million for FY2018.
The Australian business has implemented a number
far reaching efficiency improvements which are
beginning to have an impact but which will take more
time to mature:
Driving productivity improvements on all
programs by modifying the way in which Austal
designs, plans, procures and builds vessels.
Austal Limited | 21
Asia operations
Year ended 30 June
Revenue
EBIT
EBIT Margin
2018
$’000
2017
$’000
$
57,888
$
33,832
(1,627)
N/A
(83)
N/A
The Asia operations segment includes the Philippines
shipyard operations, newly formed Vietnam shipyard
operations and the Aulong Joint Venture (40% Austal)
in the People’s Republic of China.
Austal is able to distribute vessel contracts among the
three shipyards in Asia to optimise work flow and
profitability.
The Philippines operations delivered two commercial
vessels during FY2018.
A 50 metre passenger ferry was delivered to
Seaspovill of South Korea in July 2017 following
contract award in June 2016.
A 56 metre passenger ferry was delivered to FRS
of Germany in April 2018 for operation between
Hamburg and Island Heligoland in the
North Sea.
Austal committed to a US$18 million infrastructure
expansion of the Philippines shipyard operations
during FY2018 H2 on the strength of the commercial
order book.
The expansion includes a new vessel assembly hall
that will measure 120 metres long, 40 metres wide
and 42 metres high and new module manufacturing
halls. The new expansion will enable the shipyard to
construct Austal’s largest commercial vessels,
beginning with a 108 metre ferry for Fjord Line of
Norway and will triple capacity at the yard.
Austal also established a commercial shipyard in
Vung Tau, Vietnam which is located in a highly
industrialised shipbuilding and marine support
precinct to the south of Ho Chi Minh City.
The location was selected to provide additional high
quality aluminium construction capacity to Austal’s
commercial operations both for modules for larger
ships (supporting Austal Philippines) and to build
smaller high speed aluminium vessels.
The Vietnam operations will move into new waterside
purpose built facilities under a two year lease with
annual options to extend. The management team
consists of experienced largely ex-Austal expatriate
personnel who have been building high speed
aluminium vessels in the area. The selection of the
shipyard in this area was driven by the strength of the
management team and the availability of highly skilled
trades people. The facility is expected to be in
production of a full vessel in FY2019 H1.
22 Austal Limited | Annual Report 2018
The Aulong Joint Venture located in Guandong
Province, in the People’s Republic of China delivered
its first vessel in January 2018 and is expanding its
workforce to deliver a substantial growth in
commercial vessel orders as described in the section
below, which will create an economic level of
throughput.
New contract awards
Many significant contracts were awarded to Austal
during FY2018, including the following vessels:
LCS 30 for the US Navy in a contract valued at
up to $750 million, bringing total cumulative
LCS orders to approximately $7.7 billion and
deliveries out to FY2022.
$190 million for two 117 metre trimaran vehicle
passenger ferries for Fred Olsen for operation
between the Canary Islands, Spain, which will
complement the existing 127 metre trimaran
that has been in service since 2005.
$108 million for a 109 metre high-speed
catamaran passenger ferry for Fjordline of
Norway which is a further evolution of the
109 metre high-speed catamaran passenger ferry
presently in construction for Mols Linien of
Denmark.
$68 million for a 83 metre high-speed trimaran
vehicle passenger ferry for JR Kyushu of Japan,
which is Austal’s first commercial contract for a
Japanese client. Construction will commence
after a significant research and development
program which commenced in FY2018 H2 and
will be concluded in FY2019 H1.
$44 million for two 50 metre high-speed
catamaran passenger ferries for Braveline, which
is Austal’s first commercial contract for a
Taiwanese client.
$30 million for a 49 metre high-speed
catamaran passenger ferry for Aremiti in Tahiti,
who are a repeat customer, having previously
purchased 4 new vessels from Austal, the last of
which was delivered in CY2013.
$5 million for a 30 metre high-speed catamaran
passenger ferry for VS Grand Tours in the
Philippines, which follows the FY2017 delivery
of two similar ferries to 2Go Ferries also in the
Philippines.
$30 million for an additional two GCPB for the
Commonwealth of Australia, which extends the
program from 19 to 21 vessels.
$25 million for five high speed passenger ferries
across two contracts to be built by the Aulong
Joint Venture (40% Austal) in China.
Safety performance
Safety is and must remain an 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 its 7th Safety Award from
the Shipbuilders Council of America for Excellence in
Safety in April 2018. Austal USA also saw a year on
year (FY2018 versus FY2017) reduction of recordable
injuries by over 15%, resulting in 5 consecutive years
of year over year improvement.
Austal USA's safety performance continues to lead the
industry and our current incident rate is less than half
of the industry average.
Goal Zero is an ongoing initiative at Austal Australia
designed to reinforce our Health, Safety, ?environment
& Quality (HSEQ) culture. The protection of our
employees, suppliers, customers, and communities is
vitally important. We strive for Goal Zero - Zero Harm,
Zero Waste from the way that we operate, to the
products we develop and the way in which we partner
with our customers. HSEQ is more than a metric in
Austal, it’s a mindset that impacts the way in which
we conduct ourselves every day.
This HSEQ programme calls on all employees to strive
for zero harm and zero waste on the job. Several key
principles underpin Goal Zero:
Culture - Making HSEQ part of our mindset.
Leadership - Engaging everyone to actively
address risks and model the right HSEQ
behaviours.
Exposures - Understanding and addressing the
HSEQ risks we face on the job.
HSEQ Systems - Anticipating and mitigating
risks through process, design, and administrative
controls.
Group Safety performance indicators as shown below
have improved over the course of this year, with trends
improving - FY2018 Lost Time Injury Frequency Rate
at 2.41 injuries per million hours worked compared to
our FY2017 result of 3.11.
107.0
65.8
60.1
38.9
17.8 14.3 16.0 19.7 21.7
14.1 14.2 10.7 10.6
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Medical Treatment Injury Frequency Rate
(Injuries per million hours worked)
6.35
5.38
6.05 5.90
2.20 2.30 2.30
3.92 3.90
3.11
2.41
2.10 1.75
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Lost Time Injury Frequency Rate
(Injuries per million hours worked)
The Zero Harm initiative was reinforced across
operations in Australia with messages targeted to
reduce accidents and injuries in the workplace.
Austal Limited | 23
▮ Directors’ report
The Board of Directors of Austal Limited submit their report for the year ended 30 June 2018.
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 and at Micro – X Limited. Jim is Chancellor of the University of South Australia.
Jim holds a Bachelor of Laws from the University of Warwick in England.
Jim accepted an offer to become the Chief Executive of Premier and Cabinet in the South Australian State
Government and will resign from the board of Austal Limited on 31 August 2018.
24 Austal Limited | Annual Report 2018
Giles Everist – Independent Director
Giles has a breadth of board and executive experience gained over his 29 year career. He
has worked for a range of production and service based businesses, within the resources,
engineering and construction sectors, both in Australia and overseas in the UK and Africa.
Giles was appointed as a 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 companies including Decmil Group Limited, Logicamms Limited and Macmahon Holdings
Limited, as well as for a number of private and not for profit organisations. Giles is currently a Non-Executive
Director of Norwood Systems and Chief Financial Officer of Macmahon Holdings Limited.
Sarah Adam-Gedge – Independent Director
Sarah was appointed as a Non-Executive Director of the Company on 28 August 2017.
Sarah brings a strong enterprise technology management, and digital background to Austal
through her experience in executive roles in the information technology and consulting
sectors, including serving as Managing Director of Avanade Australia, a business owned by
Microsoft and Accenture until recently, and Managing Partner and Vice President, Global
Business Services at IBM until 2014. Sarah has also previously held senior executive roles at
PwC and Arthur Andersen, leading the development and implementation of numerous digital
enterprise transformation engagements for customers including NBN, Qantas, Chevron and
Rio Tinto.
Sarah is a Chartered Accountant and member of the Institute of Chartered Accountants
Australia / New Zealand. Sarah holds a Bachelor of Business (Accounting) from the
Queensland University of Technology and is a Graduate of the Australian Institute of Company Directors, and is also
a member of the Diversity Council for the Australian Computer Society.
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 and worked in research, development and manufacturing
as well as in senior management roles in Royal Ordnance, which was eventually acquired by BAE. 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.
David has a degree in Mechanical Engineering from University College London and has an Honorary Doctorate of
Engineering from Edith Cowen University in Western Australia.
Austal Limited | ▮ Directors’ report 25
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
Share Rights
Performance Rights
John Rothwell
Jim McDowell
Giles Everist
David Singleton
Sarah Adam-Gedge
32,807,692
33,751
10,000
28,600
-
-
9,056
9,056
466,553
9,056
-
-
-
1,790,651
-
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 $39.028 million
(FY2017: $15.350 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 20.
Share price at 30 June 2018
The closing share price of Austal at 30 June 2018 was $1.86 (30 June 2017: $1.83).
Dividends
A dividend of 2 cents per share was paid after the FY2018 H1 results (FY2017 H1: 2 cents per share) and a
further dividend of 3 cents per share has been proposed for FY2018 (FY2017 final: 2 cents per share).
Significant events after the balance date
The Directors have declared an unfranked dividend of 3 cents per share in respect of the year ended 30 Jun 2018
as described above.
Jim McDowell accepted an offer to become the Chief Executive of Premier and Cabinet in the South Australian
State Government and will resign from the board of Austal Limited on 31 August 2018.
Likely developments and future results
A general discussion of the Group’s outlook is included in the Chairman’s Report on page 16, the CEO’s Report on
page 18 and the Review of operations on page 20.
26 Austal Limited | Annual Report 2018
Significant changes in the state of the affairs
There were no significant changes to structure or operations of the Group during the financial year.
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 2018.
Share options and performance rights
There were 1,374,196 un-issued ordinary shares under options and 6,155,130 un-vested performance rights at
year end. Refer to Note 34 for further details of the options outstanding. There were no options exercised during the
year. There were 178,340 share rights granted as part of the CEO remuneration and 27,168 share rights granted as
part of the non-executive directors’ remuneration during FY2018.
Indemnification and insurance of Directors and Officers
An indemnification 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, Deloitte Touche Tohmatsu, 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 Deloitte Touche Tohmatsu 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
Nomination & Remuneration
Jim McDowell
Giles Everist 1
Sarah Adam-Gedge
Jim McDowell 1
Giles Everist
John Rothwell
1. Designates the Chairman of the committee
Austal Limited | ▮ Directors’ report 27
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
Committee
Nomination &
Remuneration
Committee
4
-
4
4
3
4 1
4
3
4
4
1 1
4 1
Board
6
5
6
6
5
6
Number of meetings held
Number of meetings attended:
John Rothwell
Jim McDowell
Giles Everist
Sarah Adam-Gedge2
David Singleton
1. Attended as a guest
2. Mrs Sarah Adam-Gedge was appointed as a Non-Executive Director on 28 August 2017.
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.
28 Austal Limited | Annual Report 2018
Message from the Nomination & Remuneration Committee (NRC)
Dear Shareholder,
We are pleased to present Austal’s Remuneration Report for the year ending 30 June 2018.
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 will maintain an engagement with remuneration consultants from time to time as required, to ensure that
Austal maintains remuneration practices that support the strategic objectives of the business.
Board changes
The Board received the resignation of Jim McDowell as a non-executive director of Austal Limited in early
August 2018. Jim joined the Board in 2014 but has recently taken up a role as the Chief Executive of the
Department of Premier and Cabinet for the government of South Australia. Jim has had to retire from all of
his non-executive positions as a result. I am pleased to report that the Board has recommended Chris Indermaur for
the vacant role and he will be offered up for election to the shareholders at the 2018 Annual General Meeting in
October.
Chris trained as both an Engineer and Lawyer and in addition, brings a wealth of strategic skills to the Board as we
drive the future expansion of the company.
The executive management team has stayed virtually unchanged over the last year, which provides a stable base to
our long term goals. The Board periodically reviews the succession plans of the Company and a number of
management changes have been made through the year commensurate with this plan. Collectively, the CEO and the
Executive Leadership Team is continuing to implement the Austal strategic plan and deliver against our key
operational objectives.
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 building our already strong commercial shipbuilding position and extension of the US vessel programs.
Austal finished FY2018 with strong profitability and cash flow primarily driven by a continuing trend of strong
performance out of the USA. Total Shareholder Return for FY2018 was 8.9% following on from the FY2017
performance of 54.5%.
The estimated vesting of STI and LTI for key management personnel (KMP) for the FY2018 year is:
Up to 100% of the maximum achievable STI in the USA and up to 85% in the rest of the company.
No vesting of performance rights from the FY2016 LTI Grant, primarily because of the LCS write down that was
recognised in FY2016.
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 significant proportion is
fundamentally aligned to shareholder returns. The strategy drives management accountability for the achievement
of stretch targets for the business.
Austal Limited | ▮ Directors’ report 29
For the 2019 financial year, the Board intends to consider the changing nature of the shipbuilding market in
Australia following the Government’s announcements of $90 billion of expenditure on a new fleet of Submarines,
Frigates and Offshore Patrol Boats. The level of expenditure and the impact on the existing skills base in Australia
is likely to be unprecedented. This will drive a major skills shortage across leadership, program management,
production control, product support and design, which may have the effect of disrupting Austal’s skill base. This
represents a key risk for the business as Austal also enters a period of strong ship design and build growth, an issue
which is being managed in a number of ways. One of these is to reconsider the appropriate Long Term Incentive
(LTI) program for employees, which assists in supporting long term retention. The Board will consider changes to
the LTI plan potentially with the removal of the ROIC measure for a structure that is more appropriate in this
developing environment. If the LTI plan is modified, this will be described in the Notice of Meeting for the AGM.
Conclusion
The improving financial performance of the Company indicates that the incentive payments made to employees in
the last few years are properly structured. When performance did not meet expectations 2 years ago no short term
incentives were paid and subsequently payments have matched performance. Our world at Austal is changing
however and so we will seek to modify the existing structures to deal with these changes. We thank you for your
feedback and continued support.
Yours sincerely,
Jim McDowell
Chairman, Nomination & Remuneration Committee
30 Austal Limited | Annual Report 2018
▮ Remuneration report [audited]
This Remuneration Report for the year ended 30 June 2018 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 ...................................................................................................................................................... 32
Remuneration governance framework and strategy............................................................................................................... 33
3.
Executive KMP remuneration policy ............................................................................................................................................. 35
4.
Non-Executive Director remuneration .........................................................................................................................................42
5.
Remuneration of KMP ...................................................................................................................................................................... 43
6.
Equity instruments held by KMP ................................................................................................................................................... 45
7.
Other related matters ....................................................................................................................................................................... 50
Austal Limited | ▮ Remuneration report [audited] 31
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 2018 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 Asia since February 2017
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
Mrs Sarah Adam-Gedge
Independent non-executive director since August 2017
Member of the Audit & Risk Committee since August 2017
32 Austal Limited | Annual Report 2018
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 FY2018.
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 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 NRC, this
includes the collection of factual internal records (e.g. superannuation paid or allowances and benefits
etc.).
Austal Limited | ▮ Remuneration report [audited] 33
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
34 Austal Limited | Annual Report 2018
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 P50 level and 50% are
below the P50 level.
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 between
the 50th and 75th percentile 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 issued will be calculated monthly based upon the volume weighted average closing price of
Austal Limited shares in the last 5 share 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 FY2018 and again in FY2019.
Austal Limited | ▮ Remuneration report [audited] 35
3.
Short term incentive (STI) plan policy
The STI policy of the Group stipulates that an annual component of the KMP executives’ remuneration
will be aligned to the individual business unit, and Company performance.
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.
Principles
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.
iii. Measurement period
The measurement period for STI awards is aligned with the financial year of the Group.
iv.
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 KPI performance conditions are assessed qualitatively and quantitatively against
the targets defined at the start of the financial year.
36 Austal Limited | Annual Report 2018
v.
FY2018 Key Performance Indicators (KPI)
KPI measures and weightings set for the KMP in FY2018 were 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 FFG(X) frigate solution for USN based on LCS
- Increase value of support activities in USA & Australia defence
Implementation of Business Improvement Initiatives
- Implement Philippines yard expansion
- Meet 'Advanced Manufacturing' goals in Australia to drive costs down
- 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 & Asia
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 sensitivity.
Weight
30%
10%
20%
30%
10%
100%
30%
10%
20%
10%
20%
10%
100%
30%
20%
10%
10%
30%
100%
30%
10%
20%
40%
100%
Austal Limited | ▮ Remuneration report [audited] 37
vi.
FY2019 Key Performance Indicators (KPI)
KPI measures and weightings proposed for the KMP in FY2019 are as follows:
David Singleton - CEO
Group EBIT1
Group Cashflow1
Group New Vessel Orders1
- New LCS & EPF orders in USA1
- Commercial vessel sales1
- Sustainment growth
Group Strategy Development & Execution
- USA FFG(X) frigate
- USA strategy
- Commercial vessel strategy
Implementation of Business Improvement Initiatives
- Philippines yard expansion and Vietnam establishment
- Meet 'Advanced Manufacturing' goals in Australia to drive down costs
- LCS to production cost targets or better1
Total
Greg Jason - CFO
Group EBIT1
Group Cashflow1
Group New Vessel Orders1
IT strategy including digital shipyard transition & cyber security protection
Group Strategy Development & Execution
Implementation of Business Improvement Initiatives
Total
Craig Perciavalle - President USA
USA financial performance1
USA Cashflow1
New orders for LCS & EPF & FFG(X) progress1
Cost & performance improvement
Sustainment business development
Total
Patrick Gregg - COO Australia & Asia
Australia & Asia financial performance1
Australia & Asia Cashflow1
Implementation of Business Improvement Initiatives1
- Philippines productivity and cost efficiency
- Australia productivity and cost efficiency
- Vietnam schedule and costs
- Growth of Sustainment business
- Employee Safety, Capability and Engagement
Total
1. Figures not released due to commercial sensitivity.
Weight
30%
10%
30%
20%
10%
100%
30%
10%
20%
10%
20%
10%
100%
30%
20%
20%
15%
15%
100%
30%
20%
50%
100%
38 Austal Limited | Annual Report 2018
vii. 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 outcomes of shareholders.
viii. Target and maximum STI award
Target and maximum awards are applied to base remuneration.
Position
Incumbent
Chief Executive Officer
Mr David Singleton
Chief Financial Officer
Mr Greg Jason
President USA
Mr Craig Perciavalle
Chief Operating Officer
Mr Patrick Gregg
FY2018
% of TFR
Maximum
100%
60%
60%
60%
FY2019
% of TFR
Estimated
Target
Maximum
85%
51%
60%
51%
50%
30%
30%
30%
100%
60%
60%
60%
Target
50%
30%
30%
30%
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.
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 is three years, 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.
iv. Measures of long term performance
For FY2018, the Company used 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.
Austal Limited | ▮ Remuneration report [audited] 39
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 and FY2017 LTI grants were offered to executives based on
Indexed TSR (iTSR).
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 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 top quartile TSR 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.
For the reasons previously stated, this measure may be amended or replaced for FY2019.
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 considers that 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.
40 Austal Limited | Annual Report 2018
x.
Target and maximum award
Target and maximum LTI awards are applied to base remuneration (TFR), valued at their grant
calculation date.
Position
Incumbent
Chief Executive Officer
Mr David Singleton
Chief Financial Officer
Mr Greg Jason
President USA
Mr Craig Perciavalle
Chief Operating Officer
Mr Patrick Gregg
FY2018 Grant Vesting
Target
Maximum
50%
35%
35%
35%
100%
70%
70%
70%
Austal Limited | ▮ Remuneration report [audited] 41
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 NED is 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
set the remuneration fee at $200,000 for FY2018.
iii.
Board 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 FY2019.
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.
v.
Share rights
Share rights were introduced as a component of NED remuneration during FY2018. NEDs have
agreed with the Company to receive 25% of their Total Fixed Remuneration in the form of share
rights, as approved by shareholders at the 2017 Annual General Meeting.
4.
Termination benefits
Termination benefits are not paid to NED by the Company.
42 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
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Austal Limited | ▮ Remuneration report [audited] 43
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44 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
6. Equity instruments held by KMP
1.
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 remained unvested at 30 June 2018.
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).
Austal Limited | ▮ Remuneration report [audited] 45
iv.
Vesting of Performance rights from the FY2016 grant
The actual TSR performance for the measurement period from 1 July 2015 – 30 June 2018 was
8.9% which is below threshold.
The actual ROIC performance for the measurement period from 1 July 2015 – 30 June 2018
will be calculated using the FY2018 audited accounts. The estimated ROIC performance in the
measurement period from 1 July 2015 – 30 June 2018 is 1.4% which does not meet the
minimum threshold for award.
All performance rights from the FY2016 grant are expected to lapse.
Rights
Granted
Forfeiture
Resigned
Lapsed1
ROIC
Estimated Vesting
TSR
Total
Estimated Result
Weight
Award
Vesting %
Employee
Greg Jason
Craig Perciavalle
Chief Financial Officer
President USA
152,244
233,211
Total
385,455
1. Did not meet vesting performance criteria
-
-
-
(152,244)
(233,211)
(385,455)
1.4%
8.9%
60%
40%
100%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
46 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
2.
FY2017 Performance rights grant
i.
FY2017 Grant Performance Rights grant
1,859,629 performance rights were granted to KMP in FY2017, who were still employed by
Austal and remained unvested at 30 June 2018.
ii.
Measurement period
100% of the performance rights granted in FY2017 have a 3 year measurement period from
1 July 2016 – 30 June 2019.
iii.
FY2017 Grant performance criteria
The ROIC and iTSR performance criteria relating to the FY2017 grant of performance rights to
KMP are detailed below.
Measure
Indexed TSR
Weight
40%
Threshold1
<= 100%
Vesting %
Performance
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).
3.
FY2018 Performance rights grant
Performance rights granted to KMP in FY2018 are depicted in the table below.
Name
David Singleton
Greg Jason
Craig Perciavalle
Paddy Gregg
Total
Grant
date
Rights granted
TSR
ROIC
Assumed
ROIC vesting
Fair value per right
TSR
ROIC
Value at
grant date
27 Oct 2017
1 Jul 2017
1 Jul 2017
1 Jul 2017
238,612
82,704
94,724
71,578
357,918
124,055
142,087
107,367
50%
50%
50%
50%
$
0.86
0.73
0.73
0.73
$
1.62
1.45
1.45
1.45
$
495,060
150,024
171,830
129,842
$
946,757
i.
Measurement period
100% of the Performance Rights granted in FY2018 have a 3 year measurement period from
1 July 2017 – 30 June 2020.
Austal Limited | ▮ Remuneration report [audited] 47
ii.
FY2018 Grant performance criteria
The ROIC and rTSR performance criteria relating to the FY2018 grant of performance rights to
KMP are detailed below.
Measure
Relative TSR1
Weight
40%
Threshold
Vesting %
Performance
< 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).
4.
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 34. 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 provided
to CEO and NED were approved by shareholders during the 2017 Annual General Meeting.
Name
KMP
Measurement date
Earned
Average fair
value per right
David Singleton
Greg Jason
Jim McDowell
Giles Everist
Sarah Adam-Gedge
CEO
CFO
NED
NED
NED
Monthly 5 day VWAP
Monthly 5 day VWAP
27 Oct 2017
27 Oct 2017
27 Oct 2017
178,340
23,477
9,056
9,056
9,056
$ 1.77
$ 1.77
$ 1.75
$ 1.75
$ 1.75
Fair value
$
$
$
$
$
315,402
41,667
15,833
15,833
15,833
.
48 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
5.
Rights holdings
Balance at
Balance at
30 June 2017
Granted
Expired
Exercised
30 June 2018
Vested and
Exercisable
Unvested
FY2018 Movements
Directors
David Singleton
Share Rights
288,213
Performance Rights
1,194,121
Executives
Greg Jason
Share Rights
-
Performance Rights
587,093
Craig Perciavalle
178,340
596,530
23,477
206,759
-
-
-
-
-
-
(120,374)
(51,588)
23,477
621,890
Performance Rights
862,863
236,811
(158,923)
(68,108)
872,643
Patrick Gregg
Performance Rights
-
178,945
-
-
178,945
Non-Executive Directors
John Rothwell
Share Rights
Jim McDowell
Share Rights
Giles Everist
Share Rights
Sarah Adam-Gedge
Share Rights
-
-
-
-
-
9,056
9,056
9,056
-
-
-
-
-
-
-
-
466,553
1,790,651
466,553
-
-
1,790,651
23,477
-
-
-
-
-
621,890
872,643
178,945
-
-
-
-
-
9,056
9,056
9,056
9,056
9,056
9,056
6.
Share holdings
Balance at
Share
Rights
30 June 2017
Exercised
FY2018 Movements
Performance
Rights
Vested
Acquired /
(Disposed)
Balance at
30 June 2018
Non - Executive Directors
John Rothwell
Jim McDowell
Giles Everist
Sarah Adam-Gedge
32,807,692
33,751
10,000
-
Executives
David Singleton
Greg Jason
Craig Perciavalle
Patrick Gregg
28,600
33,445
84,336
-
Total
32,997,824
-
-
-
-
-
-
-
-
-
-
-
-
-
-
51,588
68,108
-
119,696
-
-
-
-
-
-
-
-
-
32,807,692
33,751
10,000
-
28,600
85,033
152,444
-
33,117,520
None of the shares held by key management personnel are held nominally.
Austal Limited | ▮ Remuneration report [audited] 49
7. Other related matters
1.
Board composition
The Nomination & Remuneration Committee (NRC) 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 FY2018 review.
The Committee also undertook an annual review of the position of Chairman at Austal, in part because
he is 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 Ships Pty Ltd
Contract
Duration
Unlimited
Unlimited
Unlimited
Unlimited
Termination Notice Period
Group
Individual
3 months
12 weeks
None
3 months
3 months
12 weeks
None
3 months
Austal may choose to terminate the contracts 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 KMP at any time during FY2018.
4.
Other transactions with KMP
There were no transactions involving KMP other than compensation and transactions concerning shares
and performance rights as discussed in other sections of the Remuneration Report.
5.
Use of independent remuneration consultants
No independent remuneration consultant were engaged by the NRC during FY2018.
End of Remuneration Report
50 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
▮ Auditor independence
The Board of Directors
Austal Limited
100 Clarence Beach Rd
Henderson, WA
6166, Australia
29 August 2018
Dear Board Members
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Brookfield Place, Tower 2
123 St Georges Terrace
Perth WA 6000
GPO Box A46
Perth WA 6837 Australia
Tel: +61 8 9365 7000
Fax: +61 8 9365 7001
www.deloitte.com.au
Austal Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following
declaration of independence to the directors of Austal Limited.
As lead audit partner for the audit of the financial statements of Austal Limited for the year ended
30 June 2018, I declare that to the best of my knowledge and belief, there have been no
contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation to the
audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
A T Richards
Partner
Chartered Accountants
Austal Limited | ▮ Auditor independence 51
▮ Consolidated statement of profit or loss and other
comprehensive income for the year ended
30 June 2018
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)
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
- Net
Other comprehensive income not to be reclassified to profit and loss in subsequent periods
Asset Revaluation Reserve
- Gain / (loss) taken to equity
- Income tax benefit / (expense)
- Net
Notes
2018
’000
2017
’000
4
5
5
30
9
$
1,391,977
$
1,310,128
(1,260,178)
(1,192,969)
$
131,799
$
117,159
$
13,698
$
2,356
(64,061)
(15,854)
(8,532)
(266)
(55,850)
(16,493)
(7,198)
(109)
$
56,784
$
39,865
$
(17,756)
$
(24,515)
$
39,028
$
15,350
$
39,028
$
15,350
-
-
$
39,028
$
15,350
$
(7,500)
$
8,639
706
1,698
2,010
(4,482)
$
(5,096)
$
6,167
$
15,543
$
(11,073)
$
15,543
$
(11,073)
$
63,286
$
-
(10,067)
-
$
53,219
$
-
Other comprehensive income net of tax for the period
$
63,666
$
(4,906)
Total comprehensive income for the year
$
102,694
$
10,444
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
Total
Earnings per share ($ per share)
$
102,694
$
10,444
-
-
$
102,694
$
10,444
- 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
$
0.113
$
0.044
0.112
0.044
The consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.
52 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
▮ Consolidated statement of financial position as at
30 June 2018
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
Other non-current assets
Total
Total
Liabilities
Current
Trade and other payables
Derivatives
Interest bearing loans and borrowings
Provisions
Deferred grant income
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
Notes
10
15
17
25, 27
9
22
30
25, 27
19
20
9
23
18
25, 27
11
24
14
16
2018
’000
2017
’000
$
162,024
$
150,471
97,349
246,509
7,557
1,608
-
4,523
91,148
170,422
6,077
1,051
2,529
706
$
519,570
$
422,404
$
10,160
$
9,626
1,804
1,077
565,778
20,812
7,844
21,751
1,847
1,985
500,304
8,909
5,630
9,296
$
629,226
$
537,597
$
1,148,796
$
960,001
$
(177,848)
$
(141,465)
(5,605)
(72,758)
(70,050)
(8,903)
(53,759)
(4,052)
(9,868)
(60,035)
(7,934)
(15,554)
$
(388,923)
$
(238,908)
25, 27
$
(6,298)
$
(1,073)
11
24
14
9
(112,520)
(1,546)
(58,050)
(32,499)
(186,487)
(2,864)
(62,881)
(10,874)
$
(210,913)
$
(264,179)
$
(599,836)
$
(503,087)
$
548,960
$
456,914
$
118,329
$
116,384
156,719
273,912
91,637
248,893
$
548,960
$
456,914
$
548,960
$
456,914
The consolidated statement of financial position should be read in conjunction with the accompanying notes.
Austal Limited | ▮ Consolidated statement of financial position as at 30 June 2018 53
▮ Consolidated statement of changes in equity for the
year ended 30 June 2018
Foreign
Currency
Employee
Cash Flow
Common
Issued
Capital
’000
Treasury
Shares 1
’000
Retained
Earnings
’000
Transl'n
Reserve
’000
Benefits
Reserve
’000
Hedge
Reserve
’000
Control
Reserve
’000
Asset
Reval'n
Reserve
’000
Total
Equity
’000
Equity at 1 July 2016
$
123,739
$
(9,001)
$
242,142
$
77,978
$
6,434
$
(6,860)
$
(17,594)
$
40,714
$
457,552
Comprehensive Income
Profit for the year
$
-
$
-
$
15,350
$
-
$
-
$
-
$
-
$
-
$
15,350
Other Comprehensive Income
-
-
-
(11,073)
-
6,167
-
-
(4,906)
Total
$
-
$
-
$
15,350
$
(11,073)
$
-
$
6,167
$
-
$
-
$
10,444
Other equity transactions
Shares issued
Dividends
Transfer between reserves 2
Transfer between reserves 3
Transfer between reserves
Tax expense - employee share plan
Share based payments expense
$
1,690
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
1,690
-
-
-
-
(13,795)
5,196
-
-
(256)
(4,940)
2,891
(2,891)
-
(44)
-
-
-
-
-
-
-
(2)
-
-
-
-
-
-
1,067
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2
(13,795)
-
-
-
(44)
1,067
Total
$
4,537
$
(2,891)
$
(8,599)
$
(258)
$
(3,873)
$
-
$
-
$
2
$
(11,082)
Equity at 30 June 2017
$
128,276
$
(11,892)
$
248,893
$
66,647
$
2,561
$
(693)
$
(17,594)
$
40,716
$
456,914
Comprehensive Income
Profit for the year
$
-
$
-
$
39,028
$
-
$
-
$
-
$
-
$
-
$
39,028
Other Comprehensive Income
-
-
-
15,543
-
(5,096)
-
53,219
63,666
Total
$
-
$
-
$
39,028
$
15,543
$
-
$
(5,096)
$
-
$
53,219
$
102,694
Other equity transactions
Shares issued
Dividends
Shares issued to employee share trust
Shares issued for vested performance rights
Dividend retained in relation to AGMSP
AGMSP options excercised
Transfer between reserves 3
Share based payments expense
Other
Total
$
1,209
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
1,209
-
812
201
14
147
(494)
-
-
-
(812)
-
127
247
494
-
-
(14,000)
-
-
-
-
-
(1)
(8)
-
-
-
-
-
-
-
-
-
-
(201)
-
-
-
1,617
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(14,000)
-
-
140
394
-
1,617
-
$
1,889
$
56
$
(14,009)
$
-
$
1,416
$
-
$
-
$
-
$
(10,640)
Equity at 30 June 2018
$
130,165
$
(11,836)
$
273,912
$
82,190
$
3,977
$
(5,789)
$
(17,594)
$
93,935
$
548,968
1. Treasury Shares are held in relation to the Austal Group Management Share Plan (AGMSP) and Employee Share Trust.
2. Transfer of expired awards that have not been exercised.
3. Transfer of vested Treasury Shares.
The consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
54 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
▮ Consolidated statement of cash flows for the year
ended 30 June 2018
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
Proceeds from sale of intangible assets
Purchase of property, plant and equipment
Purchase of intangible assets
Construction of Cape Class Patrol Boats 9 & 10
Investment in joint venture
Business acquisition
Net cash from / (used in) investing activities
Cash flows from financing activities
Repayment of borrowings
Loans received for Cape Class Patrol Boats 9 & 10
Dividends paid (net of dividend reinvestment program)
Notes
2018
’000
2017
’000
4
7
32
12
12
$
1,343,190
$
1,256,187
(1,265,900)
(1,302,771)
305
(4,931)
(7,057)
1,525
(5,033)
12,198
$
65,607
$
(37,894)
$
2,318
$
1,134
262
49
(19,924)
(3,438)
(3,005)
(299)
(9,826)
110
-
(9,195)
(823)
(42,776)
(1,956)
-
$
(33,863)
$
(53,506)
$
(9,230)
$
(13,455)
-
(12,791)
38,074
(12,260)
Net cash from / (used in) financing activities
$
(22,021)
$
12,359
Net increase / (decrease) in cash and cash equivalents
$
9,723
$
(79,041)
Cash and cash equivalents
Cash and cash equivalents at beginning of year
Net foreign exchange differences
Net increase / (decrease) in cash and cash equivalents
$
150,471
$
224,318
1,830
9,723
5,194
(79,041)
Cash and cash equivalents at end of year
10
$
162,024
$
150,471
The consolidated statement of cash flows should be read in conjunction with the accompanying notes.
Austal Limited | ▮ Consolidated statement of cash flows for the year ended 30 June 2018 55
▮ 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 2018 was
authorised for issue in accordance with a resolution of the Directors on 29 August 2018.
Austal Limited is a limited liability company incorporated and domiciled in Australia whose shares are publicly
traded on the Australian Securities Exchange (ASX) under the code ASB.
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 also complies with International Financial Reporting Standards (IFRS), as issued by the
International Accounting Standards Board.
The financial report has 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.
56 Austal Limited | Annual Report 2018
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 2018.
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.
Austal Limited | ▮ Notes to the financial statements 57
iv
Foreign currency transactions and translation
Both the functional and presentation currency of Austal Limited and its Australian subsidiaries are Australian
dollars (AUD). The Company determines the functional currency for each entity within the Group and items
included in the financial statements of each entity are measured using that functional currency.
Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange
rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies
are retranslated at the rate of exchange ruling at the balance date. All exchange differences arising from the
above procedures are taken to the statement of comprehensive income.
The functional currency of the USA, Vietnam and 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
Accounting judgements and estimates
The Directors are required to make judgements, estimates and assumptions about the carrying amounts of
assets and liabilities in the application of the group’s accounting policies. The estimates and associated
assumptions are based on historical experience and other factors that are considered to be relevant. Actual
results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that period
or in the period of the revision and future periods if the revision affects both current and future periods.
Information on material estimates and judgements considered when applying the accounting policies can be
found in the following notes:
Key accounting judgements and estimates
Contract revenue and expected construction profits at completion
Research and development tax credits
Deferred tax assets
Impairment of non-financial assets
Estimation of useful lives of assets
Note
4
5
9
19, 21
19
vi
Change of comparative financial information
Prior corresponding period information within the statement of financial position has been reclassified as
follows to be comparable to the current year presentation:
Trade and other receivables – an amount relating to USA R&D credits has been reclassified to
Other non-current assets.
Trade and other payables – an amount relating to USA STI has been reclassified to Provisions.
58 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
Comparative information within the following notes has been changed to be comparable to the current year:
Note 3 Operating segments – Philippines segment has been changed to Asia to include Austal Vietnam
and the Aulong Joint Venture in China, note that Austal Vietnam, which is also included in the Asia
segment did not exist in FY2017.
Note 7 Net profit after tax to net cash flows from operations – adjustments have been added to
separately identify CCPB 9 & 10 charter income and notional interest, amortization of capitalized
borrowing costs and the Aulong joint venture result.
Note 8 Dividend paid and proposed – franking credits transferred from Austal Darwin have been
included and franking credits refund amount was adjusted for tax amendments.
Note 26 Financial Risk Management – the foreign currency translation of USD denominated net assets
has been included to reflect the reasonable possible movements in equity due to exchange rate
changes.
Note 27 Derivative financial instruments and hedging – the presentation of forward foreign exchange
contracts has been modified to reflect the purchase (buy) and sale (sell) of the foreign currencies rather
than AUD.
vii
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.
AASB 2015-1 amendments to Australian Accounting Standards – Annual Improvements to Australian
Accounting Standards 2012–2014 Cycle.
AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to
AASB 107 Statement of Cash Flows. The amendments require entities preparing financial statements in
accordance with Tier 1 reporting requirements to provide disclosures that enable users of financial
statements to evaluate changes in liabilities arising from financing activities, including both changes
arising from cash flows and non-cash changes.
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.
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.
Austal Limited | ▮ Notes to the financial statements 59
viii 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 15 Revenue from Contracts with Customers
Austal has analysed the implications associated with the adoption of AASB 15 which is detailed in
Note 4 Revenue.
2.
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.
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.
The Group has assessed the potential impact of AASB 9, specifically in relation to hedging and
impairment of receivables and concluded that the impact will be immaterial.
3.
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.
The Group has operating lease commitments of $12.600 million as at 30 June 2018. Austal has
not yet finalised the assessment of the adoption of AASB 16 as disclosed in Note 28.
60 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
Current year performance
Operating segments
Australia
’000
USA
’000
Asia
’000
Unallocated
Adjustments
’000
’000
Total
’000
Elimination /
Year ended 30 June 2018
Revenue
External customers
$
187,378
$
1,162,624
$
38,323
$
3,529
$
(182)
$
1,391,672
Inter-segment
Finance income
Total
Profit / (loss) before tax
11,168
-
-
-
19,565
-
-
305
(30,733)
-
-
305
$
198,546
$
1,162,624
$
57,888
$
3,834
$
(30,915)
$
1,391,977
Earnings before interest and tax
$
(6,672)
$
82,977
$
(1,627)
$
(9,485)
$
(182)
$
65,011
Finance income
Finance expenses
-
-
-
-
-
-
305
(8,532)
-
-
305
(8,532)
Profit / (loss) before income tax
$
(6,672)
$
82,977
$
(1,627)
$
(17,712)
$
(182)
$
56,784
Depreciation and amortisation
$
(7,640)
$
(25,899)
$
(1,443)
$
(2,326)
$
-
$
(37,308)
Balance sheet
Segment assets
Segment liabilities
Year ended 30 June 2017
Revenue
$
213,650
$
839,155
$
45,796
$
54,287
$
(4,092)
$
1,148,796
(152,354)
(384,045)
(25,443)
(37,994)
-
(599,836)
Australia
’000
USA
’000
Asia
’000
Unallocated
Adjustments
’000
’000
Total
’000
Elimination /
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
$
(83)
$
(28,519)
$
138
$
45,538
Finance income
Finance expenses
-
-
-
-
-
-
1,525
(7,198)
-
-
1,525
(7,198)
Profit / (loss) before income tax
$
(2,059)
$
76,061
$
(83)
$
(34,192)
$
138
$
39,865
Depreciation and amortisation
$
(1,544)
$
(26,572)
$
(1,502)
$
(1,904)
$
-
$
(31,522)
Balance sheet
Segment assets
Segment liabilities
$
180,727
$
705,163
$
29,752
$
48,286
$
(3,927)
$
960,001
(118,163)
(359,895)
(9,300)
(15,729)
-
(503,087)
Inter-segment revenues, investments, receivables and payables are eliminated on consolidation.
The Asia operating segment has been restated for FY2017 to include Philippines, and the Aulong Joint Venture in
China. Austal Vietnam did not exist in FY2017. The standalone FY2018 Philippines results for comparative
purposes are Revenue: $57.888 million and Profit / (loss) before income tax: $(0.350) million.
Austal Limited | ▮ Notes to the financial statements 61
Analysis of Unallocated
Revenue
Support / sustainment
Charter vessel revenue
Finance income
Total
Profit / (loss) before tax
Foreign exchange gains / (losses)
Write down of charter vessel(s)
Settlement of Warranty Defects
Administration expenses
Marketing expenses
Charter vessel profit / (loss)
Research and development credits
Finance income
Finance expenses
Total
Segment assets
Cash
Property, plant and equipment
Inventories
Other receivables
Deferred tax assets
Income tax receivable
Assets held for sale
Other non-current assets
Other
Total
Segment liabilities
Deferred tax liabilities
Progress payments received in advance
Creditors & provisions
Total
Revenue from external customers by geographical
location of customers
North America
Europe
Asia
Australia
Middle East
Total
2018
’000
2017
’000
$
2,685
$
2,068
844
305
1,012
1,525
$
3,834
$
4,605
$
(567)
$
(606)
(1,064)
-
(11,698)
(10,672)
400
14,116
305
(8,532)
(379)
(13,154)
(11,529)
(12,415)
48
9,516
1,525
(7,198)
$
(17,712)
$
(34,192)
$
12,390
$
23,813
5,877
21
1,660
7,844
4,422
-
21,751
322
4,099
53
10,778
5,588
1,075
2,529
-
351
$
54,287
$
48,286
$
(32,499)
$
(10,893)
(15)
(5,480)
(14)
(4,822)
$
(37,994)
$
(15,729)
2018
’000
2017
’000
$
1,162,466
$
1,172,154
99,767
21,032
104,525
3,882
20,740
29,932
70,630
15,147
$
1,391,672
$
1,308,603
One customer in the USA segment generated revenue of $1,162.466 million during FY2018
(FY2017: $1,172.154 million).
62 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
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
2018
’000
2017
’000
$
446,019
$
379,513
27,255
4,882
107,459
20,719
3,987
104,994
$
585,615
$
509,213
$
565,778
$
500,304
20,812
8,909
$
586,590
$
509,213
i
Identification of reportable segments
The Group is organised into the following three business segments for management purposes based on the
location of the production facilities, related sales regions and types of activity.
1.
Australia
The Australia business manufactures high performance commercial and defence vessels for markets
worldwide (excluding the USA) and provides training, 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, on-going support and maintenance of these performance vessels for the US Navy.
3.
Asia
The Asia business manufactures high performance aluminium commercial vessels for global markets
excluding the USA. The Asia segment also provides support to other segments not just manufacturing
for external buyers.
The Chief Executive Officer, who is the Chief Operating Decision Maker (CODM), monitors the performance
of the business segments separately for the purpose of making decisions about the allocation of resources
and assessing performance. Segment performance is evaluated based on operating profit or loss. Finance
costs, finance income and income tax are managed on a Group basis.
ii
Aggregation of segments
No operating segments are aggregated.
Austal Limited | ▮ Notes to the financial statements 63
iii
Accounting policies and inter-segment transactions
The accounting policies used for reporting segments internally are the same as those utilised for reporting
the accounts of the Group.
Inter-entity sales are recognised based on an arm’s length pricing structure.
iv
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
Commercial vessel charter contracts
Property, plant and equipment relating to the parent entity
64 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
Revenue
Revenue
Vessel construction and support
Charter vessels
Total Revenue from customers
Finance income
Total
2018
’000
2017
’000
$
1,380,708
10,964
$
1,306,178
2,425
$
1,391,672
$
1,308,603
$
305
$
1,525
$
1,391,977
$
1,310,128
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
Where contract outcome can be reliably estimated:
The percentage of completion is calculated on actual project costs to date, divided by the sum of total
projected costs at completion. Contract revenue and contract costs are recognised as revenue and
expenses respectively by reference to the stage of completion of the contract activity at the balance
sheet date (“percentage-of-completion method”) when the outcome of a 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.
Where contract outcome cannot be reliably estimated:
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.
Determination:
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 vessel 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.
Austal Limited | ▮ Notes to the financial statements 65
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, which if ultimately inaccurate will impact the level of revenue recognised in
the Consolidated Statement of Comprehensive Income of FY2018 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.
iii
AASB 15 Revenue from customers
1.
Introduction
AASB 15 establishes the principles that an entity shall apply to report useful information to users of
the financial statements about the recognition of revenue to depict the transfer of goods or services to
customers to reflect the consideration to which the entity expects to be entitled in exchange for those
goods and services.
AASB 15 requires application of a five step process to:
identify the contract with the customer
identify performance obligation(s) in the contract
determine transaction price
allocate the transaction price to the performance obligations
recognise revenue when performance obligation(s) are satisfied.
Austal has evaluated the application of the five step process to its customer contracts utilising the
elements of the five step process.
The only aspects of the current recognition methodology that will be significantly impacted by the
adoption of AASB 15 are summarised below.
2.
Combining shipbuilding contracts
Each LCS from LCS 6 – 26 were contracted with the US Navy with 3 individual contracts, one
representing the seaframe (built by Austal), one primarily for the supply of the combat mission
system, and one primarily for the integration of the combat mission system with the seaframe.
Austal has been individually recognising revenue for each of the three contracts per each vessel.
AASB 15 requires that each performance obligation must be distinct and have independent utility to
the customer. The three elements do not individually meet this criteria because each element does
not have value to the customer independently of the other two. e.g. a Littoral Combat Ship without a
combat system is just a Littoral Ship.
Therefore the three elements will need to be combined into one performance obligation for the
purposes of revenue and profit recognition.
LCS 28 and each following vessel have been contracted with a single contract that incorporates the
three elements described above and therefore no combining will be required.
No other combining of contracts is required across the Austal Group.
66 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
3.
Measuring progress
Austal has been measuring progress on the basis of direct cost percent complete across the Group
whereby percent complete = direct costs project to date / direct costs estimate at completion. Direct
costs include direct labour and material costs associated with a contract. Direct costs do not include
business overheads.
The US Navy contracts require overheads to be allocated to each contract and permits billing to the
US Navy on the basis of total cost which includes allocated overheads. Austal has determined that
measuring progress for US contracts on the basis of total cost percent complete is better aligned with
the AASB 15 principles of recognising an amount of revenue that reflects the delivery of performance
obligations to the customer because of the US Navy contract and billing rules.
The financial impact of combining the three contracts for LCS 6 – 26 and changing the measure of
progress for all US shipbuilding contracts is estimated to be:
~ US$(2.0) million reduction in FY2018 opening retained earnings at 1 July 2017; and
~ US$(1.0) million reduction to FY2018 EBIT.
The total restatement of ~ US$(3.0) million will be recognised as revenue over multiple future years
until LCS 26 is 100% complete.
Austal considered the extent to which the purchase of long lead time materials across the Group
represents genuine progress for the purposes of revenue recognition. A monitoring system is in place
to determine when Austal has control of those materials and if there is any significant (financially
material) delay in including those materials in the construction process. Materials that don’t
genuinely represent progress will be excluded from the measurement of progress until they are
deemed to represent construction progress.
4.
Sustainment contracts
The 5 step process was applied to Sustainment contracts and measuring progress was identified as
the key consideration.
Austal determined that no change to revenue recognition is required under AASB 15 because the
current methods of measuring progress are reasonable measures of delivering performance
obligations.
5.
Full Retrospective Adoption
Austal will be utilising a full retrospective approach for the adoption on 1 July 2018 as part of the
FY2019 half year and full year financial accounts. This means that Opening Retained Earnings and
Opening Work in Progress at 1 July 2017 will be restated by an equal and opposite amount, and
FY2018 NPAT and Work in Progress will be restated to reflect the changes described above to provide
a comparative prior corresponding period.
Austal Limited | ▮ Notes to the financial statements 67
Other profit and loss disclosures
Other income and expenses
Government infrastructure grants amortised
Training reimbursement grants
Gain / (loss) on disposal of property, plant and equipment
Net foreign exchange gains / (losses)
Sale of scrap materials
Gain on cessation of foreign operations
Other income
Warranty
Settlement of warranty defects
Write down of assets
Total
Finance costs
Interest to unrelated parties
Amortisation of capitalised loan origination costs
Total
Share of profit from joint venture
2018
’000
2017
’000
$
8,662
$
8,522
2,839
(46)
(387)
3,736
817
811
(1,670)
-
(1,064)
3,864
(23)
(742)
3,486
-
782
-
(13,154)
(379)
$
13,698
$
2,356
$
(7,233)
$
(5,998)
(1,299)
(1,200)
$
(8,532)
$
(7,198)
Share of profit / (loss) of Aulong Shipbuilding Co Ltd Joint Venture
$
(266)
$
(109)
Total
$
(266)
$
(109)
Depreciation and amortisation
Depreciation
Amortisation of intangible assets
Total
Employee benefits
Wages and salaries
Post-retirement benefits
Share based payments expense
Workers’ compensation costs
Annual leave expense
Long service leave expense
Total
$
(35,712)
$
(30,379)
(1,596)
(1,143)
$
(37,308)
$
(31,522)
$
(387,699)
$
(385,986)
(7,137)
(1,617)
(5,691)
(20,765)
(1,235)
(5,340)
(1,067)
(6,609)
(18,467)
(709)
$
(424,144)
$
(418,178)
Employee benefits listed above include expenses that are disclosed in cost of sales.
Research & development credit recognised in cost of sales
Research & development credit
$
14,116
$
9,516
68 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
Auditor's remuneration
2018
2017
Amounts received or due and receivable by Deloitte Touche Tohmatsu Australia for:
An audit or review of the financial report of the entity and any other entities in the Group
$
(180,000)
$
-
Other services in relation to the entity and any other entity in the Group
Tax advice
Total
Amounts received or due and receivable by Ernst & Young Australia for:
(62,813)
(6,530)
-
-
$
(249,343)
$
-
An audit or review of the financial report of the entity and any other entities in the Group
$
-
$
(299,731)
Other services in relation to the entity and any other entity in the Group
-
(20,091)
Total
$
-
$
(319,822)
Amounts received or due and receivable by related practices of Deloitte Touche Tohmatsu for:
An audit or review of the financial report of the entity and any other entities in the Group
$
(716,031)
$
-
Other services in relation to the entity and any other entity in the Group
Tax advice
Total
(8,595)
(120,830)
-
-
$
(845,456)
$
-
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
$
-
$
(602,084)
Tax advice
Total
-
(1,988)
$
-
$
(604,072)
i
Recognition & measurement
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 they are intended to compensate.
2.
Research and Development (R&D) tax credit
R&D tax incentives 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 FY2018 is $14.116 million (FY2017: $9.516 million).
Austal Limited | ▮ Notes to the financial statements 69
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 FY2018. 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 19, and to accounting policies related
to amortisation of Intangible assets in Note 20.
5.
Employee benefits
Refer to accounting policies for employee benefits in Note 24.
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.
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.
R&D tax credits
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.
Further information about the R&D tax credits is provided above in Note 5, section i2.
70 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
Earnings per share
Net profit / (loss) after tax
Net profit attributable to ordinary equity holders of the parent from continuing operations
$’000
$
39,028
$
15,350
2018
2017
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
346,229,344
345,094,616
1,816,757
2,893,640
348,046,101
347,988,256
$ / share
$ / share
$
0.113
$
0.044
$
0.112
$
0.044
Basic earnings per share amounts are calculated by dividing Net profit / (loss) after tax 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 / (loss) after tax 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
4,942,160 performance rights which are not dilutive to earnings per share.
Further information about the performance rights is provided in Note 34.
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 the period ending
31 December 2019. The share rights are included in the calculation of basic earnings per share.
178,340 share rights were issued during the year.
Share rights were introduced as a component of Non-Executive Directors’ (NED) and CFO’s
remuneration during FY2018. 27,168 share rights were issued to NED and 23,477 share rights were
issued to the CFO during the year.
Austal has issued shares to an employee share trust (EST) to support the share rights. Shares in the
EST are not dilutive because share rights are treated as dilutive (avoid double dilution).
Further information about the share rights is provided in Note 34.
Austal Limited | ▮ Notes to the financial statements 71
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 34.
4.
Austal Group Management Share Plan (AGMSP)
The trustee holds a total of 3,702,000 shares at balance date on behalf of the AGMSP plans.
3,407,000 AGMSP shares are not dilutive to earnings per share.
Further information about the options is provided in Note 34.
5.
New Employee Share Trust (EST)
Austal established an Employee Share Trust (EST) during FY2018 for the purpose of acquiring,
holding and transferring shares in connection with equity based remuneration established by the
Company for the benefit of participants in those plans. Austal issued 463,697 shares to the trust
during the year.
6.
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.
72 Austal Limited | Annual Report 2018
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
CCPB 9 & 10 Charter Income
CCPB 9 & 10 Notional Interest
Amortisation of borrowing costs
Aulong joint venture loss
Government infrastructure grants income
Total
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
2018
’000
2017
’000
$
39,028
$
15,350
$
37,308
$
31,522
1,064
46
1,617
387
(10,121)
2,063
1,539
342
(8,662)
379
23
1,067
742
(1,351)
1,276
889
109
(8,522)
$
25,583
$
26,134
$
1,478
$
39,424
(500)
(2,112)
10,120
1,189
(4,323)
(76,087)
(1,480)
(534)
30,391
38,205
(151)
4,800
203
(854)
16,228
3,979
24,590
(61,448)
(669)
(1,988)
(95,358)
2,742
(5,030)
(1,197)
Total
$
996
$
(79,378)
Net cash inflow / (outflow) from operating activities
$
65,607
$
(37,894)
Austal Limited | ▮ Notes to the financial statements 73
Dividends paid and proposed
i
Dividends on ordinary shares
2018
’000
2017
’000
Dividends paid on Ordinary Shares
Fully franked final dividend for the prior year, 2 cps (2017: 2 cps)
$
(6,989)
$
(6,968)
Unfranked interim dividend for the current year, 2 cps (2017: fully franked, 2 cps)
(7,011)
(6,982)
Total
$
(14,000)
$
(13,950)
Dividend declared subsequent to the reporting period end (not recorded as liability)
Unfranked final dividend 3 cps (2017: 2 cps)
$
(10,526)
$
(6,989)
ii
Franking credit balance
2018
’000
2017
’000
Opening Balance
$
4,377
$
11,104
Franking credits movement from the payment / (refund) of income tax
$
(212)
$
(1,368)
Franking credits transferred from Austal Darwin
Franking credits distributed
Movement
Closing Balance
-
(2,995)
620
(5,979)
$
(3,207)
$
(6,727)
$
1,170
$
4,377
74 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
Income and other taxes
i
Income tax expense
Major components of tax (expense) / benefit for the years ended 30 June 2018 and 2017 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)
2018
’000
2017
’000
$
(5,852)
$
3,189
(196)
7,461
$
(6,048)
$
10,650
$
(11,995)
$
(25,709)
287
(9,456)
$
(11,708)
$
(35,165)
$
(17,756)
$
(24,515)
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
$
1,698
$
(4,482)
Deferred gains on revaluation of property, plant and equipment
(10,067)
-
Total (expense) / benefit charged to OCI
$
(8,369)
$
(4,482)
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
$
56,784
$
39,865
Income Tax at the Group’s statutory income tax rate of 30% (2017: 30%)
$
(17,035)
$
(11,960)
USA statutory income tax rate of 31.6% (FY2017: 36.9%)
$
(1,671)
$
(5,851)
Other foreign tax rate differences
USA revalue deferred balances for tax rate change
USA S.199 domestic manufacturing deduction
USA withholding tax leakage due to losses in Australia
Carry forward tax losses not recognised
Transfer pricing adjustments in respect of intercompany royalties
Non-assessable R&D credits in cost of sales
Other non-assessable or non-deductible items
Prior year current and deferred income tax adjustments
666
2,666
1,580
(876)
(4,495)
(3,414)
4,219
513
91
(7)
-
123
(454)
(3,412)
(1,361)
1,416
(1,014)
(1,995)
Total Adjustments
$
(721)
$
(12,555)
Income tax (expense) / benefit reported in Consolidated statement of profit or loss
$
(17,756)
$
(24,515)
Income tax payable
Income tax receivable / (payable)
$
4,523
$
706
Austal Limited | ▮ Notes to the financial statements 75
ii
Analysis of temporary differences
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
Alternative minimum tax credits
Deferred gains and losses on foreign currency contracts
Property, plant and equipment
Other
Total
Deferred tax liabilities
Property, plant and equipment
Intangibles
Payables
Deferred gains and losses on foreign currency contracts
Statement of Financial Position
Consolidated Profit & Loss
2018
’000
2017
’000
2018
’000
2017
’000
$
-
$
8,658
$
(11,075)
$
8,863
5,334
550
16,932
-
584
1,368
406
-
-
5,162
3,932
25,723
-
2,537
1,738
1,041
1,796
108
(25)
(3,401)
(9,411)
-
(1,974)
(420)
(101)
(1,794)
(108)
(10,279)
4,526
(2,372)
(45,140)
586
1,778
51
-
(220)
$
25,174
$
50,695
$
(28,309)
$
(42,207)
$
(56,345)
$
(61,114)
$
16,535
$
4,663
(962)
(234)
(132)
-
(168)
(287)
12
101
-
-
-
-
Total
$
(57,673)
$
(61,569)
$
16,648
$
4,663
Net deferred tax asset / (liability)
$
(32,499)
$
(10,874)
$
(11,661)
$
(37,544)
Deferred income tax - Australia
Deferred tax assets
Payables
Provisions
Deferred gains and losses on foreign currency contracts
CCPB 9 & 10 Book to Tax differences
Other
Total
Deferred tax liabilities
Property, plant and equipment
Deferred gains and losses on foreign currency contracts
Other
Total
$
699
$
400
$
289
$
233
7,633
2,521
732
110
7,952
511
970
530
(319)
(72)
(237)
(420)
1,523
119
140
(188)
$
11,695
$
10,363
$
(759)
$
1,827
$
(3,288)
$
(4,120)
$
833
$
552
(466)
(97)
(726)
113
52
(173)
-
-
$
(3,851)
$
(4,733)
$
712
$
552
Net deferred tax asset / (liability)
$
7,844
$
5,630
$
(47)
$
2,379
Net deferred tax asset / (liability)
$
(24,655)
$
(5,244)
$
(11,708)
$
(35,165)
76 Austal Limited | Annual Report 2018
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.
Tax reform in the USA became effective on 1 January 2018 and resulted in a reduction in the Federal
rate of income tax from 35% to 21% for tax years beginning on 1 January 2018. Austal’s financial
year ends on 30 June 2018 and therefore FY2018 H1 was subject to Federal income tax at a rate of
35% and FY2018 H2 was subject to Federal income tax at 21%. The average rate of Federal income
tax was 28% for FY2018.
The combination of the Federal rate of income tax at 28% and the weighted average of individual US
states in which Austal operates was 31.6% for FY2018.
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 taxable temporary differences associated with investments in subsidiaries, associates or
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 the availability of taxable profit against
which the deductible temporary differences is probable, 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 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.
Austal Limited | ▮ Notes to the financial statements 77
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 profit or loss.
iv
Tax consolidation
Austal Limited (the Company) is the head entity in a Tax Consolidated Group comprising the Company and
its 100% owned Australian resident subsidiaries that was implemented 1 July 2002. Members of the Group
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.
78 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
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.
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.
1.
Unrecognised losses and credits
A deferred tax asset was not recognised for the following tax losses at 30 June 2018:
Unrecognised Deferred Tax Assets
Carried Forward Tax Losses
Australia
Total
2018
’000
2017
’000
$
6,175
$
1,918
$
6,175
$
1,918
A deferred tax asset has not been recognised in relation to carry forward tax losses that have been
generated in the Australian Consolidated Tax Group which includes the Australia segment and the
majority of the Group Corporate overhead which is reported within the Unallocated segment (refer to
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.
2.
Audits by tax authorities
The Group establishes a provision based on reasonable estimates, for possible consequences of audits
by the tax authorities of the respective countries in which it operates. The amount of such provisions
is based on various factors, such as experience of previous tax audits and differing interpretations of
tax regulations by the taxable entity and the responsible tax authority. Such differences in
interpretation may arise for a wide variety of issues depending on the conditions prevailing in the
respective domicile of the Group companies.
An Australian Taxation Office (ATO) audit of Austal Limited has resulted in differing interpretations of
inter-company royalties associated with intellectual property deployed from Australia to the USA.
The ATO’s position resulted in elevated tax liability in Australia which results in an increased effective
tax rate for the Group. All amended notices of assessment have been paid.
Austal has obtained independent specialist advice in Australia and the USA that supports Austal’s
position and hence Austal has objected to the ATO’s audit findings. Austal had not received an
objection response from the ATO at 30 June 2018.
Austal Limited | ▮ Notes to the financial statements 79
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.
80 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
Capital Structure
Cash and cash equivalents
2018
’000
2017
’000
Current
Cash at bank and in hand
$
162,024
$
150,471
Total Cash per cash flow statement
$
162,024
$
150,471
i
Recognition and measurement
Cash and short-term deposits in the statement of financial position comprise cash at bank, cash 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.
Interest bearing loans and borrowings
Current
Finance leases
Go Zone Bonds
Vessel finance for Cape Class Patrol Boats 9 & 10
Total
Non - Current
Finance leases
Go Zone Bonds
Vessel finance for Cape Class Patrol Boats 9 & 10
Total
Total
2018
’000
2017
’000
$
(2,699)
$
(2,532)
(61,723)
(8,336)
-
(7,336)
$
(72,758)
$
(9,868)
$
(2,834)
$
(5,329)
(60,888)
(48,798)
(123,303)
(57,855)
$
(112,520)
$
(186,487)
$
(185,278)
$
(196,355)
Austal Limited | ▮ Notes to the financial statements 81
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
1.17% in FY2018.
Austal has redeemed (repaid) a cumulative amount of US$132.460 million of GZB funds and owed
US$92.540 million at 30 June 2018.
GZB Bondholders are secured by letters of credit issued by Austal’s banking syndicate. 50% of the GZB debt
is secured by a letter of credit with a maturity date of May 2021.
The other 50% of the GZB debt is secured by a letter of credit with a maturity date of May 2019 and
therefore this portion of GZB (US$46.270 million) has been classified as a current liability at
30 June 2018. Austal is currently undertaking a substitution process to obtain a letter of credit from a new
bank with a maturity date of May 2021.
Austal have two non-binding offers from international banks to provide a new letter of credit for the
US$46.270 million of GZB. Austal has selected one of the banks and is completing the legal process to
execute the substitution. Substitution is expected to occur before 31 December 2018.
The average cost of the letters of credit was 1.54% in FY2018.
iii
Finance leases
Austal USA entered into 5 year Finance leases in FY2015 to fund mobile equipment and land in Mobile,
Alabama, USA, and the following average interest rates were incurred in FY2018:
mobile equipment 3.23%
land 3.25%
iv
Vessel finance for Cape Class Patrol Boats 9 & 10 (CCPB 9 & 10)
Austal entered into a finance arrangement with National Australia Bank (NAB) and the Royal Australian Navy
(RAN) for the construction of CCPB 9 & 10 in December 2015.
NAB financed the purchase of the vessels and is leasing them to the RAN for an initial 3 year term.
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 FY2018 was 3.19%.
Austal assesses that extension of the leases or a future sale of the two vessels is probable based on market
conditions.
82 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
v
Banking facilities
Austal has a Syndicated Facility Agreement which includes US$92.540 million for letters of credit to secure
the Go Zone Bonds and a A$180.000 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 28 for more information in relation to commitments and contingencies.
The Syndicated Facility Agreement was extended on 1 May 2018. Three banks provided 3 years of tenor,
maturing May 2021. One bank which provides credit enhancement for half of the GZB debt, extended their
portion of the facility by 6 months to May 2019. For more information refer to Go Zone Bonds in section ii of
this note.
An additional $100.000 million uncommitted and unsecured Surety facility for the issuance of non-financial
contingent instruments was established in May 2018 to support commercial vessel contracts.
Facilities used at reporting date
Finance leases
Go Zone Bonds
Revolving Credit Facility
Surety Facility
Total
Facilities unused at reporting date
Finance leases
Go Zone Bonds
Revolving Credit Facility
Surety Facility
Total
Total Facilities Available
Finance Leases
Go Zone Bonds
Revolving Credit Facility
Surety Facility
Total
2018
’000
2017
’000
$
(5,533)
(122,611)
(102,359)
-
$
(7,861)
(123,303)
(57,597)
-
$
(230,503)
$
(188,761)
$
-
-
(77,641)
(100,000)
$
-
-
(112,403)
-
$
(177,641)
$
(112,403)
$
(5,533)
(122,611)
(180,000)
(100,000)
$
(7,861)
(123,303)
(170,000)
-
$
(408,144)
$
(301,164)
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.
Austal Limited | ▮ Notes to the financial statements 83
Financing cash flow reconciliation to interest bearing debt
30 June 2017
’000
Cashflows
Repay /
(Draw)
’000
CCPB 9 & 10
Debt
Reduction1
’000
Foreign
exchange
movement
’000
Amortisation
of borrowing
costs
’000
Reclass
’000
30 June 2018
’000
Non-cash changes
Current borrowings
Non-current borrowings
$
(9,868)
$
(67)
$
-
$
(100)
$
-
$
(62,723)
$
(72,758)
(186,487)
9,297
8,058
(4,572)
(1,539)
62,723
(112,520)
Total financing liabilities
$
(196,355)
$
9,230
$
8,058
$
(4,672)
$
(1,539)
$
-
$
(185,278)
Non-cash changes
30 June 2016
’000
Cashflows
Repay /
(Draw)
’000
CCPB 9 & 10
Debt
Reduction1
’000
Foreign
exchange
movement
’000
Amortisation
of borrowing
costs
’000
Reclass
’000
30 June 2017
’000
Current borrowings
Non-current borrowings
$
(2,545)
$
(65)
$
-
$
78
$
-
$
(7,336)
$
(9,868)
(170,066)
(24,554)
75
1,611
(889)
7,336
(186,487)
Total financing liabilities
$
(172,611)
$
(24,619)
$
75
$
1,689
$
(889)
$
-
$
(196,355)
1. Debt reduction is equal to the difference between the notional charter income and the interest expense.
84 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
Contributed equity and reserves
Ordinary shares on issue
1 July
Shares issued for dividend reinvestment plan
Shares issued to new Employee Share Trust
Shares issued for performance rights vested
Dividend retained in relation to AGMSP1
AGMSP1 options exercised
Transfer of vested Treasury Shares value
Tax expense on employee share plan (AGMSP1)
Shares
’000
2018
2017
2018
2017
349,472,643
348,393,449
$
128,276
$
123,739
703,878
463,697
217,311
-
-
-
-
1,079,194
$
1,209
$
1,690
-
-
-
-
-
-
812
201
23
147
(494)
(9)
-
-
-
-
2,891
(44)
30 June
350,857,529
349,472,643
$
130,165
$
128,276
Treasury shares
1 July
Shares issued to employee share trust
Dividend retained in relation to AGMSP1
AGMSP1 options exercised 2
Transfer of vested Treasury Shares
30 June
Net
(4,015,539)
(4,015,539)
$
(11,892)
$
(9,001)
(463,697)
-
313,539
-
-
-
-
-
$
(812)
$
-
127
247
494
-
-
(2,891)
(4,165,697)
(4,015,539)
$
(11,836)
$
(11,892)
346,691,832
345,457,104
$
118,329
$
116,384
1. Austal Group Management Share Plan (AGMSP)
2. 10,693 options exercised from AGMSP Plan 1 and 302,846 options exercised from AGMSP Plan 2.
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 Treasury shares and Ordinary Shares on issue with zero movement in
total Contributed Equity.
2.
Treasury shares
Own equity instruments which are issued and held by a trustee under the Austal Group Management
Share Plan (AGMSP) and a new Employee Share Trust (EST) are classified as Treasury 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 34 for more information in relation to the AGMSP.
Austal Limited | ▮ Notes to the financial statements 85
ii
Movements in ordinary share capital
The movement in ordinary shares during year ended 30 June 2018 is comprised of shares issued as part of
dividends declared and paid during the year.
The Group announced a FY2017 final dividend of 2 cents per share with an option for dividend reinvestment
of $1.66 per share on 20 October 2017, followed by a FY2018 interim dividend of 2 cents per share with an
option for dividend reinvestment of $1.81 per share, which was announced on 23 April 2018.
Austal established an Employee Share Trust (EST) during FY2018 for the purpose of acquiring, holding and
transferring shares in connection with equity based remuneration established by the Company for the benefit
of participants in those plans. Austal issued 463,697 shares to the trust during the year.
The movement in ordinary shares also includes 217,307 performance rights vested from the FY2014 and
FY2015 LTI Grants.
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 34 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 effective hedges.
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.
86 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
Government grants relating to assets
Deferred grant income
Current
2018
’000
2017
’000
Infrastructure development
$
(8,903)
$
(7,934)
Total
Non - Current
$
(8,903)
$
(7,934)
Infrastructure development
$
(58,050)
$
(62,881)
Total
Total
Movements in Grants
Opening Balance
Grants received during the year
Amortised to the profit and loss
Exchange rate adjustment
$
(58,050)
$
(62,881)
$
(66,953)
$
(70,815)
$
(70,815)
$
(80,534)
$
(2,318)
$
(1,134)
8,662
(2,482)
8,522
2,331
Closing Balance
$
(66,953)
$
(70,815)
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.
Austal Limited | ▮ Notes to the financial statements 87
Working Capital
Trade and other receivables
Current
Trade amounts owing by unrelated entities
Allowance for doubtful debts
Total
2018
’000
2017
’000
$
98,700
$
91,405
(1,351)
(257)
$
97,349
$
91,148
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 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 26 for an analysis of the Group’s credit risk.
88 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
iii
Ageing analysis of current trade & other receivables
Days outstanding
0-30
31-60
61-90
90+
Impaired
Total
2018
2017
’000
$
74,338
$
11,025
$
2,443
$
10,894
$
(1,351)
$
97,349
’000
73,999
2,713
6,352
8,341
(257)
91,148
Receivable balances are monitored on an ongoing basis. A major percentage of the trade and other
receivables comprises Government institutions where 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.
Austal received $8.989 million of the 90+ days outstanding receivables subsequent to the reporting date.
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.
Austal Limited | ▮ Notes to the financial statements 89
Vessel construction and support contracts in progress
Work in Progress
Construction and support revenue recognised to date
less Progress payments received & receivable
Total due from customers
Progress Payments Received in Advance
Construction and support revenue recognised to date
less Progress payments received & receivable
Total due to customers
2018
’000
2017
’000
$
9,472,689
$
8,010,526
(9,228,968)
(7,842,168)
$
243,721
$
168,358
$
170,805
$
77,146
(224,564)
(92,700)
$
(53,759)
$
(15,554)
Total due from / (to) customers
$
189,962
$
152,804
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 26 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.
Inventories and work in progress
Current
Work in progress
Other inventory
Total
Notes
2018
’000
2017
’000
16
$
243,721
$
168,358
2,788
2,064
$
246,509
$
170,422
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 the reporting date.
90 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
Trade and other payables
2018
’000
2017
’000
Current
Trade & other payables owed to unrelated entities 1
$
(177,848)
$
(141,465)
Total
$
(177,848)
$
(141,465)
1. Trade payables are unsecured, non-interest bearing and are normally settled on 45 day terms.
i
Recognition and measurement
Trade payables and other payables are carried at amortised costs and represent liabilities for goods and
services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group
becomes obliged to make future payments in respect of the purchase of these goods and services.
ii
Fair value of trade and other payables
The carrying amounts of trade and other payables are assumed to be the same as their fair values, due to
their short-term nature.
Austal Limited | ▮ Notes to the financial statements 91
Infrastructure & other assets
Property, plant and equipment
i
Net carrying amount
Freehold
Land &
Leasehold
Plant &
Capital
Buildings
Improvements
Equipment
’000
’000
’000
WIP
’000
Total
’000
Balance 30 June 2017
Gross carrying amount at fair value
Gross carrying amount at cost
Accumulated Depreciation & Impairment
$
362,869
$
-
$
-
$
-
$
362,869
-
44,879
218,761
(14,607)
(12,328)
(104,940)
5,670
-
269,310
(131,875)
Net Carrying Amount
$
348,262
$
32,551
$
113,821
$
5,670
$
500,304
Balance 30 June 2018
Gross carrying amount at fair value
Gross carrying amount at cost
Accumulated Depreciation & Impairment
(25,639)
(19,990)
(123,500)
-
$
440,455
$
-
$
-
$
-
$
440,455
-
48,609
235,340
10,503
294,452
(169,129)
Net Carrying Amount
$
414,816
$
28,619
$
111,840
$
10,503
$
565,778
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 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
(15,949)
(100)
(13,670)
(1,544)
-
-
(44)
-
(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
Depreciation charge for the year
(10,100)
(6,978)
Additions
Transfer in / (out)
Transfer to intangibles
Disposals
Impairment
Revaluation
Exchange Adjustment
Total
$
51
$
37
$
13,618
$
13,365
$
27,071
3,788
-
-
37
-
(58)
-
61,176
11,639
-
2,110
920
3,327
-
(828)
(18,634)
(1,064)
-
1,600
(7,152)
(1,612)
-
-
-
-
232
-
(1,612)
(886)
(35,712)
(1,064)
63,286
14,391
$
66,554
$
(3,932)
$
(1,981)
$
4,833
$
65,474
Balance 30 June 2018
$
414,816
$
28,619
$
111,840
$
10,503
$
565,778
92 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
iii
Recognition and measurement
Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment
losses.
Land and buildings are measured at fair value less accumulated depreciation on buildings and any
impairment losses recognised after the date of revaluation. Valuations are performed 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
2018
’000
2017
’000
$
371,442
$
381,122
(84,147)
(77,063)
$
287,295
$
304,059
Any revaluation surplus is recorded in other comprehensive income and 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. Any revaluation reserve relating to
the particular asset being sold is transferred to retained earnings upon disposal.
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.
Austal Limited | ▮ Notes to the financial statements 93
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 Note 21 for impairment testing of non-current assets.
The carrying values of plant and equipment are reviewed for impairment at each reporting date, with
the recoverable amount being estimated when events or changes in circumstances indicate the
carrying value of the asset may be impaired. 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 21.
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 – term of lease
The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted at the
end of each financial year if appropriate.
94 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
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
which is consistent with the Group’s current use of the assets.
The independent revaluation is renewed every three to five years. The Company undertakes an
assessment in the years between obtaining independent valuations 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 Australian land and buildings occurred during FY2016. There
has not been any indication of impairment nor any material change in the valuation of the assets since
they were last revalued.
The last independent revaluation of the USA land and buildings occurred during FY2018. This
resulted in a valuation of $63.286 million.
Intangible assets and goodwill
i
Net carrying amount
Balance 1 July 2017
Cost
Computer
Software
’000
Other
Goodwill
Intangibles
’000
’000
Total
’000
$
17,525
$
6,463
$
-
$
23,988
Accumulated Amortisation & Impairment
(15,079)
-
-
(15,079)
Net Carrying Amount
$
2,446
$
6,463
$
-
$
8,909
Balance 30 June 2018
Cost
$
21,009
$
12,543
$
3,852
$
37,404
Accumulated Amortisation & Impairment
(16,542)
-
(50)
(16,592)
Net Carrying Amount
$
4,467
$
12,543
$
3,802
$
20,812
Austal Limited | ▮ Notes to the financial statements 95
ii
Reconciliation of movement for the year
Balance 1 July 2016
Additions
Amortisation for the year
Exchange Adjustment
Total
Computer
Software
’000
Notes
Other
Goodwill
Intangibles
’000
’000
Total
’000
$
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
Balance 1 July 2017
Additions
Transfer from Property, Plant and Equipment
Disposals
Business Acquisition
Amortisation for the year
Exchange Adjustment
Total
$
2,446
$
6,463
$
-
$
8,909
$
1,826
$
-
$
-
$
1,826
1,612
(49)
-
(1,548)
180
-
-
6,019
-
61
-
-
3,807
(48)
43
1,612
(49)
9,826
(1,596)
284
$
2,021
$
6,080
$
3,802
$
11,903
32
Balance 30 June 2018
$
4,467
$
12,543
$
3,802
$
20,812
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.
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.
96 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
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.
Impairment testing of non-current assets
i
Review cycle
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.
ii
Cash generating units (CGU)
The recoverable amounts have been assessed at the CGU level as identified below:
Australia
USA
Philippines
iii
Allocation of assets to CGU
Corporate assets have been allocated to CGU to the extent that they relate to the CGU.
Goodwill, acquired through business combinations has been allocated to the following segments:
Australia - a carrying amount of $6.5 million
USA – a carrying amount of $6.1million (refer to Note 32 for further information).
Austal Limited | ▮ Notes to the financial statements 97
iv
Assessment of recoverable amounts
The recoverable amounts for each CGU, excluding charter vessels that are assessed independently, have
been determined based on value in use calculations using 5 year cash flow projections.
Key inputs into the cash flow projection include the volume and profitability of contracted and projected
projects. Changes in these inputs may have an impact on the cash flow projections.
The Company concluded that the recoverable amount is greater than the carrying amount of assets and that
no impairment charge is required as a result of this analysis.
v
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%
9.8%
2.0%
0.0%
13.6%
1.5%
0.0%
13.2%
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 historical 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.
98 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
Other financial assets
Other financial assets
Collateral 1
Security deposits
Total
2018
’000
2017
’000
$
10,000
$
9,467
160
159
$
10,160
$
9,626
1.
USA has a legal obligation 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 1 year or
more. Collateral and security deposits are classified as receivables and measured at amortised cost.
Other non-current assets
Recognised R&D Credits
USA - recognised in Other Non-current Assets
USA - recognised in Deferred tax assets
Total
Unrecognised R&D Credits
Australia
USA
Total
i
Recognition and measurement
2018
’000
2017
’000
$
21,751
$
9,296
-
8,658
$
21,751
$
17,954
$
6,702
$
6,702
3,410
17,357
$
10,112
$
24,059
The Group recognised a non-current asset for $21.751 million of research and development (R&D) credits in
June 2018. Comparative information within the statement of financial position relating to R&D credits of
$9.296 million was reclassified from Current assets, Trade and other receivables to Other non-current assets,
to be comparable to the current year presentation.
ii
Unrecognised Research & Development (R&D) credits
A non-current asset has not been recognised in relation to $6.702 million of carry forward R&D tax credits
that have been generated in the Australian Consolidated Tax Group.
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 an asset were not met.
A non-current asset has not been recognised in relation to $3.410 million of carry forward R&D tax credits
that have been generated in the USA.
Austal Limited | ▮ Notes to the financial statements 99
Other liabilities
Provisions
Employee
Workers'
Benefits
Compensation
Warranty
’000
’000
’000
Other
’000
Total
’000
Provisions at 30 June 2017
$
(39,421)
$
(3,794)
$
(13,534)
$
(6,150)
$
(62,899)
Arising during the year
$
(102,292)
$
(5,691)
$
(1,689)
$
(53,330)
$
(163,002)
Utilised
Unused amounts reversed
Effects of foreign exchange
93,409
174
(1,411)
6,280
-
(89)
3,886
-
(85)
52,172
69
(100)
155,747
243
(1,685)
Movement
$
(10,120)
$
500
$
2,112
$
(1,189)
$
(8,697)
Provisions at 30 June 2018
$
(49,541)
$
(3,294)
$
(11,422)
$
(7,339)
$
(71,596)
Employee
Workers'
Benefits
Compensation
Warranty
’000
’000
’000
Other
’000
Total
’000
$
(38,077)
$
(3,794)
$
(13,534)
$
(4,630)
$
(60,035)
(1,344)
-
-
(1,520)
(2,864)
$
(39,421)
$
(3,794)
$
(13,534)
$
(6,150)
$
(62,899)
$
(48,315)
$
(3,294)
$
(11,422)
$
(7,019)
$
(70,050)
(1,226)
-
-
(320)
(1,546)
$
(49,541)
$
(3,294)
$
(11,422)
$
(7,339)
$
(71,596)
2017
Current
Non-Current
Total
2018
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.
100 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
ii
Information about individual provisions and significant accounting estimates
1.
Employee Benefits
Liabilities for wages and salaries, including non-monetary benefits and accumulated 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 each vessel based on the estimated future costs of
warranty repairs. The estimated future costs are based on the Group’s history of warranty claims made
on similar vessels within their 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.
Other provisions at 30 June 2018 includes a $(2.818) million 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 the reporting date and hence a provision was booked in FY2017 with a corresponding
expense.
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. Austal would negotiate the extension of an onerous contract beyond the original term
but there is a risk that Austal may bear additional cost associated with this contract.
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. An interim dividend of 2 cents per share
was issued for the half year 31 December 2017 (FY2017 H1: 2 cents).
An unfranked dividend of 3 cents per share is proposed and not recognised as a liability for the year
ended 30 June 2018 (FY2017 H2: 2 cents).
Austal Limited | ▮ Notes to the financial statements 101
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
2018
Cash and cash equivalents
Trade & other receivables
Other financial assets
Derivatives
Total
2017
Cash and cash equivalents
Trade & other receivables
Other financial assets
Derivatives
Total
10
15
22
25, 27
10
15
22
25, 27
$
-
$
162,024
$
162,024
-
-
2,685
97,349
10,160
-
97,349
10,160
2,685
$
2,685
$
269,533
$
272,218
$
-
$
150,471
$
150,471
-
-
3,036
91,148
9,626
-
91,148
9,626
3,036
$
3,036
$
251,245
$
254,281
Financial Liabilities
Derivatives used
Liabilities at
for hedging
at fair value
Notes
’000
amortised
cost
’000
Total
’000
2018
Trade & other payables
Derivatives
Interest bearing borrowings
18
25, 27
11
$
-
$
(177,848)
$
(177,848)
(11,903)
-
-
(185,278)
(11,903)
(185,278)
Total
2017
$
(11,903)
$
(363,126)
$
(375,029)
Trade & other payables
Derivatives
Interest bearing borrowings
18
25, 27
11
$
-
$
(141,465)
$
(141,465)
(5,125)
-
-
(196,355)
(5,125)
(196,355)
Total
$
(5,125)
$
(337,820)
$
(342,945)
The Group’s exposure to various risks associated with the financial instruments is discussed in Note 26.
102 Austal Limited | Annual Report 2018
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.
Balance 30 June 2018
Notes
Level 1
’000
Level 2
’000
Level 3
’000
Total
’000
Financial assets
Derivatives
Financial liabilities
25, 27
$
-
$
2,685
$
-
$
2,685
Derivatives
25, 27
$
-
$
(11,903)
$
-
$
(11,903)
Balance 30 June 2017
Financial assets
Derivatives
Financial liabilities
25, 27
$
-
$
3,036
$
-
$
3,036
Derivatives
25, 27
$
-
$
(5,125)
$
-
$
(5,125)
There were no transfers between any of the levels for recurring fair value measurements during the
year.
Level 1
The instruments are included in level 1 if 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.
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 2018 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.
Austal Limited | ▮ Notes to the financial statements 103
ii
Impairment – Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that
it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more
events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset which is measured at amortised cost is calculated as the
difference between its carrying amount, and the present value of the estimated future cash flows, discounted
at the original effective interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The remaining
financial assets are assessed collectively in groups that share similar credit risk characteristics.
All impairment losses are recognised in profit or loss. An impairment loss is reversed if the reversal can be
related objectively to an event occurring after the impairment loss was recognised. The reversal is recognised
in profit or loss for financial assets measured at amortised cost.
Impairment testing of trade receivables is described in Note 15.
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 2018
Notes
Level 1
’000
Level 2
’000
Level 3
’000
Total
’000
Land & buildings
19
$
-
$
-
$
414,816
$
414,816
Balance 30 June 2017
Land & buildings
19
$
-
$
-
$
348,262
$
348,262
There were no transfers between any of the levels for recurring fair value measurements during the year.
104 Austal Limited | Annual Report 2018
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 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.
Refer to Note 19 for further information.
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 2018
'000
Unobservable
inputs
Range of inputs
(probability-
weighted average)
Relationship of
unobservable inputs
to fair value
Land - Mobile
US$34,000
Selection of land with
similar approximate
utility
US$4.16 - US$15.51
(US$11.39) per ft2
Higher value of similar land
increases estimated fair value
Buildings - Mobile
US$259,200
Cost per square foot
floor area (ft2)
US$61.82 - $202.08
(US$136.70) per ft2
Higher cost per ft2
increases fair value.
Land - Henderson
$
12,250
Selection of land with
$225-275 ($250) per m2
Higher value of similar land
similar approximate
utility
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.
Austal Limited | ▮ Notes to the financial statements 105
Financial Risk Management
Financial risk management
This note explains the Group’s exposure to financial risks and how these risks could affect 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’s, 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 the Net operating profit after tax divided by Net Assets (excluding
Cash, Debt, Derivatives and Tax accounts). The Board determines the level of dividends to distribute.
The Group monitors the 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.
106 Austal Limited | Annual Report 2018
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
2018
’000
2017
’000
$
10,386
$
5,227
144,377
7,261
138,481
6,791
$
162,024
$
150,499
US variable rate interest
$
(130,553)
$
(134,116)
Total
Net Exposure
$
(130,553)
$
(134,116)
$
31,471
$
16,383
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 profit or loss after tax if a 25 basis point movement in interest rates occurred.
25 basis points was deemed to be a reasonable level of volatility based on FY2018 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)
2018
’000
2017
’000
$
73
$
37
(73)
(37)
$
97
$
31
(97)
(31)
iii
Interest rate risk strategies, policies and procedures
The cash, debt and bank covenants of the Group are forecasted and monitored on a monthly basis in order to
monitor 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 financial exposure to changes in interest rates
as detailed above is currently immaterial.
Austal Limited | ▮ Notes to the financial statements 107
iv
Foreign currency risk
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, Philippines and
Vietnam operations. These transactions are primarily denominated are AUD, USD and EUR.
The Group’s objective is to minimise the risk of a variation in the rate of foreign exchange used to convert
foreign currency revenues and expenses and assets or liabilities to the functional currency of each CGU by
utilising the following techniques:
negotiation of contracts to adjust for adverse exchange rate movements
use of natural hedges
using financial instruments (Derivative financial instruments and hedging is described in Note 27).
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 and the contract effective date.
The Group’s financial assets and liabilities exposed to foreign currency risk at year end were as follows:
Balance 30 June 2018
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivatives
Total
Financial liabilities
AUD
’000
All values are stated in AUD equivalent
USD 1
’000
EUR 2
’000
Other
’000
Total
’000
$
123
$
8,287
$
4,460
$
2,216
$
15,086
-
779
41
2,101
385
7,605
1,276
1,283
1,702
11,768
$
902
$
10,429
$
12,450
$
4,775
$
28,556
Trade and other payables
$
(381)
$
(407)
$
(2,513)
$
(538)
$
(3,839)
Derivatives
Total
(116)
(1,354)
(1,158)
(46)
(2,674)
$
(497)
$
(1,761)
$
(3,671)
$
(584)
$
(6,513)
Balance 30 June 2017
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivatives
Total
Financial liabilities
AUD
’000
All values are stated in AUD equivalent
USD 1
’000
EUR 2
’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
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)
1. Spot USD / AUD rate at 30 June 2018 was 0.7402 (30 June 2017: 0.7686)
2. Spot EUR / AUD rate at 30 June 2018 was 0.6339 (30 June 2017: 0.6722)
108 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
Known foreign exchange transaction exposures which result from normal operational business activities, are
hedged utilising financial instruments.
Net profit after tax and equity would have been affected as illustrated below had the AUD, USD and EUR
moved relative to one another at balance date with all other variables held constant:
Judgement of reasonable possible movements
Post tax profit higher / (lower)
Equity higher / (lower)
2018
’000
2017
’000
2018
’000
2017
’000
USD / AUD
+10%
-10%
EUR / AUD
+10%
-10%
USD / EUR
+10%
-10%
$
1,722
$
1,581
$
(61,869)
$
(53,889)
(2,105)
(1,581)
76,128
66,172
$
(373)
$
-
$
20,007
$
6,216
455
-
(24,453)
(7,598)
$
-
$
-
$
3,821
$
5,288
-
-
(3,088)
(5,288)
The foreign currency translation of USD denominated net assets would have significantly affected the equity
at the reporting date. The Group had USD denominated net assets of US$556.437 million at 30 June 2018
(US$474.982 million at 30 June 2017).
Derivative financial instruments such as forward currency contracts and currency options are utilised to
eliminate foreign currency exposures. Timing gaps are mitigated using foreign currency accounts or financial
instruments such as swaps.
The Group’s policy is to negotiate the terms of the hedge derivatives to match the terms of the hedged item
to maximise hedge effectiveness.
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 27.
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.
Austal Limited | ▮ Notes to the financial statements 109
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
27.
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 has a Syndicated Facility Agreement which was extended on 1 May 2018. Three banks provided
3 years of tenor, maturing May 2021. One bank provided credit enhancement for 50% of the total GZB
maturing May 2019 and Austal is in the process of completing legal documentation to obtain a new source
of credit enhancement for the 50% of the GZB that is maturing in May 2019 that will extend out to
May 2021.
The contractual cashflow and maturities of financial liabilities, including interest payments are as follows:
110 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
Balance 30 June 2018
Derivative financial assets / (liabilities)
Years to maturity
0 - 1
’000
1 - 5
’000
> 5
’000
Total1
’000
Outflow
Inflow
$
(199,457)
$
(245,749)
$
-
$
(445,206)
197,026
241,033
-
438,059
Net derivative financial assets / (liabilities)
$
(2,431)
$
(4,716)
$
-
$
(7,147)
Non Derivative financial liabilities
Trade & other payables
Go Zone Bond facility
Finance lease
Vessel finance for Cape Class Patrol Boats 9 & 102
$
(177,848)
$
-
$
-
$
(177,848)
(62,668)
(2,797)
-
(63,131)
(2,831)
(42,000)
-
-
-
(125,799)
(5,628)
(42,000)
Total
$
(243,313)
$
(107,962)
$
-
$
(351,275)
Balance 30 June 2017
Derivative financial assets / (liabilities)
Years to maturity
0 - 1
’000
1 - 5
’000
> 5
’000
Total1
’000
Outflow
Inflow
$
(160,799)
$
(97,366)
$
-
$
(258,165)
139,341
81,829
-
221,170
Net derivative financial assets / (liabilities)
$
(21,458)
$
(15,537)
$
-
$
(36,995)
Non Derivative financial liabilities
Trade & other payables
Go Zone Bond facility
Finance lease
Vessel finance for Cape Class Patrol Boats 9 & 102
$
(154,914)
$
-
$
-
$
(154,914)
(77)
(126,325)
(2,684)
-
(5,409)
(42,000)
-
-
-
(126,402)
(8,093)
(42,000)
Total
$
(157,675)
$
(173,734)
$
-
$
(331,409)
1. Contractual cash flows include interest
2. Contractual cashflows are equal to the residual value of the vessels. Refer to Note 11 for further information.
The Group had $50.000 million (FY2017: $50.000 million) of unused cash loan credit facilities available
for immediate use at the reporting date and $162.024 million (FY2017: $150.471 million) in cash and
cash equivalents, which can be used to meet its liquidity needs.
Refer to Note 11 for more information in relation to interest bearing loans and borrowings.
Austal Limited | ▮ Notes to the financial statements 111
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 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.
Refer to Note 25 for more information in relation to Fair value measurements.
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.
112 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
iii
Fair value hedge accounting
Fair value hedges are hedges of the Group’s exposure to changes in the fair value of a recognised asset or
liability, or an unrecognised firm commitment other than foreign exchange rate risk, or an identified portion
of such an asset, liability or firm commitment that is attributable to a particular risk and could affect profit
or loss. The carrying amount of a hedged item is adjusted for gains and losses attributable to the risk being
hedged, the derivative is remeasured to fair value and gains and losses from both are taken to the statement
of comprehensive income.
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 are 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.
Austal Limited | ▮ Notes to the financial statements 113
v
Summary of forward foreign exchange contracts
The following table summarises the AUD value of the significant forward foreign exchange agreements by
currency. Foreign currency amounts are translated at rates current at the reporting date. The ‘buy’ amounts
represent the AUD equivalent of commitments to purchase foreign currencies, and the ‘sell’ amount
represents the AUD equivalent of commitments to sell foreign currencies.
2018
2017
Buy
Sell
Buy
Sell
Average
Forward
Rate
AUD
Equivalent
'000
Buy USD
Average
Forward
Rate
AUD
Equivalent
'000
(Sell USD)
Average
Forward
Rate
AUD
Equivalent
'000
Buy USD
USD / AUD
Average
Forward
Rate
AUD
Equivalent
'000
less than 3 months
-
$
-
0.7403
0.7444
731
1,599
0.7399
0.7421
0.7458
$
(518)
0.7666
$
130
(21,805)
(18,221)
-
-
-
-
0.7670
0.7653
0.7617
$
2,329
$
(40,544)
$
130
3 - 12 months
> 12 months
Total
EUR / AUD
Buy EUR
less than 3 months
0.6332
$
287
3 - 12 months
> 12 months
Total
SEK / AUD
-
-
-
-
$
287
Buy SEK
less than 3 months
-
$
-
3 - 12 months
> 12 months
Total
SEK / USD
6.5693
6.3861
776
7,812
$
8,588
Buy SEK
less than 3 months
8.9013
$
459
3-12 months
13 months or greater
-
8.5975
-
6,361
(Sell EUR)
$
(24,389)
(88,219)
(114,648)
$
(227,255)
(Sell SEK)
$
-
-
-
$
-
(Sell SEK)
0.6702
0.6654
-
-
-
-
Buy EUR
$
78
22
-
$
100
Buy SEK
$
-
-
-
$
-
Buy SEK
$
-
-
$
-
-
-
8.3708
-
1,223
-
0.6293
0.6237
0.6050
-
-
-
-
-
-
0.6684
0.6623
0.6467
-
-
-
-
-
-
(Sell USD)
$
(8,915)
(4,139)
(24,658)
$
(37,711)
(Sell EUR)
$
(7,455)
(13,472)
(49,624)
$
(70,551)
(Sell SEK)
$
-
-
-
$
-
(Sell SEK)
$
-
-
-
Total
USD / EUR
less than 3 months
3 - 12 months
> 12 months
Total
$
6,820
$
-
$
1,223
$
-
1.1733
1.1877
1.2478
Buy EUR
$
5,377
18,469
76,134
$
99,980
1.1759
1.2212
1.2505
(Sell EUR)
$
(4,340)
(6,145)
(22,112)
$
(32,597)
1.1438
1.1568
1.1870
Buy EUR
$
1,827
38,062
24,383
$
64,272
1.1458
1.1561
-
(Sell EUR)
$
(3,061)
(7,050)
-
$
(10,110)
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 the 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.
114 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
Unrecognised items
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
More than five years
Total
Capital commitments
Other Capital Equipment
Total
Guarantees
2018
’000
2017
’000
$
(4,176)
$
(2,552)
(4,567)
(3,857)
(2,184)
(4,060)
$
(12,600)
$
(8,796)
$
(1,470)
$
-
$
(1,470)
$
-
Bank performance guarantees1
$
(102,359)
$
(57,597)
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.
The Group occasionally receives claims and writs for damages and other matters arising from its operations in the
course of its normal business.
A specific provision is made where it is deemed appropriate in the opinion of the directors, otherwise the directors
deem such matters are either without merit or of such kind or involve such amounts that would not have a material
adverse effect on the operating results or financial position of the economic entity if disposed of unfavourably.
The directors are not aware of any other material contingent liabilities in existence as at 30 June 2018 requiring
disclosure in the financial statements.
Events after the balance date
i
Dividend proposed
An unfranked final dividend of 3 cents per share has been proposed (FY2017 final: 2 cents).
Austal Limited | ▮ Notes to the financial statements 115
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 Vietnam Pty Ltd 1
Austal Viet Nam Co Ltd
Austal Holdings Inc
Austal USA LLC
Austal USA Service LLC
ElectraWatch Inc 2
Austal Philippines Pty Ltd
Austal Middle East Pty Ltd
Austal Holdings China Pty Ltd
Oceanfast Luxury Yachts Pty Ltd
Oceanfast Pty Ltd
Seastate Pty Ltd
1. Austal Holdings Vietnam Pty Ltd incorporated in FY2018
2. ElectraWatch Inc acquired in FY2018. Refer to Note 32
i
Investment in joint venture
Country
Australia
Cyprus
Egypt
Oman
Australia
Australia
Australia
Australia
Australia
United Kingdom
Australia
Vietnam
USA
USA
USA
USA
Australia
Australia
Australia
Australia
Australia
Australia
Equity Interest
2018
2017
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%
100%
100%
100%
100%
Investment In Joint Venture
2018
’000
2017
’000
Investment in Aulong Shipbuilding Co Ltd Joint Venture
$
1,804
$
1,847
Total
$
1,804
$
1,847
Share of profit of joint venture
Share of profit / (loss) of joint venture
Total
2018
’000
2017
’000
$
(266)
$
(109)
$
(266)
$
(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.
116 Austal Limited | Annual Report 2018
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
KMP and the matters disclosed in this report.
Business Combination – ElectraWatch
i
Consideration transferred
Austal USA LLC acquired 100% interest of ElectraWatch Inc, a United States based aluminium
non-destructive testing technology company on 1 May 2018.
Cash
Contingent consideration
Total purchase consideration
’000
$
9,013
-
$
9,013
ii
Assets acquired and liabilities assumed at the date of acquisition
Acquisition-related costs amounting to $0.239 million have been excluded from the consideration
transferred and have been recognised as an expense in profit and loss, within the ‘Other expenses’ line item.
Current assets
Cash and cash equivalents
Trade receivables1
Other current assets
Non-current assets
Plant and equipment
Intangible assets
Total Assets
Non-current liabilities
Other long-term liabilities
Total Liabilities
Net Assets
’000
$
66
100
2
-
3,807
$
3,975
$
(7)
$
(7)
$
3,968
1. Trade receivable acquired with a gross contractual amount of $0.100 million was collected prior to year-end.
Austal Limited | ▮ Notes to the financial statements 117
iii
Goodwill arising on acquisition
The goodwill is attributable mainly to the patent technology of ElectraWatch and the synergies expected to
be achieved from integrating the company into Austal USA's advanced ship manufacturing. None of the
goodwill arising on this acquisition is expected to be deductible for tax purposes.
Consideration transferred
Less: fair value of identifiable net assets acquired
Establish deferred tax liability on other intangible assets
Goodwill arising on acquisition
iv
Net cash flow arising on acquisition
Consideration paid in cash
Less: cash and cash equivalent balances acquired
Net cash outflow arising on acquisition
’000
$
9,013
(3,968)
974
$
6,019
’000
$
9,013
(66)
$
8,947
v
Impact of acquisition on the results of the Group
ElectraWatch contributed $0.047 million to the consolidated profit for the 2 months from 1 May to
30 June 2018. The profit of the Group for FY2018 would have increased by $0.323 million if ElectraWatch
had been acquired on 1 July 2017.
KMP compensation
Short-term employee benefits
Post-employment benefits
Termination benefits
Long term benefits
Share-based payment
Total
2018
’000
2017
’000
$
4,613
$
3,560
203
-
55
1,069
173
95
101
755
$
5,940
$
4,684
Detailed remuneration disclosures are provided in the Remuneration Report commencing on page 31.
118 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
Share based payments
i
Rights issued and valuation
2,484,222 Performance Rights were issued during the year (FY2017: 3,103,111).
Balance at
Grant
30 June 2017
Issued
Exercised
Forfeited
/ Lapsed
Balance at
30 June 2018
Expiry date
FY2014
FY2015
FY2016
FY2017
FY2018
Total
249,669
474,715
759,212
3,060,132
-
-
-
-
-
2,484,222
(74,899)
(142,412)
-
-
-
(174,770)
(332,303)
-
(27,690)
(120,746)
-
-
759,212
3,032,442
2,363,476
30 Jun 2017
30 Jun 2017
30 Jun 2018
30 Jun 2019
30 Jun 2020
4,543,728
2,484,222
(217,311)
(655,509)
6,155,130
The board has the discretion to decide if Performance Rights will lapse or vest.
ii
Acquisition of KM Engineering (NT) Pty Ltd (KME) & Hydraulink (NT) Pty Ltd Option Plan
Austal Limited issued three tranches of options to the sellers of KME Engineering (NT) Pty Ltd & Hydraulink
(NT) Pty Ltd 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 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 3,702,000 shares at the reporting date on behalf of the AGMSP plans,
represented by:
295,000 shares allocated to current employees under Plan 2 with a weighted average price of $1.72
each, with no contractual life;
3,407,000 shares that are unallocated.
Austal Limited | ▮ Notes to the financial statements 119
1.
Plan 2
Plan 2 was established by the Company in FY2000.
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.
The shares must be sold and the loan (if any) repaid upon termination of employment or contract
arrangements.
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.
2.
Summary of movement
Details of the movement in the number of options issued under the AGMSP are shown below:
Summary of options granted under AGMSP
1 July
Exercised
30 June
2018
’000
2017
’000
4,016
4,016
(314)
-
3,702
4,016
iv
CEO fixed remuneration share rights issue
The structure of base remuneration for the CEO, David Singleton, for the period ended 30 June 2018 was:
Fixed cash remuneration is 70% of Total Fixed Remuneration (TFR).
Fixed share based remuneration equal to 30% of TFR.
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 to be part of his base remuneration. 178,340 share rights were earned for FY2018. 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.
120 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
v
Recognition - equity settled transactions
The Group provides benefits to employees (including executive Directors and KMP) 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 share rights
CFO share rights
NED share rights
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 the reporting 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 is also 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 and EST are classified and disclosed as Treasury Shares and
deducted from equity in Statement of Changes in Equity. For further information regarding Treasury Shares
refer to Note 6.
Austal Limited | ▮ Notes to the financial statements 121
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
$
(1,617)
$
(1,067)
2018
’000
2017
’000
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
Net Profit / (Loss) after tax
Total Comprehensive Income
2018
’000
2017
’000
$
22,051
$
42,860
312,779
292,440
$
334,830
$
335,300
$
(4,981)
$
(3,918)
(19,173)
(3,537)
$
(24,154)
$
(7,455)
$
310,676
$
327,845
$
118,330
$
116,384
3,977
10,656
29
177,684
2,561
10,656
(153)
198,397
$
310,676
$
327,845
$
(6,712)
$
(22,246)
(6,530)
(20,822)
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, Austal Philippines Pty Ltd and Austal Holdings
Vietnam Pty Ltd.
122 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
▮ Directors’ declaration
I state in accordance with a resolution of the Directors of Austal Limited, that:
In the opinion of the Directors:
The financial statements and notes of the consolidated entity are in accordance with the Corporations
Act 2001, including:
Giving a true and fair view of the consolidated entity’s financial position at 30 June 2018 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 2018.
John Rothwell AO
Chairman
on behalf of the Board
29 August 2018
Austal Limited | ▮ Directors’ declaration 123
▮ Independent audit report to the members of Austal
Limited
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Tower 2, Brookfield Place
123 St Georges Terrace
Perth WA 6000
GPO Box A46
Perth WA 6837 Australia
Tel: +61 8 9365 7000
Fax: +61 8 9365 7001
www.deloitte.com.au
Independent Auditor’s Report to the members of
Austal Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Austal Limited (the “Company”) and its subsidiaries (the
“Group”), which comprises the consolidated statement of financial position as at 30 June 2018, the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement
of changes in equity and the consolidated statement of cash flows for the year then ended, and 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:
(i)
giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its
financial performance for the year then ended; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
124 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
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 confirm that the independence declaration required by the Corporations Act 2001, which has been
given to the directors of the Company, would be in the same terms if given to the directors as at the
time of this auditor’s report.
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 judgement, were of most significance
in our audit of the financial report for the current period. These matters were addressed in the context
of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Austal Limited | ▮ Independent audit report to the members of Austal Limited 125
Key audit matter
How the scope of our audit responded
to the Key Audit Matter
Revenue recognition
As at 30 June 2018, construction revenues
totalling $1.38 million are recognised
based on the stage of completion as
disclosed in Note 4.
Construction revenue requires
management judgement due to the
number and type of estimation events over
the course of a contract life, the unique
nature of individual contract terms leading
to complex and judgemental revenue
recognition from contracts, including the:
Our audit procedures included, but were not
limited to:
Evaluating the design and operating
effectiveness of processes and controls
in respect of the underlying project costs
and the recognition of revenue from
contracts respectively, including:
o The contract acceptance process;
and
o The preparation, review and
authorisation of monthly project
reports for all significant
contracts.
Determination of stage of
completion;
Estimation of total contract revenue
and costs including the estimation
of cost contingencies;
Determination of contractual
entitlement and assessment of the
probability of customer approval of
variations and acceptance of
claims; and
Estimation of project completion
date.
On sample basis, testing contracts for
delay risk, contract percentage of
completion, history of contract issues,
significant unapproved variations or
claims;
Reading relevant agreements to
understand the key terms and
conditions, and confirming our
understanding of the agreement terms
with management;
Assessing the accuracy of the forecast
costs to complete based on:
o The costs incurred to date;
o Historical budgeting accuracy;
o Physical inspection of key vessels
using our internal engineering
specialists;
Inquiry of key project managers
and executives; and
o
o Review of correspondence with
customers.
Evaluating changes in profit margin on
material contracts from prior periods;
and
Assessing variations and claims including
review of correspondence with
customers concerning the merits and
status of those variations and claims.
We also assessed the appropriateness of the
disclosures in Note 4 to the financial
statements.
126 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
Taxation
The Group’s geographic operations
resulted in an income tax expense totalling
$17.8 million across two main jurisdictions,
being the USA and Australia for the year
ended 30 June 2018.
As disclosed in Note 23, the carrying value
of deferred tax assets recognised in
relation to the Group’s USA Research and
Development (R&D) credits as at
30 June 2018 was $21.7 million.
In addition, the Group continue to pay
additional tax in relation to intercompany
royalties between the USA and Australia
(refer Note 9).
Significant judgement is required to
assess:
The extent to which R&D credits
will be utilised; and
The remaining uncertainty in
relation to the outcome of the
Group’s objection to the Australian
Tax Office (ATO) audit position with
respect to the royalties.
Our audit procedures included, but were not
limited to:
Engaging our tax specialists to
assess the Group’s tax-related
balances and the underlying
assumptions and calculations
including, evaluating the available
R&D credits and utilisation profile;
Evaluating the latest Board approved
budget with management’s forecast
of future assessable profits and
testing on a sample basis the
forecast model for mathematical
accuracy;
Assessing the independence,
competence and objectivity of the
Group’s tax advisors and evaluating
correspondence between the Group
and those advisors; and
Testing the underlying accuracy of
the tax effect calculations.
We also assessed the appropriateness of the
disclosures in Note 9 and Note 23 to the
financial statements.
Other Information
The directors are responsible for the other information. The other information comprises the
information included in the 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 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.
Austal Limited | ▮ Independent audit report to the members of Austal Limited 127
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 ability of the Group
to continue as a going concern, disclosing, as applicable, matters related 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 has 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
judgement 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.
128 Austal Limited | Annual Report 2018
SHAREHOLDER INFORMATION
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.
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 with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period 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 Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in 31 to 50 of the Directors’ Report for the year
ended 30 June 2018.
In our opinion, the Remuneration Report of Austal Limited, for the year ended 30 June 2018, 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 Australi an Auditing Standards.
Deloitte Touche Tohmatsu
Tim Richards
Partner
Chartered Accountants
Perth, 29 August 2018
Austal Limited | ▮ Independent audit report to the members of Austal Limited 129
▮ Shareholder information
The following information was extracted from the Company’s register at 30 June 2018.
Distribution of shares
Individual shareholding
1 - 1000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Total
Number of
shares
% of Total
issued capital
Number of
holders
719,062
4,974,593
5,463,620
19,349,185
320,351,069
0.20%
1.42%
1.56%
5.52%
91.30%
350,857,529
100.00%
1,695
1,999
805
809
68
5,376
Twenty largest shareholders
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
Onyx (WA) Pty Ltd
BNP Paribas Nominees Pty Ltd
Zero Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
Austal Group Management Share Plan Pty Ltd
Mr William Robert Chambers
Mr Garry Heys & Mrs Dorothy Heys
Sandhurst Trustees Ltd
AMP Life Limited
Lavinia Shipping Limited
Mossisberg Pty Ltd
Citicorp Nominees Pty Ltd
ACE Property Holdings Pty Ltd
BNP Paribas Noms Pty Ltd
Kenny Nominees (NT) Pty Ltd
Total
Voting rights
Yes
Yes
Yes
Yes
Yes
116,239,193
52,636,106
44,929,159
32,807,692
22,217,132
6,600,000
5,970,849
4,509,486
4,356,354
3,702,002
3,150,000
2,844,670
2,716,807
2,240,347
1,991,000
1,937,000
1,142,607
1,110,000
733,963
670,783
33.13%
15.00%
12.81%
9.35%
6.33%
1.88%
1.70%
1.29%
1.24%
1.06%
0.90%
0.81%
0.77%
0.64%
0.57%
0.55%
0.33%
0.32%
0.21%
0.19%
312,505,150
89.08%
All ordinary shares issued by Austal Limited carry one vote per share without restriction.
130 Austal Limited | Annual Report 2018
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.
▮ Corporate directory
Directors
Executive Directors
Mr David Singleton
Non-Executive Directors
Mr John Rothwell
Mr Giles Everist
Mr Jim McDowell
Mrs Sarah Adam-Gedge
Auditor
Deloitte Touche Tohmatsu
Brookfield Place, Tower 2
123 St Georges Terrace
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
Link Market Services Limited
QV1 Building, Level 12
250 St Georges Terrace
Perth 6000
Western Australia
Telephone: +61 1300 554 474
ABN
73 009 250 266
Austal Limited | ▮ Corporate governance statement 131